FMC, Congress investigate ship capacity

FMC, Congress investigate ship capacity    The U.S. Federal Maritime Commission said Wednesday it has launched a fact-finding investigation into ocean vessel capacity and shipping equipment availability for U.S. exports and imports.
   The announcement came as FMC Chairman Richard Lidinsky and several shipper and carrier representatives testified to members of the House Subcommittee on Coast Guard and Maritime Transportation about the adequacy of vessel space to meet the needs of U.S. importers and exporters.

Lidinsky

   ‘Increasing our nation’s level of exports is critical to reducing our unsustainable trade deficits and to carrying our recovering economy forward,’ said Rep. Elijah E. Cummings, D-Md., chairman of the subcommittee ‘That said, if individual economic trends in the maritime industry do not support the increased carriage of products from the U.S. to destinations abroad, our nation’s ability to expand its exports may be threatened even if there is increased demand for such products.’
   ‘We are seriously concerned with the current situation, particularly with reports of U.S. exporters unable to obtain space,’ Lidinsky told the congressmen.

Cummings

   He noted there are signs of increased demand for cargo space by U.S. importers and exporters, which he said is ‘a good sign for the economy overall.’ In January and February, the ports of Los Angeles and Long Beach, the nation’s largest liner ports, saw liner exports increase 32 percent and imports increase 13 percent over the same 2009 period.
   Robert Sappio, senior vice president for APL, said in testimony that carriers were taken by surprise by the robust demand for space on ships. ‘I believe our customers were surprised too by the increase in activity,’ exceeded polls the company did of shippers. He said it was ‘not clear whether the recent spike in import demand reflects a long-term recovery or short-term restocking.’
   But several exporters and trade groups told the committee said they are having a tough time getting their goods to market.
   ‘Today the challenges facing exporters of all goods from the United States of America are enormous and in many cases impossible to overcome,’ said Chris Mullally, president of Mohawk Trading Co., Inc., an Albany, New York-based exporter of hides.
   He said industry-wide, about 48,000 containers, containing 31 million hides worth $2 billion, are exported annually from the United States, mostly through West Coast ports to buyers in China and other Asian countries.
   Hides are produced far from major cities and ports, and Mullally said ‘most ocean carriers today are no longer willing to provide the required empty ocean containers to the locations where they are needed and required by most agricultural exporters. Instead the ocean carriers have chosen to simply send them back empty by rail to the United States West Coast shipping ports where they are then put on the vessels still empty, in order to support the needs of foreign exporters mainly in the Asian markets for importing their finished goods to the United States.’
   But Lidinsky said the FMC, U.S. Department of Agriculture and transpacific carriers are discussing creation of an information system that would help shippers find carriers with empty equipment.
   ‘Even if we are able to secure the empty equipment in order to load our product, getting those containers to actually be loaded on board an ocean vessel has become a literal nightmare,’ Mullally said. ‘In 2009 this became a challenge but since late December 2009 and so far in the first quarter of 2010 this has become the single most difficult situation that I have ever faced as an exporter.’
   Instead of giving one week’s notice to book space, ‘in today’s shipping environment the minimum time required to reserve this same vessel space is now minimum four to six weeks in advance to popular foreign shipping ports and for some unpopular foreign shipping ports it can be even longer than this.’
   He also complained carriers are canceling reservations with ‘no concern whatsoever as to the possible consequences and damage it can cause an exporter.’
   Sappio said, ‘We acknowledge that in some cases U.S. exporters, including some APL customers, have been frustrated by the fact that they were unable to get space or equipment where they wanted it and when they wanted it.’
   He said his company has a policy to honor the bookings it takes, but he noted there are inevitable occasions where carrier must cancel bookings. He noted that the industry has a problem with shippers booking space but then fail to show up with cargo. He said historically 20 percent of export bookings are such ‘ghost bookings.’
   Problems facing exporters ‘can be addressed, but the solutions depend on a return to market stability, accurate forecasting, robust demand and sustainable compensatory rates for both imports and exports,’ Sappio said.
   2009 was ‘the worst year in liner shipping ever,’ he said. Imports were down 15 percent industry-wide for the year, while exports were down 0.5 percent.
   Sappio said export capacity on containerships is less than for imports for several reasons, including that export cargo generally weighs about twice as much as imported cargo: 21.3 metric tons per inbound 40-foot equivalent unit compared to 10.3 metric tons per outbound FEU on the transpacific.
   He also said there has been a sharp demand in recent years for space on containerships by exporters of agricultural goods that had traditionally moved in bulk ships.

Sappio

   Sappio said some owners of bulk ships have ‘pursued more lucrative business in foreign-to-foreign trades. For example, much of the global bulk transportation capacity redeployed carrying commodities from Brazil and Australia to China. APL and other container carriers have tried to help by providing exporters an alternative for moving a portion of their goods. As a result, there has been a dramatic increase in agricultural products carried in containers.
   ‘In short, the container carriers have offered a partial solution and are not the source of the problem,’ he said.
   Lidinsky said the Shipping Act of 1984, one of the principal laws the FMC is charged with administering, calls for the commission ‘to promote the growth and development of United States exports through competitive and efficient ocean transportation and by placing a greater reliance on the marketplace.’
   With President Obama directing agencies ‘to use every available federal resource’ to increase U.S. exports over the next five years, Lidinksy said the FMC is ‘doing its part to advance Congress’ and the president’s policies in this critical area.’
   Commissioner Rebecca F. Dye will lead the FMC investigation that Lidinsky said he believed would ‘shed valuable light on the shipping capacity issue and inform further action or policy improvements by the FMC and Congress.”
   Hayden Swofford, executive director of the Pacific Northwest Asia Shippers Association, whose 16 companies members exported and imported 16,250 FEUs in 2009, said container carriers are not adequately addressing U.S. commerce.
   ‘How much different would the current shipping environment be, regarding carrier/shipper relations and capacity circumstances if antitrust immunity was not part of the carriers business model?’ he asked.

Berzon

   Michael Berzon, chairman of Ocean Transportation Committee of the National Industrial Transportation League, the nation’s largest shipper organization, told the committee ‘an economic upturn has begun and, in order to compete in the global economy, companies must have adequate vessel capacity to get their goods to market timely and efficiently.’
   Limited antitrust immunity that carriers enjoy allows them to form discussion agreements such as the Transpacific Stabilization Agreement or Westbound Transpacific Stabilization Agreement.
   ‘Although any action taken as a result of collective discussions must be ‘voluntary,’ and not mandatory, one cannot always distinguish between the two,’ Berzon said. ‘In general, general rate increases and surcharges established by discussion agreements serve as benchmarks for service contract negotiations.’
   He added, ‘recent pricing practices of TSA members are straining the commercial relationships between shippers and carriers.’ According to anecdotal information from NIT League members, capacity reductions in the transpacific ‘have forced many shippers to pay TSA’s emergency charges in order to secure space for their cargo on the carriers vessels. Some importers have reported that their refusal to pay the emergency charges, even if based on protections against price increases contained in their contracts, resulted in their cargo being left on the docks or ‘rolled’ from confirmed vessel sailings to a later sailing.’
   Berzon said the NIT League strongly opposed an attempt last year by the TSA to obtain the right for its members to collectively manage vessel capacity through a proposed amendment to its agreement filed with the FMC. The FMC asked for more information and TSA subsequently dropped request.
   Berzon said the NIT League believes ‘continuation of limited antitrust immunity for ocean carriers remains a barrier to achieving an even more robust, competitive and efficient maritime industry.’
   Swofford also noted there is no significant participation of U.S. carriers in the transpacific market.
   Cummings said next week the subcommittee will hold a hearing to examine in more depth the state of the U.S.-flagged fleet. ‘ Chris Dupin