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Container Freight Index and Derivatives Working Group Launched

May 12, 2011

NR 11-10

Contact: Karen V. Gregory, Secretary (202-523-5725)

Federal Maritime Commission Chairman Richard A. Lidinsky, Jr. today announced the formation of an internal Container Freight Index and Derivatives Working Group. The working group will gather information, research, analyze, consult with other government agencies, and advise the Commission on issues arising from the use of container freight rate indices in service contracts and index-based derivative transactions.

"Index-based ocean freight rates and derivatives have potential to be useful tools for shippers, intermediaries, and ocean carriers to increase rate certainty and manage risk," said Chairman Lidinsky. "It’s important that market participants have flexibility in structuring rates and hedging strategies. At the same time, I want to explore whether modest, common-sense standards are needed to ensure participants have adequate information and avoid manipulation."

Chairman Lidinsky requested that the working group begin by examining the following issues:

  • What potential statutory issues may arise as shipping lines and their customers use index-based rates? For example, what types of index-based rates satisfy the Shipping Act requirement that service contracts include "line-haul rates"?

  • Do freight rate indices comport with the current Commission requirement that outside terms referenced in a service contract be "contained in a publication widely available to the public and well-known within the industry"? Should the current regulations be modified to allow service contracts to reference an index that is readily available to the parties but not the general public?

  • Are safeguards needed to ensure that an index referenced in a service contract is verifiable and beyond the control of the parties to the contract?

  • Do various indices’ methodologies or structures raise concerns about transparency or potential manipulation?

  • After the Dodd-Frank Wall Street Reform and Consumer Protection Act takes effect, what U.S. and foreign regulations will govern proposed container freight index swaps that incorporate rates in U.S. trade lanes or involve U.S. counterparties?

The Container Freight Index and Derivatives Working Group will be chaired by Lowry A. Crook, Chairman Lidinsky’s Chief of Staff, and has the following members: Ronald D. Murphy, FMC Managing Director; Florence A. Carr, FMC Deputy Managing Director; Tanga S. FitzGibbon, Deputy Director, Bureau of Certification & Licensing; Roy J. Pearson, Deputy Director, Bureau of Trade Analysis; Gary G. Kardian, Director, Office of Service Contracts & Tariffs; Joseph R. (Randy) Johnson, Industry Economist, Bureau of Trade Analysis; Ernest L. Worden, Industry Economist, Bureau of Trade Analysis; Rebecca Fenneman, FMC General Counsel; Daniel S. Lee, Attorney-Advisor, Office of General Counsel.

The working group has been asked to provide an initial status report at the next Commission meeting on June 8, 2011

The Federal Maritime Commission is the federal agency responsible for regulating the nation’s international ocean transportation for the benefit of exporters, importers, and the American consumer.  The FMC’s mission is to foster a fair, efficient, and reliable international ocean transportation system while protecting the public from unfair and deceptive practices.