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American Shipper

Oberstar takes on liner reform

Oberstar takes on liner reform

House Transportation and Infrastructure chairman's goals include eliminating antitrust immunity.



By Eric Kulisch



      Rep. James Oberstar, chairman of the House Transportation and Infrastructure Committee, on June 10 outlined before a transportation-industry audience core planks he is likely to include in legislation to reform maritime shipping laws.

Oberstar

      Eliminating carrier antitrust immunity, tighter rules governing surcharges, creating a mechanism for resolving customer service disputes, equal access for third-party containers and penalties for bumping cargo from its scheduled vessel are among the priorities he listed for improving the way ocean carriers treat importers and exporters.

      U.S. exporters, and increasingly importers, have howled for months about the difficulty of obtaining space on container vessels as demand for their goods strengthened while carriers sidelined assets in a massive cost-cutting effort tied to lower import volumes. Shippers say they are often held hostage by carriers that force them to amend their service contracts and commit to higher rates, or pay emergency rate charges, in order to transport their cargo. Many also complain about the difficulty of getting ocean containers delivered to facilities in non-coastal areas, last-minute surcharges, and having containers held over until the next voyage because vessels are overbooked.

      In March, the Federal Maritime Commission launched a fact-finding investigation into the capacity issue. Congress has also held hearings on the subject. The renewed scrutiny is playing out against the backdrop of the Obama administration's directive to agencies to do everything possible to help double exports within five years.

      FMC Commissioner Rebecca Dye, who is heading the investigation, submitted preliminary findings June 15, and said they would be discussed in a closed meeting at the FMC on June 23. While the findings are confidential, the public may get some insight into the findings on June 30. That's when Rep. Elijah Cummings, D-Md., chairman of the Subcommittee on the Coast Guard and Maritime Transportation, said he would hold a follow-up hearing to one the subcommittee held on March 17 on whether vessel capacity meets U.S. import and export requirements.

      New shipping rules are needed 'if we're going to compete effectively in the international market,' Oberstar said in a June 10 speech at the National Industrial Transportation League's spring conference in Arlington, Va. 'The ocean carriers sold the world on just-in-time delivery of goods. But they haven't been living up to their sales pitch. So we need to increase competition in the industry.'

      The Minnesota Democrat has heard from many constituents impacted by the shortages of vessel space and equipment, including a retailer that imported sets of patio furniture for a Memorial Day sale but only received the umbrellas on time because the carrier bumped the containers with tables and chairs to the next available vessel.

      Oberstar said he wanted to end the anti-trust immunity included in the 1998 Ocean Shipping Reform Act that allows carriers within approved groups to share general economic data and discuss suggested guidelines for base rates, surcharges and services. Individual companies are then at liberty to adopt or modify the benchmark prices as they choose.

      The European Union two years ago abolished rate-setting shipping conferences. The conference structure was mostly eliminated in theUnited States by the Ocean Shipping Reform Act more than a decade ago. Carriers have since participated in so-called discussion agreements.

      Oberstar equated discussion agreements to international airline alliances, which he charged have allowed big airlines such as Delta, Air France-KLM, United, and Lufthansa to share capacity, marketing and revenue at the expense of competition. The House version of the Federal Aviation Administration authorization bill passed last year would sunset international airline alliances three years after enactment.

      'With full competition, there will be real marketplace improvements in pricing, delivery and service for both producers and consumers,' he said.

      The NIT League, which predominantly represents shippers, is among those supporting the elimination of limited antitrust immunity. Its members are concerned that the price they pay is not determined by the carrier's cost plus a reasonable return on investment.

      'They don't see a basis for continuing this extraordinary privilege, which quite frankly doesn't exist in any other industry,' Peter Gatti, the association's executive vice president, said on the sidelines of the conference.

      The current system limits choice, he added.

      'If everyone is charging the same price because of the discussion agreement's voluntary suggested price, then there's less incentive for the carrier to base its pricing on its own internal costs.

      'Everybody's cost can't be the same,' Gatti said.

      The Agriculture Transportation Coalition, which is dominated by exporters, is also a strong opponent of antitrust immunity for carriers.

      Executive Director Peter Friedmann said in a phone interview that the guidelines have the effect of stifling competition.

      'If the president's export initiative is to become a reality the carriers are going to have to compete and get to know what the exporter needs rather than sit together and impose uniform pricing and services,' he said.

      For years carriers maintained that immunity was necessary to help preserve the U.S.-flag industry, but Friedmann said that argument no longer holds because there are almost no U.S. carriers left that serve international routes.

      Oberstar acknowledged that there may be merit to preserving vessel sharing arrangements in some form to enhance service, 'but we have to be very careful that this is a very limited authority, otherwise it will just be an expansion of antitrust power and power in the marketplace.'

      The EU limits vessel sharing agreements to 30 percent of capacity in a trade lane 'and that may be a reasonable place to begin,' the chairman said.

      Carriers say the discussion agreements are necessary to better plan capacity and that the demise of the conference system has contributed to price volatility in the European market compared to the U.S. transpacific trade lane.

      Any new regulation of the ocean carrier industry must be done thoughtfully, Christopher Koch, president of the World Shipping Council, said in a presentation at the NIT League event.

      Ocean carriers, he noted, operate on routes without antitrust immunity and others in which they have such power. Koch said he was encouraged that Oberstar felt VSAs should be treated with care.

      Oberstar said he also wants to crack down on the practice of imposing surcharges at any time as a way to raise revenue outside the negotiated service contract. The proliferation of last-minute surcharges to allegedly offset a spate of unexpected operational costs makes it difficult for shippers to budget for transportation costs. They usually end up eating the extra fees themselves because trying to pass them on after retail prices are set could harm relations with customers.

      'So we have to clarify that authority on surcharges, that they have to do it in advance, they have to explain what it is, there has to be a process so that shippers and consumers will not be disadvantaged,' he said.

      Koch pointed out that there has been an explosion of surcharges in the European trade since carrier immunity was repealed and that rates have gone up much faster than in the U.S. market.

      Oberstar said the Shipping Act needs a dispute-resolution provision because the only remedy available to shippers seeking relief today is to go to court, which can be expensive and time consuming. He proposed that the FMC establish a customer advocate office and be empowered to quickly resolve disputes through binding arbitration.

      Exporters are also upset that carriers refuse to move containers controlled by shippers. The 17-term congressman said the practice is similar in the railroad industry where railroads charge a premium to move a private rail car.

      'I don't know how a carrier can say, 'we won't supply you a container at a reasonable price to move your goods and we won't move a container that somebody else owns.'

   'So we need network neutrality in ocean transportation so shippers can be confident their cargo will be moved by an ocean carrier-supplied container or a container supplied by a third party that meets internationally accepted container safety standards,' he said.

      The FMC also needs more power to prohibit the 'deceptive' practice of canceling bookings and rolling cargo to the next sailing, Oberstar said.

      He equated the situation to airlines overbooking seats and then bumping passengers when the plane is too full. Under the law governing the aviation sector, airlines must compensate customers who are delayed for that reason.

      Rep. John Mica, the ranking Republican on the Transportation and Infrastructure Committee, has questioned the need for any legislative solution and is urging industry groups to adjust business practices to deal with the supply issues for exporters. He told a gathering of industry representatives last month that the capacity crunch should ease as carriers slowly restore more ships to service and accept new builds in the coming months.

      One industry solution is for cargo owners and suppliers to set up a network of equipment pools where shippers can go to get containers in a timely fashion, Gatti suggested at the informal session.

      Capacity, equipment availability and service are issues that exist regardless of rate discussion immunity and are a function of market forces, Koch said, reiterating points made in his congressional testimony three months ago.

      Containers, for example, aren't readily available in the interior of the country because of the imbalance between imports and exports. Imports tend to be unloaded or transferred to distribution centers near ports. Others note that the use of containers instead of bulk ships to move substantial amounts of agricultural product is a relatively new phenomenon. And carriers are reluctant to accept shipper boxes for export because they lose revenue returning an empty container to the customer.

      Koch blamed rolled cargo on over bookings, saying some carriers have had bookings up to 120 percent of vessel capacity. Carrier executives have said they face the problem of many shippers booking space on ships and then not showing up with a container. Shippers respond that they have to book on multiple ships to guarantee that their cargo gets transported on schedule.

      The difference between ocean freight and passenger travel, Koch said, is that shippers don't pay for freight transport in advance.

      'If you penalize for rolling are you going to penalize for over booking?' he said.

      For continuing coverage, go to www.AmericanShipper.com.