The amendment to the ocean carrier alliance’s operating agreement establishes a monetary pool that could be drawn upon if any member carrier goes through an insolvency or significant financial distress.
The Federal Maritime Commission on Sept. 14 voted unanimously to authorize the members of the so-called THE Alliance to establish a contingency fund that could be used if any member carrier goes through an insolvency or financial distress.
THE Alliance consists of five container shipping lines: Hapag-Lloyd; “K” Line; MOL; NYK; and Yang Ming. Under the terms of the agreement, member carriers are permitted to share vessels, charter and exchange space on each other’s ships, and enter into cooperative working arrangements.
On Aug. 14, the members submitted an amendment to the FMC seeking the establishment of the contingency fund. Today’s action by the Commission grants the request. The amendment is effective immediately.
“THE Alliance sought this amendment to address marketplace issues and consumer concerns. This amendment reflects the market process in action,” Federal Maritime Commission Acting Chairman Michael Khouri explained.
In statement on the matter, Commission member Daniel B. Maffei said that Hanjin Shipping’s August 2016 bankruptcy filing was a wake-up call to many in the maritime industry.
“In the bankruptcy’s aftermath, one of the biggest challenges facing individual ocean carriers and ocean carrier alliances is how best to prepare and mitigate the impact of a future insolvency event should one occur,” he said. “THE Alliance members have addressed that challenge by filing the amendment.”
Through the amendment, Maffei said, THE Alliance members have “established a clear procedure” that would apply should a member become financially distressed or insolvent.
“They have established a contingency fund that will be available to ensure the continued movement of boxes should such an event occur,” Maffei explained. “While more steps and resources might be needed to effectively limit the collateral damage from another bankruptcy, THE Alliance should be commended for independently choosing to take this significant pro-active step.”
Maffei also said that there has been discussion on Capitol Hill regarding whether legislative action was necessary to protect the shipping public from the potential damage to the industry that could arise out of another Hanjin-type crisis, but that a solution within the industry would likely be preferable to adding any new requirement in legislation or regulation.
“I encourage other carriers and alliances in the industry to follow the positive example of THE Alliance in having a plan in place to limit the damage to both themselves and the shipping public in the event of another major financial event,” he said.
THE Alliance, announced in May 2016, was approved by the FMC last December. The cooperative was originally expected to include Hanjin Shipping before it filed for bankruptcy in its headquarters country of South Korea.
Hanjin’s bankruptcy managed to roil the entire industry, in large part because at the time, the shipper was a member of the CKYHE alliance, which also included China COSCO, “K” Line, Yang Ming Marine Transport Corp. and Evergreen Marine Corp. Over $14 billion worth of cargo was stranded at sea on 100 ships scattered around the globe after Hanjin filed for insolvency, according to FMC Commissioner William P. Doyle.
“Hanjin was carrying the cargo not only of Hanjin but of the other alliance members of CKYHE as well,” Doyle explained in a statement he made in August regarding THE Alliance’s contingency fund plan. “Everyone suffered in the ocean maritime transportation chain. So, it is essential that all take responsibility.”
FMC authorizes THE Alliance contingency fund
