U.S. recognizes Danish laws in TCC reconstruction bid

U.S. recognizes Danish laws in TCC reconstruction bid    A failed startup container line and the financial administrators appointed to rebuild the company have won a key decision in U.S. federal bankruptcy court, the line said Tuesday.
   The Containership Co., which filed for 'reconstruction' in Denmark in April two years after beginning operations, said the U.S. government will recognize Danish bankruptcy laws as valid in the United States under Chapter 15 bankruptcy.
   That means TCC enjoys protection as a debtor in the United States, where it is seeking roughly $25 million in damages from shippers it claims failed to meet minimum quantity commitments (MQCs).
   In March, the company suspended the operation of its lone service — a transpacific U.S. West Coast 'no frills' loop. The line contends its failure rests squarely on its non-vessel-operating common carrier customers who didn't meet their MQCs.
   Franck Kayser, chief operations officer of the company, told American Shipper Tuesday that talks are progressing with the customers who failed to meet their MQCs, with some having agreed to settle. American Shipper reported in early May that TCC was seeking damages for the unmet MQCs. Kayser pegged the number at 83 shippers, representing nearly 100,000 TEUs of undelivered cargo.
   'A number of shippers have agreed to settlement, but a larger number have decided not to pay the claim,' he said. 'There have been discussions between the reconstructor and shippers on how to handle this.'
   The 'reconstructor' is an attorney appointed by the Copenhagen Maritime and Commercial Court whose role is to make management decisions to ensure that all of TCC's creditors are compensated as well as possible.
   Those that have agreed to settle have done so at 'around 100 percent' of the penalties they were due to pay for not meeting their MQCs as part of the contracts signed with TCC, Kayser said. He added the MQCs the line agreed to ranged from 300 TEUs to 10,000 TEUs, depending on the customer, with large and small customers alike not meeting their contracted requirements. He said cargo owners who contracted directly with TCC largely met their MQCs.
   'Shippers met their targets, or better,' he said.
   Many shippers in the transpacific trade commit to move a minimum quantity of cargo throughout a year in exchange for a volume discount, and if that volume is not met, the carrier is permitted to collect a payment, generally $250 per TEU in the transpacific, Kayser told American Shipper in May.
   He said the reconstructor is hopeful of convincing more TCC customers of settling rather than taking individual shippers or NVOs to court.
   TCC filed the motion to have Danish bankruptcy laws recognized in the United States 'in order to protect TCC's assets in the U.S.,' the line said. The line is being represented by the U.S. law firm Blank Rome in the proceedings.
   TCC is split into two units — the Denmark-based shipping line and a Norway-based asset management company. Only the Denmark-based liner business has gone into reconstruction. The Norway unit manages one owned 2,500-TEU geared vessel and five 3,000-TEU time-charter vessels.
   The larger issue is whether the reconstructor's drive to collect damage from unmet MQCs could affect the industry at large. Penalties for unfulfilled MQCs are often ignored by carriers, who want to avoid tension with customers — particularly ones on long-term contracts that do provide some measure of regular volume.
   The lure for shippers to agree to high MQCs is easy to see — the volume guarantees often come with lucrative rate discounts — especially if carriers are reluctant to enforce MQCs penalties for fear of ceding market share.
   TCC entered the market in April 2009 offering a basic port-to-port transpacific service that relied on little overbooking and its customers meeting their volume targets. When asked whether that model was unrealistic given the penchant for shippers and carriers to disregard key aspects of ocean freight contracts, Kayser said no.
   'I don't think it was unrealistic,' he said. 'We were in no way hiding the fact that a contract was a contract. We met our end of the bargain. But I don't think you can ever be na've by expecting people to keep their promises. We could have booked more cargo, but our business model was to honor our contracts. Contracts are contracts — to have a reasonable work environment where everyone is capable of delivering their best, you have to live up to your contract.'
   Kayser, a former executive with Maersk Line, said it's his understanding that carriers rarely pursue MQC penalties.
   'The information I've received is that it has been done, but it's not overly common,' he said. 'It's taken into next year's discussion. It's kept quiet. How much has been done in reality, I don't know.'
   TCC may have been exposed by a failure of their customers to meet their MQCs because of the line's size — it operated only five vessels when it filed for court protection in Denmark. Larger lines may not be so vulnerable in terms of cash flow, but Kayser said, 'it all boils down to making an agreement between A and B, so affects both large and small carriers at the end of the day.'
   Kayser said TCC management is keeping its options open, including potentially restarting operations, if it successful in collecting damages from shippers.
   'We have to take that decision when we know what the result is,' he said. 'It's not a definite no, but it is surely not a definite yes either. It depends on how the situation evolves. We're still discussing the lessons learned.' ' Eric Johnson