Commissioner Cordero’s Remarks to NY/NJ Foreign Freight Forwarders & Brokers Association
Good afternoon, and thank you for inviting to speak with you. I’ll try to keep my remarks brief and shed some light on the work of the Commission and my own personal outlook on the state of the industry.
Last year was one of significant and historical changes to the container shipping industry, changes that fundamentally shifted many of the foundations of the business, and will have an influence on the sector for years to come.
In fact, the FMC’s focus for the next year is largely driven by the consequences of consolidation and congestion in the last three years. I will speak on Hanjin later, but I note that in some respects, the Hanjin bankruptcy was long anticipated, particularly given the poor economic performance ocean carriers have operated under for several consecutive years. The bankruptcy of the 6th largest container carrier was a manifestation of the perilous and unsound financial position ocean lines have found themselves in for the better part of a decade as a result of unsustainable rates and chronic overcapacity. A major development in the shipping industry is the significant consolidation among the carriers, from 20 to 13, a number driven by a wave of mergers and acquisitions. As a consequence of the contraction of the number of container shipping companies operating in the international trades, we witnessed the complete re-creation of the alliance structure. By the middle of 2017, carriers calling the United States will belong to one of three alliances: the 2-M, THE Alliance, or the OCEAN Alliance. Accordingly, the FMC must be diligent in monitoring these new alliances given the potential impact on our nation’s ports and the American shipper.
The FMC’s 2017 agenda will continue to include addressing port congestion and facilitating efficiencies in the supply chain. Last May, the Commission continued its efforts to address port congestion issues by launching the final phase in its congestion study endeavor, called the Supply Chain Innovation Teams Initiative. Ultimately, the teams agreed on creating a national portal providing timely, critical information about supply chain systems activities—an immediate way to increase efficiencies in international commerce and give the U.S. an economic competitive advantage. As many of you are aware, the industry is now partaking in substantive discussions on the interrelationship of transportation and logistics.
Of course, one of the effects of congestion is detention and demurrage. I would be remiss, then, not to acknowledge a petition filed with the FMC in late December. A diverse group of shippers collectively calling themselves the Coalition for Fair Port Practices filed a petition challenging fees that container lines and marine terminals impose for delays at United States ports. The group is asking the Commission to issue a rule or policy statement requiring container lines and terminals to extend free time for container storage or equipment use when ports are disrupted by events outside the control of shippers, truckers, and transport intermediaries, such as work slowdowns, carrier bankruptcies, or severe weather. The aforementioned events have left shippers with unforeseen costs—or some would argue, unreasonable costs—due, again, to factors beyond their control. Shippers argue that the terminals and carriers have inappropriately used these fees as a profit center, while terminals and carriers maintain that they should not be stuck with the majority of the resulting cost from congestion. As the comment period is pending, and the Commission has yet to consider the petition, I will refrain from further commentary. However, I do believe the Commission considers this request at a very important time when the FMC has determined to prioritize congestion issues and two years after releasing two studies: the first, titled “U.S. Port Congestion & Related International Supply Chain Issues: Causes, Consequences & Challenges”; and the second, “Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports”.
I now turn to some lessons learned from the last year.
As I said earlier, the Hanjin bankruptcy was an indication of the unfortunate financial position ocean lines have found themselves in for the better part of a decade. Hanjin itself experienced losses for four consecutive years and eventually filed for bankruptcy on August 31, 2016.
Hanjin’s bankruptcy sent waves through the supply chain as questions arose around Hanjin’s ability to meet its contractual obligations. This disruption occurred during the busiest shipping months of the year as retailers prepared for the holiday shopping season.
The FMC responded immediately in several ways. It used its authorities and its unique status among government agencies of having relationships with literally every sector involved in the movement of an international ocean container to lead all the concerned parties to commonsense solutions. FMC authorities include specific tools available to the FMC to prohibit discriminatory practices, and make information more widely available for consumers and workers. To place the relevance of these authorities into context, it should be noted that the vast majority of complaints the Commission received arising from the Hanjin Shipping bankruptcy were made by shippers who alleged that marine terminals were withholding cargo pending payment for which shippers were not responsible. The Commission also learned that certain carrier lines raised their rates significantly (practically overnight) after Hanjin Shipping declared bankruptcy.
The Commission’s CADRS Office became a conduit of information and a reliable and trustworthy aide in assisting shippers with locating their cargo. Further, due to the unique ocean transportation-focused backgrounds of the Chairman and each of the Commissioners, the FMC was able to acquire up-to-date information that could be used to facilitate solutions more quickly.
Certainly, no two disruptions are the same, but we were able to take away lessons that would serve as a useful resource during future shipping industry events. Undoubtedly, the most impactful action was the continuous engagement with stakeholders. Such outreach helped inform the FMC’s discussions with stakeholders and other federal agencies in several ways: the FMC could convey the urgency of the situation for U.S. supply chain stakeholders to the Republic of Korea; it allowed me, in my capacity as Chairman, to write to the head of Hanjin and urge him to find a proper location for abandoned containers; and it allowed us update stakeholders on the bankruptcy proceedings. The Commission received positive feedback from stakeholders around its engagement and ability to facilitate resolutions to on-the-ground issues.
I note that the industry has also learned from Hanjin, as we have received at least one agreement that contains a “Hanjin’ clause which accounts for the financial failures of alliance members going forward.
In the last year, developments in the liner shipping industry and the regulatory regime that governs it were addressed in several ways, including through participation in international forums and government-to-government exchanges. One important exercise was when I co-led the U.S. delegation to the U.S.-China Bilateral Maritime Consultations in Los Angeles in June. We met with Mr. Li Tianbi, Director-General of the Water-Transport Bureau at the Ministry of Transport. The consultations are organized by the Maritime Administration and the Chinese Ministry of Transportation and take place on an annual basis.
Among the topics discussed during the meetings were consolidation of shipping lines, realignment of carrier alliances, environmental improvements in the shipping industry, and achieving supply chain efficiencies.
During the two-day session, I led discussions on a number of key topics where the Federal Maritime Commission has jurisdiction or particular competence. Two developing matters related to China and shipping were the merger of China Ocean Shipping Company (COSCO) and China Shipping Container Lines; and, the significant change in shipping company alliances that has taken place as a result of other merger and acquisition activity in the broader container shipping industry. I took the opportunity to address ways in which the FMC is working to reduce port congestion, and how two different port alliance agreements filed at the Commission by the ports of Los Angeles and Long Beach and Seattle-Tacoma seek to improve efficiencies in those respective regions. We also had two very productive and informative, albeit difficult, discussions on two particular matters: China’s request that we remove COSCO from our controlled carrier list; and the mutual recognition of NVOCC bond riders, which might be the subject of discussions down the road. Finally, I reported to the Chinese delegation about changes to service contract filings the FMC was considering implementing.
This interaction is always valuable, but given what happened in the shipping industry last year, I welcomed the opportunity to clearly express the Commission’s commitment to a competitive ocean shipping marketplace. I look forward to working with these individuals in the future.
Lastly, in light of everything the industry has experienced recently, the Commission continues to consider ways that it can ease the burden on industry stakeholders. On April 18, 2015, the NCBFAA filed a petition requesting that the Commission initiate a rulemaking to: (1) revise its regulations to allow for NVOCC NRAs to include economic terms beyond rates and be modified at any time upon mutual agreement between NVOCC and a shipper; (2) delete the FMC regulation that precludes any amendment or modification of an NRA; and (3) either eliminate the filing and essential terms publications requirement of NSAs or eliminate part 531 in its entirety. In fact, at the time of the filing, the Commission had already initiated its own separate rulemaking to amend portions of Part 531 related to NSAs. Accordingly, the Commission granted the petition but indicated that it would delay initiating the requested rule-making until after the rule-making in Docket 16-05 had concluded. Because both rule-makings are technically pending, I am limited in what I can say. However, I note that the Commission certainly understood the concerns underlying the petition and takes them seriously, as is evidenced by the Commission’s own separate rule-makings. There were a number of commenters to 16-05, and I look forward to hearing more from the commenters as both rule-makings progress.
Container shipping and supply chain systems services are activities that take place invisibly, but are critical to the economic success and security of the United States. I am thankful to have served as Chairman during such a critical time, and I looked forward to working with all of you as a Commissioner.
Thank you for having me. Good evening.
Mario Cordero is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not necessarily represent the position of the Commission.