Commissioner William P. Doyle’s Prepared Remarks to the North Atlantic Ports Association

Prepared Remarks of FMC Commissioner William P. Doyle
for
North Atlantic Ports Association
Alexandria, VA
December 1, 2016

Thank you for inviting me to speak with you this year at your semi-annual meeting. There is so much good news coming out of the ports attached to the North Atlantic Ports Association – keep up the good work:

Last week two big announcements were made in Pennsylvania and Virginia:

• Pennsylvania announced a $300 million capital investment program for the Port of Philadelphia. The infrastructure investment includes new electric post-Panamax container cranes, relocation and new construction of warehouse facilities, deepening of the terminal’s berths to 45 feet, and modernized port electrification to support electric cranes and cold ironing. Once completed in 2020, the improvements will double container capacity, increase breakbulk and automobile-handling capacity, and increase employment at the port from 10,341 to 17,020. (Governor Tom Wolf, Philadelphia Regional Port Authority, announcement 11-22-2016).
• The Port of Virginia announced it entered into a $217 million contract for 86 rail-mounted Konecrane automated stacking cranes for its International Gateway and Norfolk International Terminals. By final delivery in 2020, the cranes and other investments will increase annual capacity at the Port by 1 million containers. (Governor Terry R. McAuliffe, announcement 11-21-2016).

In other good news over the past year:

• The Massachusetts Port Authority’s Conley Marine Terminal will be upgraded with an additional berth and three new cranes, while at the same time Boston Harbor will be dredged to accommodate 12,000-TEU (plus) vessels. Boston is experiencing double digit growth on both the import and export side this year. (U.S. Department of Transportation’s FASTLANE grant program ($42 million), along with funding from the Economic Development Bill ($109.5 million) signed by Governor Charlie Baker.)
• Portland, Maine has seen a boom and boon for its port and workers– seeing container traffic increase by more than 1300% since 2011. Significant investment by the state of Maine has helped Portland move forward. Portland has added a new crane, created space for the unloading and storage of containers, and installed plug-ins for refrigerated containers. The new Pan Am rail spur now connects the port with a 1,700-mile rail network. And, the Maine Port Authority awarded Americold the bid to construct a cold storage warehouse. (U.S. DOT FASTLANE grant program ($7.7 million), Governor Paul R. LePage statement 07-07-2016), Maine International Trade Center).
• In New York and New Jersey, work continues on raising the Bayonne Bridge’s clearance from 151 feet to 211 feet. The Port Authority reports that vehicles will begin using the new upper roadway deck by mid-2017 with larger ships being able to pass under the bridge by late 2017. Additionally, a $2.1 billion project to dredge the harbor to 50 feet was completed last month. Capacity and efficiency gains will also be made from a $1.6 million grant from MARAD to improve the Port’s barge program and to create the first-of-its-kind New York Harbor Crane Operators Training Center.

I am going to turn now to the regulatory oversight matters currently before the Federal Maritime Commission.

By the way, did you ever hear about Chapter 15 Bankruptcy before the Hanjin thing—me either!

THE Alliance

The Commission is currently reviewing an agreement styled as THE Alliance, consisting of Hapag-Lloyd, “K” Line, MOL, NYK and Yang Ming. I have serious concerns with proposed language in the agreement related to the joint contracting and purchasing power. As a commissioner, a main concern during the review process is that ocean carrier alliances could hurt domestic businesses by using their collective power to jointly negotiate and jointly procure services from suppliers like tug operators, barge services, bunker fuel suppliers, chassis providers, container equipment lessors, feeder services and/or marine terminal and stevedoring services.

Concerns about joint contracting have also been raised by industry groups and the Department of Justice’s Antitrust Division.

I have expressed these concerns in person with the principals of THE Alliance, and I am confident that the parties will submit the appropriate substitute language to alleviate these concerns. It would not be fair to grant ocean carriers the ability to jointly contract and procure services while the domestic service providers cannot negotiate collectively. This would bring THE Alliance into parity with the 2M and Ocean Alliance agreements.

It is noteworthy to point out that THE Alliance was filed in the wake of the Hanjin bankruptcy. Hanjin’s bankruptcy has disrupted the entire international maritime supply chain. It was a disaster. I am an advocate (and have advocated) of the alliance members providing safeguards in the event of future liner bankruptcies. Having said that, for the first time we are seeing an alliance agreement attempt to make forward projections on ways in which to deal with a failed carrier in an Alliance – or – more importantly, how the non-failing carriers can help the failed carrier’s shippers and other customers. This is great news—it is better to have a commercial solution, and the private sector develop a catastrophic funding instrument. In the end, the shippers may require something like this anyway.

In the publicly filed proposed vessel sharing agreement THE Alliance, the parties have included what I call framework language in Section 7.4 that would allow the remaining (i.e., non-bankrupt) parties to:

• Make arrangements directly with entities providing vessels/space to the Affected Party that are used by the Alliance,
• Make arrangements directly with agents or subcontractors of the Affected Party,
• Take other actions to facilitate the movement or cargo carried by the Affected Party to the intended port of discharge or other locations,
• Discuss and agree on other measures that are necessary to maintain continuity of operations and facilitate the orderly movement of cargo.

I have had direct discussions with principals of THE Alliance on this particular provision. Though the details have not been completely worked out, the intent in part is to set-up a per se catastrophic instrument that could be used when an individual member liner fails in the network.

Thus, in theory, if a funding mechanism were to be set up, then funds could be used to pay operational expenses to bring ships into port and unload containers to ensure that cargo is not stranded on the water — these are my words.

As I said, these details are still being worked out by the parties – but the placeholder language is in the proposed agreement that was filed with the Commission on November 10, 2016.

MTO and Port Alliances

Since the Ocean Alliance is allowed to jointly negotiate as an alliance with marine terminals who agree to do so, some marine terminal operators and port authorities may want to explore options for entering into their own alliances where they could jointly negotiate terms and conditions with the ocean carriers.

In 2015, the ports of Seattle and Tacoma began to synergize their activities under the umbrella of the Northwest Seaport Alliance. This Seaport Alliance covers activities including negotiating, setting and approving all terminal rates, charges, rules and regulations, and rates of return between the terminals (internally).

More recently, on November 16, 2016, (and post effective date of the Ocean Alliance) an agreement was filed with the Commission styled the Miami Marine Terminal Conference Agreement. This agreement is now under review by the FMC.

Interestingly, proposed clause 5.1 contains conference/rate-setting authority to discuss and agree on matters of rates, charges, rules, and regulations through “joint or individual marine terminal operator…agreements with…ocean common carriers…” Further, proposed clause 5.3 also would authorize the Parties to meet individually or as a group with “one or more users (including…ocean common carriers…)…to discuss any matters set forth in Articles 5.1 and 5.2.”.

While not the sole focus of the Agreement clauses 5.1 and 5.3 in combination would appear to allow the terminals to jointly meet with a group of ocean common carriers (like an alliance grouping) and come to a joint agreement for services.

William P. Doyle is a Commissioner with the U.S. Federal Maritime Commission, which among other things regulates liner companies, ocean transportation intermediaries and marine terminal operators. The thoughts and comments he expresses here are his own and should not be construed to represent the position of the Commission or his fellow Commissioners.