Commissioner William P. Doyle gives remarks before the World Trade Association of Philadelphia
November 13, 2014
The Honorable William P. Doyle
Commissioner, U.S. Federal Maritime Commission
The World Trade Association of Philadelphia
November 7, 2014
Good afternoon World Trade Association of Philadelphia.
Thank you Dominic O’Brien for the introduction and thanks WTA President Clayton Manthrope.
Thank you Western Fumigation for being a sponsor for today’s event. Western, like many of you in the room, is a responsible corporate citizen—supporter of important charities like the Seamen’s Church Institute of Philadelphia & South Jersey.
Thank you Reverend Peter Stubb, Dennis Rochford (President, Maritime Exchange), Sean Mahoney (Philadelphia Regional Port Authority) Deborah Ingravallo (PRPA)—thank you all.
I am William Doyle, a Commissioner of the U.S. Federal Maritime Commission. And it is so good to be here with you today in Philadelphia.
This region of the Delaware River is in great shape. In my view you have so much economic activity to look forward to—meaning opportunities for business development, job retention and job creation.
But first, I say it is so good to be here today because this area is a place that I have come to know fairly well throughout my career.
When I was an Officer in the U.S. Merchant Marine, I worked as an engineer on commercial tankers and container ships that called on the marine terminals in this region.
I sailed on MORMAC Marine tankships that visited Marcus Hook and also served aboard Navieras (Puerto Rico Marine/Holt Family) vessels that called on the Packer Avenue Marine Terminal.
In addition, as a lawyer, I spent a significant amount of time over the years running between Washington, DC – NY – and Philadelphia in support of the Aker Philadelphia shipyard and its Matson Navigation and OSG new-build programs.
I want to congratulate the folks with the Philadelphia Regional Port Authority for all their hard work in developing new business opportunities and jobs.
You have keyed-in on the South America trade (and soon Mexico). You have partnered with Ship Philly First to promote Philadelphia’s ports and have worked diligently with the ILA to ensure jobs are not only preserved but expanded.
Congratulations on securing Brazilian company Fibria Cellulose as a customer to Tioga Marine Terminal. Keep up the good work.
Alliances and Vessel Sharing Agreements
My agency, the Federal Maritime Commission (FMC) has been very busy over the past two years with respect to carriers and ports.
The FMC is the agency responsible for reviewing and then monitoring the activities of carrier alliances.
The international carrier world is rapidly changing. There are four major carrier alliances per se that are operating or are soon expected to be operating. And, ports are looking to achieve efficiencies through synergizing in geographic locations.
The alliances involving carriers are covered by FMC vessel sharing agreements (VSA), and are therefore subject to the regulatory authority of the Federal Maritime Commission.
The FMC is responsible for reviewing all agreements prior to their implementation and may seek to enjoin any agreements that are substantially anticompetitive.
The Commission’s standard of review takes into consideration whether such an agreement would produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost by the reduction in competition.
In reviewing vessel sharing alliances we at the Commission do engage with the carriers from the outset of their filing and throughout the lifetime of the VSA.
For instance, if the parties to a VSA restrict the ability of a carrier to provide services outside of a vessel sharing agreement, the FMC imposes strict reporting requirements to monitor competitive impacts.
By way of example, the recently approved 2M Alliance did not cover port rotations through Philadelphia and Boston—but nonetheless, thereafter approval, MSC announced that it would continue its direct services to these ports.
I will do a quick review of the Alliances or VSAs:
The CKYHE Alliance is currently before the Commission. The CKYHE consists of COSCO, K Line, Yang Ming, and Hanjin, and it recently added Evergreen.
The Ocean Three Alliance recently cleared the FMC’s low market threshold parameter. Ocean Three consists of CMA-CGM, China Shipping Container Line (CSCL) and United Arab Shipping Company (UASC). The Ocean Three does not cover the TransAtlantic trade.
2M Vessel Sharing Agreement consists of Maersk Line and Mediterranean Shipping Company (MSC). The Commission allowed 2M to move forward last month.
The G-6 Alliance expanded its fleet and geographical scope earlier this year. The G-6 consists of American President Lines, Ltd. (APL), Hapag-Lloyd Aktiengesellschaft (Hapag-Lloyd), Hyundai Merchant Marine Company (Hyundai), Mitsui O.S.K. Lines (MOL), Nippon Yusen Kaisha (NYK), and Orient Overseas Container Line Limited (OOCL).
The aforementioned vessel sharing agreements are the major alliances per se.
But like I said, the carriers individually or through other agreements have the opportunity in most cases to provide additional services and compete with each other.
Let’s take a closer look and identify the relationship to Philadelphia—
It was announced over the past three weeks that Hamburg Sud, Hapag-Lloyd, CSAV, NYK Line and Yang Ming are creating a single weekly loop to consolidate their US east coast-east coast South America volumes (Brazil and Argentina)—the port of Philadelphia is included in this rotation. In fact, on October 17, 2014, the vessel MONTE ROSA operated by Hamburg Sud, made its first call to the Packer Avenue Marine Terminal. Hapag and NYK Line are parties to the G-6 Alliance, while Yang Ming is a party to the CYKHE Alliance.
Next month, Philadelphia is expected to increase capacity with the addition of MOL’s call to the port as part of the America’s Coast West (ACW/AES/LUE) service. This service is jointly operated by MOL, APL and Hyundai (HMM). Direct weekly coverage is expected between the West Coast South America and the United States East Coast for seasonal refrigerated cargo discharging at Packer Avenue Marine Terminal (Valparaiso – Callao – Buenaventura – Balboa, Panama – Manzanillo – Jacksonville – New York – Philadelphia – Charleston – Miami – Manzanillo - Balboa, Panama – Buenaventura – Callao – Valparaiso).
In May of this year, the FMC cleared a service that includes Maersk chartering space on MSC vessels connecting the U.S. East Coast with the West Coast of South America via the existing Panama Canal; it’s the Philadelphia to Philadelphia service – that’s what I call it. (Maersk is offering the following rotation: Philadelphia (PA), Newark (NJ), Charleston (SC), Kingston (Jamaica), Balboa (Panama), Buenaventura (Columbia), Callao (Peru), Arica (Chile), San Antonio (Argentina), Callao (Peru), Balboa (Panama) and back to Philadelphia.
That’s it for carrier alliances, at least for now.
With respect to the ports, the Port of Seattle and the Port of Tacoma sought approval for a cooperative agreement and received no objection from the FMC early this year. In March, the Commission unanimously voted to effectively allow the Ports of Seattle and Tacoma to move forward on exchanging information and working together to find synergies. The discussion agreement allows the ports to collect, share and discuss a wide range of issues regarding container terminal operations including information on container facility planning and development, management, and operational efficiencies.
In October, the ports of Seattle and Tacoma filed an amendment to their current agreement to allow discussion on the formation and terms for a joint marine cargo operating enterprise to be called the Seaport Alliance. That alliance would unify management of the two ports’ marine cargo terminals and related functions.
The Commission is also awaiting a potential filing from the Port Authority of New York and New Jersey with respect to the operation of a chassis pool(s). In addition, this past September, the Long Beach Harbor Commission directed staff to prepare a draft discussion agreement with the Port of Los Angeles to be filed with the Federal Maritime Commission with the goal of improving the competitiveness of the two ports by addressing "port congestion, truck turn times, limited gate hours of operation, chassis, and the PierPass Traffic Mitigation Fee."
Port congestion is a world-wide problem. The vessels that are currently being constructed and delivered are so large that it is taking considerable time for ports, intermodal operations and other transportation modes to react. In the U.S. the crux of the port congestion problems relate to the larger ships, the carriers mass exit from the service of providing chassis, a now lack of available chassis and the inadequate positioning of chassis, turn-times at the ports taking too long, and truckers exiting the sector because the congestion does not allow them to make an adequate living wage.
The FMC has recently completed nationwide port congestion forums. We should be delivering the findings from the forums in the very near future.
I would like to address the energy sector for a moment. Philadelphia is deriving a direct benefit from the domestic production of natural gas and oil. I will discuss shipbuilding and the potential for an East Coast energy terminus.
Aker Philadelphia Shipyard is building eight (8) LNG ready product tankers and two (2) LNG ready container ships.
This summer the formation of Philly Tankers AS was announced. Philly Tankers will own two eco-design product tanker newbuilds (LNG ready) expected to be delivered in the first quarter of 2017.
Just last month, Aker Philadelphia held a ceremonial keel laying for the first of four (4) product tankers that it is building for its joint venture with Crowley Maritime Corporation.
Earlier this year, Aker delivered the first of two Aframax tankers to SeaRiver Maritime, Inc. (SeaRiver), Exxon Mobil Corporation’s U.S. marine affiliate. The vessels are capable of delivering 800,000 barrels of Alaskan North Slope crude oil from Prince William Sound, Alaska to the U.S. West Coast.
Potential East Coast Energy Terminus
Pennsylvania is unique in that it has both dry natural gas and wet natural gas in the Marcellus/Utica shale basins.
A couple of significant announcements were made over the past couple of days. Royal Dutch Shell’s Chemical Division announced that it is exercising its option on Beaver County, PA property as the site for a possible Appalachian ethane cracker plant. This would be a multibillion dollar facility that would turn the natural gas liquid into ethylene, a feedstock for petrochemical production. And, Sunoco Logistics announced it is moving forward with a $2.5 billion pipeline that would transport natural gas liquids from the Marcellus and Utica shale basins to refineries in the Philadelphia region for domestic use and also for export.
The flame that you see at the top of production rigs is called flaring—it is a waste. This product of drilling activity cannot be readily transported by pipeline so it is flared to atmosphere. Pipelines are needed to transparent this stranded, but useful natural resource.
Wet gas, which includes Natural Gas Liquids (NGLs), is fostering manufacturing jobs here in the U.S. NGLs include ethane, butane, isobutene and pentane. The end use products of NGLs include plastic bags, detergent, home heating, small stoves, refrigeration, synthetic rubber, aerosol and gasoline. Liquefied Petroleum Gas (LPG) is propane. Basically, once the ethane fraction has been stripped out of the NGLs for use as a petrochemical feedstock, propane is a residual end product.
Europe is very interested in U.S. NGLs – ethane in particular. Europe is looking to revitalize and update its petrochemical industry. Recent projections point to ethane produced in the Marcellus/Utica shale basins destined for Europe at about 50 percent less expensive, even including shipping costs, than the NGL’s processed from Europe’s own North Sea. NGLs are transported by ships called Very Large Gas Carriers (VLGCs) or Ethane Carriers.
I hope that I have provided you with some meaningful insight today. Please keep up the great work, there is so much going here. To this end, I hope you are successful with the response to your request for expression of interest for development of the Southport Marine Terminal Complex.
Commissioner William P. Doyle Disclosure:
I am a Commissioner with the U.S. Federal Maritime Commission. The Federal Maritime Commission is an independent regulatory 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. With that said, I should emphasize that my thoughts and comments here are mine and mine alone – they do not reflect the position of the Commission, and they should not be construed to represent the positions of any of my fellow Commissioners.