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Cordero Addresses World Shipping Summit 2016 in Shanghai

Posted
November 4, 2016

Good morning and thank you for the very kind invitation to join you this year.

It is an honor to speak at the World Shipping Summit: one of the world’s leading forums for our industry.

Periodically, something happens in the shipping world that makes the greater public take notice of the maritime sector and realize just how dependent life in the 21st Century is upon international trade delivered by maritime supply chains. This year—2016—was a year where events in the maritime sector were significant enough to repeatedly grab the attention of the broader public.

By any measure, the past ten months have been a period of significant change in our industry. We have seen significant merger, acquisition, and consolidation activity among the carriers since this past January. CMA-CGM purchased NOL/APL; Hapag Lloyd bought United Arab Shipping Company; and here in China, COSCO and China Shipping merged to form one line. On top of all of this, Hanjin Shipping exhausted all its options to restructure its debt and was forced into receivership, toppling a “top ten” carrier. As shippers and carriers scrambled to adjust to the consequences of Hanjin’s demise, the question on everyone’s minds was “who is next”. This week, we learned the three Japanese lines—MOL, K Line, and NYK—are going to form a joint venture. Any one of these developments in and of itself would have been impactful, but taken together, these represent generational changes that have the potential to significantly change the very structure of the shipping industry.

Carrier consolidation combined with capacity in the global container fleet far exceeding the needs of a slowing global economy necessitated the re-ordering of the carrier alliance system. The privileges lines are seeking in this new generation of partnerships are markedly different from the past, with shipping companies asking for permission to work more jointly. The four common characteristics sought in this second generation of alliances are: vessel sharing; operations centers; information sharing; and joint procurement.

Speaking frankly, global shippers are uneasy at best about the new alliances. Some shippers are suspicious of carrier motives and distrustful that the new alliance structures will be anything other than a framework for limiting service and raising rates. Many parties have been vocal in their reservations about the new alliances and they have been effective in their arguments before the Commission. Information sharing and joint procurement in particular are two areas where the Commission wants to move at a deliberative speed, carefully assessing whether increased sharing of information and purchasing power benefits or harms shippers and other parties.

That is why the Commission worked so hard on the OCEAN Alliance agreement. We needed to strike a balance between the concerns of the shipping public and giving carriers a path toward the efficiencies they seek and so obviously need. I fully believe the alliance structure can be mutually beneficial to carrier and shipper, and that it can also be the vehicle for addressing issues related to congestion, port efficiency, and even supply chain optimization. Done properly, alliances can be vehicles that deliver commercial and policy benefits. Done poorly, they will reinforce every bias of the most skeptical shippers.

At the end of the day, the issue that should concern all of us is how to cooperate to stabilize an industry that is critical to the world’s economy.

One important step each of us can take is to resist the temptation to point fingers and make accusations as to the industry’s woes. There is no one party or segment of the industry responsible for the overall worrisome state of the business today. What is more important to understand is that all of us pay the consequences when something goes wrong. Whether shipper, carrier, or regulator, it is in our collective best interests to determine what collaborative and innovative steps must be taken to guarantee a marketplace that benefits from a diversity of carriers.

Two key things shipping lines can do toward that goal, particularly in light of recent developments is to give shippers confidence they are doing business with solvent entities; and, to install safeguards to give shippers comfort that if there is ever another bankruptcy, things will be handled much more smoothly, particularly in the context of an alliance relationship. Here, I suggest incorporation of basic corporate responsibility on the part of carriers.

Alternately, shippers need to realize the obligation they have to accept conditions that allow carriers to exist to move cargo. Rates are not only unhealthy, they are unrealistic and unsustainable. Shipping lines are businesses and they are supposed to at least break even, if not make a profit. Simply put, rates are going to have to rise at some point. While the Commission is always vigilant against anything that might be considered anticompetitive behavior, it is important for shippers to recognize that not every rate hike is a case of gouging or carriers engaging in price fixing.

Before I close, allow me to address an issue that binds us together, and that is the mutually understood importance of international trade we share.

To each of us, the benefits of free, open international commerce are apparent; but to the general public, the gains of trade might be more intangible and difficult to recognize than we would like. For those who feel they are casualties of the economy, it is not surprising that global trade serves as the target for their blame. This narrative of victimization at the hands of global commerce is perhaps understandable, but is certainly incorrect.

This can be corrected by striving to level the playing field in order to assure that trade is a positive endeavor to both business and the citizens of the economies engaging in global commerce. It is incumbent upon each of us, as individuals who not only recognize the value of trade but rely on this business for our very livelihoods, to embrace our roles as leaders and become advocates for a system that benefits people far more than it harms them. While we can point with justifiable pride to the many very good jobs that trade creates on terminals, in distribution centers, and in the corporate functions that support the industry, we must also recognize that the positions directly linked to moving containers are only a small part of the overall labor pool. Additionally, we must acknowledge it is difficult to ask an out of work factory worker in the heartland of the United States to concede trade creates good jobs if the truck driver hauling a container from a terminal to a distribution center cannot make enough money to support his or her family. If trade is perceived by the average citizen to be an exploitative system, we are handing over fuel and matches to those who seek to indict international commerce as the cause for economic woes.

Trade is overwhelmingly beneficial. All of us have seen how countries who enter the trading system create opportunities and higher standards of living for their citizens. Free trade helps to keep inflation in check, adds to growth, improves economic efficiency, and spurs innovation. Perhaps most importantly, trade bridges distances and helps create stable, meaningful relationships between nations and people. We must tell this story repeatedly and forcefully.

Before arriving in Shanghai for this Summit, I was privileged to participate in the Danish Maritime Forum in Copenhagen. The major question that was considered and explored was how to prevent nations from retreating to isolationism, regionalism, and protectionism in response to domestic political pressures. This is a global phenomenon, not one limited to any nation in particular. Sustained, meaningful collaboration, cooperation, and advocacy that seeks to educate and convince skeptics about the benefits of interconnected economies is the only clear alternative to those around the world who argue a country’s citizens are better off going it alone.

The Federal Maritime Commission sees the very heart of its mission as assuring that conditions exist for trade to take place. All my fellow Commissioners welcome the opportunity to know what concerns you, how business is treating you, and if there is a way in which we can help you.

Feel free to call, e-mail, or write, and if you are in Washington, we welcome your visit. Working together and with an eye toward solving problems, I am confident we can continue to have a global intermodal network that is capable of handling the world’s trade.

Thank you.