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American ShipperIntermodal

Ocean liner cohesion on VGM could crack soon, AgTC chief claims

Peter Friedmann accused container lines of bungling the International Maritime Organization’s new container weight verification requirement, and said some now realize they face high internal costs unless they offer a more flexible approach.

   A couple ocean carriers could soon break ranks with the container shipping industry’s implementation of a new international safety mandate for obtaining verified container weights and offer alternatives to the two primary compliance methods promulgated so far, predicts a leading opponent of the process.
   The World Shipping Council and the Ocean Carrier Equipment Management Association (OCEMA), speaking on behalf of ocean carriers, have insisted for months that shippers provide the gross weight of the container in advance of vessel loading, rather than having themselves add the weight of the carrier-supplied container and the shipper-supplied cargo contents.
   Peter Friedmann, executive director of the Agriculture Transportation Coalition, has coined this latter approach the “rational method” and says presidents for North America at two container lines have privately stated willingness to adopt it because the process driven by the World Shipping Council imposes on them significant, unintended costs.
   These carrier executives “have told us they fully understand that these OCEMA best practices, the rigid methodologies, are ridiculous, unnecessary and costly,” he said in a keynote address to the Virginia Maritime Association’s annual conference in Norfolk.
   The trade association is hopeful that these carriers will do what’s in their own best interest, “maybe because an exporter champion account is going to insist on it,” he added.
   Such a move would follow the recent lead of several U.S. ports in veering from marine terminal industry-consensus that containers arriving for export not be accepted unless the certified weight is already on file.
   Many shippers have objected to the liner industry’s insistence they provide and certify an accurate gross weight of the container and its contents, saying it imposes unnecessary direct, and indirect, costs on them and that they shouldn’t be responsible for providing the weight of a storage unit they neither own or control. The International Maritime Organization in 2014 adopted an amendment to the Safety of Life at Sea (SOLAS) convention requiring carriers not to transport containers without the verified gross mass (VGM), and put the onus on shippers to electronically provide the data – either by weighing the loaded box on an industrial scale or summing the weight of the contents and the weight of the empty box. Often overlooked in the fine print, however, is the caveat that carriers and terminals may obtain the verified weight through other means.
   The rule is effective July 1 and few in the supply chain appear ready so far.
   Six East Coast and Gulf ports this month agreed to develop a common approach for weighing export loads on truck scales at their gates and transmitting the data to vessel operators for load planning. The joint decision followed the U.S. Coast Guard’s endorsement of the existing U.S. regulatory regime for checking export loads at ports as equivalent to the SOLAS requirement.
   OCEMA has acquiesced to the industry push back and agreed to work with the ports on a standard VGM process.
   However, the “rational method” could also eliminate the need for ports to provide the weighing service.
   Friedmann said carriers who offer this type of flexibility could attract business.
   “I think the carriers who do that are going to start seeing some cargo coming to them,” much like ports that accept loads without VGM data could gain traffic, he said.
   During a panel discussion at the conference, STIHL Inc.’s logistics manager for exports, R Murray Bishop, said the outdoor products manufacturer would divert cargo to ports that are “VGM friendly.” 
   Potential compliance costs faced by shippers, depending on which method they choose, include purchasing scales for their own facilities, paying fees to use third-party scales, software upgrades for creating new data fields and transmitting data, and delays for shipments that don’t meet whatever cut-off times carriers assign for submitting the VGM before cargo arrival.
   Setting up electronic data interchange connections between business partners is expensive and requires ongoing human resources to repopulate data when problems crop up, Friedmann said, noting that there are least three points in the port delivery process where data will need to change hands.
   However, according to OCEMA best practice guidelines issued in March, shippers can also submit data through electronic freight portals such as INTTRA, GT Nexus and CargoSmart, or via the carrier’s own electronic portal.
   “There is nobody enforcing this other the ocean carrier group. So when one ocean carrier breaks out for a shipper customer then we’re going to be away from the uniformity and we’re going to be into something that can serve both interests,” Friedmann elaborated in an interview. “Keep in mind that the sheriff and the judge on this issue [the Coast Guard] has said current practices are in compliance. So that should be the objective before we rush to invest, what collectively will be, millions of dollars.”
   “That would benefit the shipper, and it will benefit the carriers,” Friedmann said. “And, I think the carriers are starting to wake up because in this economic environment the carriers are not going to be able to impose surcharges or additional charges on shippers. The leverage is not in favor of the ocean carriers, with all the overcapacity out there right now and where freight rates are.”
   Plus, many observers have noted, carriers are also not in a position to turn away freight missing some technical documentation because they need every TEU possible to fill up mega-size vessels now being deployed.
   International container lines collectively have hemorrhaged billions of dollars in the past six years and continue to struggle making a profit. Friedmann said it would have behooved vessel operators, whom he accused of pushing the rule change to shift liability associated with overweight containers onto shippers for insurance purposes, to include customers in designing the process.
   “It is really brain dead to impose additional costs on the supply chain regardless of who is going to pay for it because nobody is making money. So you put in a new cost, somebody is going to absorb it,” Friedmann said in his speech.
   And that somebody isn’t going to be exporters, who traditionally operate on slim margins in the face of stiff overseas competition and are now experiencing even stronger headwinds in the form of a strong dollar and weak demand in foreign markets, the Washington-based trade attorney said.
   “Do you think the exporter is going to say,‘Oh, we’ll absorb that?’ Or do you think the exporter is going to say, ‘Listen carriers, you are trying to impose these additional costs on me of maybe $100, $150 a box. Guess what? We’re negotiating a service contract and we’re taking that off the contract rate,” Friedmann said.
   One reason for the liner industry’s unwillingness to change its position until recently is that carriers agreed among themselves to develop IT systems to receive one data input – not two.
   However, some carriers are having second thoughts because their own internal costs for compliance, including manpower, servers and other equipment, are mounting, Friedmann insisted.
   “These are internal costs that I don’t think the carriers fully appreciated they were going to be imposing on themselves when they developed this new scheme – much less, the impact of supply chain disruption, boxes not making the sailings, having to reconfigure manifests. That’s another internal cost that the carriers have imposed on themselves with this,” he told American Shipper.
   “We want to open up the process so carriers and customers can develop their own methodology however they see fit – so don’t build your system just to comply with a rigid protocol that’s costly to the shipper, carrier and terminal,” he said in his public remarks.
   Asked to comment, OCEMA Executive Director Jeff Lawrence said the process would break down if every company was left to its own devices on VGM.
   OCEMA exists to coordinate intermodal and over-the-road equipment interchanges and transportation among 19 ocean carriers engaged in international trade.
   “OCEMA after several months of study by a highly qualified technical group representing nine carriers, put out a proposed best practice for the submission of VGM. The best practice is a voluntary guideline,” Lawrence said. “The reason carriers have been following the OCEMA best practice is because, thus far, it is the only practical solution to deal with the realities of dozens of carriers serving more than 30 ports and terminals in the United States receiving millions of VGM reports, often shortly before vessel cutoff.”
   “The best practice is flexible and gives shippers lots of options for submitting VGM, but it provides a system that will allow the supply chain to operate smoothly, for cargoes to be loaded on vessels in a timely fashion and for terminals to avoid congestion,” Lawrence said.
   “What we have been hearing from the AgTC we have listened to carefully and taken those suggestions into account in the best practices. However, what we cannot have, which is not good for any shipper, is a do-it-yourself VGM system where thousands of shippers each decide what format they use – and what will be included in the VGM or not,” Lawrence added. “This will lead to endless delays and VGM submissions that will be virtually impossible to use without individual investigation of each and every one.
   “That is the defect in what Mr. Friedmann has been advocating. Which is to say, ad hoc solutions rather than some common framework to keep cargoes moving,” Lawrence said.
   In addition, Lawrence noted that the recent issuance of the Coast Guard’s equivalency declaration has opened up some new options that may simplify the VGM submission process, although he stressed that there is no agreement in place yet with the six ports, just authorization from the Federal Maritime Commission to proceed with discussions under anti-trust immunity.
   As previously reported, he said OCEMA is also engaged in discussions with terminals at other major ports to explore ways to achieve greater efficiency in the VGM process. “The objective of these discussions is to create a system where existing gate processes would be used to generate container weights, similar to IMO Method 1, while still preserving the option for shippers that wish to submit VGM individually, to do so,” Lawrence said.
   “Having said that, until definitive agreements are reached with any port or terminal, the OCEMA best practice still presents the only, viable means for system submission of VGM given the short time left before July 1, and notwithstanding the recent IMO statement,” Lawrence said. “I would urge all shippers to work with their carriers to prepare for the submission of VGM by the July 1 effective date.
   “But the likelihood of our being able to achieve a universal solution is a long shot right now. We’re going to give it our best effort. But the time is short,” he added.
   The AgTC chief ridiculed the SOLAS weight rule, saying it was analogous to a railroad asking its customer to provide the weight of giant rail cars, and certify the weight, to make sure it conforms to weight limits.
    “This railcar belongs to the railroad. Why would the railroad insist that the soybean grower certify to the railroad the weight of the railcar? It would make no sense. The railroads wouldn’t do that,” Friedmann said.
   And providing the VGM is problematic for transload operations where railroad hopper cars full of grain, or trucks with 53-foot trailers full of temperature-controlled meat or produce, arrive at facilities near ports, followed by the quick transfer of the contents into 40-foot containers, which are then trucked to the terminal to make the next vessel.
   “Under this cockamamie scheme, you’d have to have someone get off his forklift, get on a computer, look up the weight of this container, or try to read the weight the manufacturer put on there seven years ago – if it hasn’t worn off –  and then certify what the container weighs along with the cargo weight, and then send it by EDI to the ocean carrier,” said Friedmann, who questioned whether there was enough time for shippers to supply the required measurement data and get the cargo on the departing vessel.
   “If it doesn’t go through fast enough, then you miss the cargo cut and you miss the sailing. And if you’re selling a chilled beef or pork product, then you can turn it [the refrigerated unit] down to frozen, but you lose 75 percent of the value of the product,” Friedmann lamented.
   He blasted the leadership of the WSC and OCEMA for being ignorant about the operational realities of international trade and logistics.
   The AgTC raised the realities of the container weight mandate with World Shipping Council President John Butler “and he didn’t know what EDI stood for. And then we talked about transloading. We had to explain to him what transloading is and how it works.
   “If you have people who don’t understand the supply chain, you’re going to have a problem,” Friedmann said.
   Reached on his mobile phone, Butler would only say that “Mr. Friedmann is mistaken” about the nature of discussions between the trade associations, suggesting that any further comment would not help the sides work out the best compliance solution for the freight industry.
   “I don’t know how Peter Friedmann would have any idea of what either John Butler or I know,” Lawrence said. “We are guided by our members who are highly qualified and very involved in this. OCEMA is an operational group and we’ve been doing this for more than 20 years.”
   “I think it’s really unfortunate when people representing important players in the supply chain approach complex operational issues with ad hominem attacks instead of dealing with the substance of the issues,” Lawrence said. “We prefer to have the discussion conducted on a respectful and professional level, and we will continue to do so.”
   Individual carriers need to reject the herd mentality that has resulted adherence to a monolithic SOLAS method, the building of 18,000-TEU vessels and competing on the same base trade routes – to their economic detriment, Friedmann advised.
   Doing something because everyone is doing it is not a good business plan, he suggested.
   “The last time I used that argument was in 7th grade and my parents were asking me about my wacky hairstyle,” Friedmann said.

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