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Chairman Cordero Addresses Pulse of the Ports Peak Season Forecast Conference

April 2, 2014

Good morning and thank you for this opportunity to speak at the 10th Annual Pulse of the Ports Peak Season Forecast Conference here in Long Beach. I have been asked to speak to the future of ocean carrier vessel sharing agreements. Please note my comments today are my personal comments and do not necessarily reflect the views of the FMC.

As evidenced by recent agreement filings establishing global operational networks through vessel sharing alliances such as the P3 and the G6, it is clear that the container shipping industry is undergoing a shift that will affect all phases of supply chain logistics.

Increasing concerns for the global environment and rapid improvements in technology have lead to the introduction of larger and more fuel efficient container vessels capable of delivering environmental and slot-cost efficiencies that were unheard of ten years ago. These efficiencies, however, come at a price; the amount of cargo required to fill these vessels may necessitate certain operational cooperation, or namely alliances. As a result, we have seen the filing of these types of operational agreements on a larger scale and scope, such as P3, with the Commission seeking limited antitrust immunity.

Limited anti-trust immunity has long been provided to certain members of the ocean shipping industry. The purpose of this immunity has been to ensure a stable and dependable ocean transportation network allowing for the United States’ vigorous participation in vital international trade. Under section 6(g) of the Shipping Act, the Federal Maritime Commission has the responsibility of reviewing any filed agreements to determine if they are likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost. Historically, carriers have taken advantage of this immunity by filing agreements that would allow them to discuss and agree on ocean rates. Over the past ten years, however, carriers have been entering into many more operational agreements involving the sharing of vessels or vessel space.

These operational agreements filed with the FMC come in a variety of forms. At their simplest, one carrier might file an agreement that allows it to charter space from another carrier on an existing service, either in exchange for slots or payment. Perhaps two carriers might agree to introduce a new service string cooperatively, reducing the risk for either carrier individually. These examples represent operational agreements that have few, if any, negative competitive effects; they allow for carriers to expand the services being offered to shippers with the objective of cost savings.

However, other operational agreements may ultimately mean less capacity in a market and fewer calls by vessels at U.S. Ports. These agreements can apply to a single trade or across the globe, and may range from a few weeks in duration to decades or more. All of these factors are taken into account when the Commission is reviewing the likely competitive impact of these agreements, and ultimately, will inform the Commission's determination as to whether an agreement is likely to result in an unreasonable increase in transportation cost or an unreasonable decrease in transportation service.

In the case of these global alliances, we must balance the potential benefits of the cost savings and environmental efficiencies that come from the coordinated deployment of newer, larger vessels with the potential harm that could come from a concentration of decision-making power in terms of port coverage, sailing schedules, and necessary capacity in the appropriate trade lanes. This is particularly relevant as we prepare for the upcoming peak season, when adequate capacity, particularly in the vital trans-Pacific trade lane, is of utmost importance.

In reviewing the competitive impact of a global alliance, we examine the changes in capacity that would result from the re-alignment of previously independently operated service strings, and how those capacity changes might affect shippers given current market conditions. But our primary question is: Given this cooperation among competing entities, will the market remain competitive? The answers to these questions may not be clear in the short term.

Overall, it is clear that in the container shipping market, the answer preliminarily is yes. Particularly in the trans-Pacific, there remain enough competing carriers, even with the arrival of the P3 and the proposed G6 alliances, that unilateral actions to restrict capacity during the peak season, an activity which could directly increase rates, seems remote. We note that, even within the P3 and the proposed G6 alliances, carriers are free to pursue their own growth strategies and introduce new capacity if rates are sufficiently beneficial. These factors and the prospect of continued overcapacity well into 2015 paint a picture of a vigorously competitive liner market for U.S. importers shippers.

We do note, however, that market conditions are subject to change, and I remind everyone that unlike other regulatory agencies, the FMC can make a determination that an agreement poses no immediate threat to the ocean transportation industry when it is filed, and still take steps to monitor the behavior of the parties to that agreement, and its impact on the industry on an ongoing basis. The Commission has the ability to implement special reporting requirements when we have specific competitive concerns, as recently applied to the members of the P3 Alliance. The Commission can also seek to enjoin an agreement at any point if it is found to have produced substantially anticompetitive effects.

The Commission prides itself on our ability to stay connected to our constituents and to address any concerns that arise quickly and efficiently. The container transportation industry continues to change and evolve every day, and we are constantly working to stay abreast of these developments and to take them into account as we work towards a fair, efficient and reliable international ocean transportation system, and to protect the public from unfair and deceptive practices.

Thank you again for allowing the opportunity to address you here today.