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Commissioner William P. Doyle’s Prepared Remarks to the National Retail Federation

January 17, 2017

Contact: David Tubman, Counsel to Commissioner Doyle, dtubman@fmc.gov

Prepared Remarks
Commissioner William P. Doyle
U.S. Federal Maritime Commission
for
National Retail Federation’s
International Trade Advisory Committee and Strategic Supply Chain Council
New York City
January 16, 2017

Good afternoon and thank you for inviting me to speak with members of the National Retail Federation today.

Jon Gold asked me to address topical subject matters affecting the ocean shipping community. To this end, I will bring you up to date on ocean carrier alliances, developments post-Hanjin bankruptcy, the proposed new ocean carrier company SM Line, digital ocean shipping concepts, and the recent petition filed with the Commission by the Coalition for Fair Port Practices.

Ocean Carrier Alliances

Currently, in theory there are four major alliances that in short order will be reduced to three. The ocean carriers will honor all contracts in place under the four alliances until April 1, 2017. The four major alliances are:

2M Alliance comprises-
Maersk Line, and
Mediterranean Shipping Company (MSC)

(Note: Maersk to purchase Hamburg Süd, announced December 2016)
(Note: December 2016, 2M announced it had reached a strategic cooperation agreement with HMM)

G6 Alliance comprises-
APL Co. Pte Ltd.,
Hapag Lloyd,
Hyundai Merchant Marine (HMM) Co. Ltd.,
Mitsui OSK Lines (MOL) Ltd.,
Nippon Yusen Kaisha (NYK) Lines, and
Orient Overseas Container Line (OOCL) Line.

(Note: CMA CGM purchased APL, acquisition completed in September 2016)
(Note: Hapag Lloyd expected to complete merger of UASC 1Q 2017)

CKYHE Alliance comprises-
COSCO Container Lines Co., Ltd.,

Kawasaki Kisen Kaisha, Ltd. (K Line),
Yang Ming Ltd.,
Hanjin Shipping Co, Ltd., and
Evergreen Line

(Note: Hanjin entered receivership (bankruptcy) in August 2016)

(Note: China’s COSCO and CSCL completed their merger in October 2016)

Ocean 3 (O-3) Alliance comprises-
CMA CGM,
United Arab Shipping Corporation (UASC), and
China Shipping Container Liner (CSCL)

Then there were three Carrier Alliances

Beginning on or about April 1, 2017, there will be three major ocean carrier alliances. This new generation of alliances have received worldwide regulatory approval. In the U.S. the alliances are permitted to begin operations. The three alliances are:

2M Alliance comprising-
Maersk Line (with Hamburg Süd), and
Mediterranean Shipping Company (MSC)

Ocean Alliance comprising-
CMA CGM (with APL),
China COSCO Shipping (merged company from COSCO and CSCL),
Orient Overseas Container Line (OOCL) Line, and
Evergreen Line

THE Alliance comprises-
Hapag Lloyd (with UASC)
Mitsui OSK Lines (MOL) Ltd.,
Nippon Yusen Kaisha (NYK) Lines,
Kawasaki Kisen Kaisha, Ltd. (K Line),
Yang Ming Ltd.

(Note: the container business units of each Japanese carrier (MOL, NYK, K-Line) will be merged into a single company by mid-2017)

Post Hanjin Bankruptcy

Shippers like you are concerned with ocean carrier alliances in the wake of Hanjin’s bankruptcy. You should make every effort to secure the appropriate safeguards from the alliances. I urge shippers to work with carriers on ways to provide safeguards. This can be achieved any number of ways such as insurance contracts secured by an alliance, bonding or other financial instrument—but you should work now with your ocean carrier partners. THE Alliance is the first alliance to formally explore options for providing safeguards. Members of the Ocean Alliance are in the process of reviewing their safeguard offerings post Hanjin. And, 2M recently announced that it has safeguards in place for its strategic operation agreement with HMM.

Let’s take a look at some of the new language in 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 safeguards that could be used when an individual member liner fails in the network, (i.e., a carrier goes bankrupt).

Thus, in theory, a funding instrument could be created. The funds from the instrument 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.

As I said, these details are still being worked out by the parties – but the placeholder language is in the existing THE Alliance agreement.

SM Line

Last week executives from Samra Midas Group (SM Group) visited the FMC. SM Group is starting a new ocean carrier company called SM Line. SM Group is a South Korean based manufacturing, construction and services conglomerate. SM is an expansive business.

SM Line is being formed from the ashes of the now bankrupt Hanjin Line. At this time, SM Line intends to operate a transpacific service (TPS) between the ports of Shanghai and Ningbo in China; Busan, South Korea; and the port of Long Beach California. The company will operate a string of five 6,500 TEU container ships. The transpacific service is scheduled to commence in April 2017.

In addition, SM Line intends to operate eight Intra-Asia services between China, Japan, Thailand, Vietnam, India, Pakistan, Indonesia and other countries. SM intends to operate approximately eleven (11) vessels in the 1,000 to 2,500 TEU range (or smaller).

SM Group’s portfolio includes:

  • Manufacturing products through its chemicals division such as polyester, spandex and beverage containers.
  • SM Group’s aluminum division manufactures window products and automotive parts.
  • It has a battery division, producing primary, secondary and industrial batteries.
  • The company also has a textiles department producing mirrors, glasswork and ceramic wall and floor tiles.
  • SM is known for its construction and engineering of apartment and office buildings and residential homes.
  • SM is a banking services company for debt collection, credit reports and financial security examinations.
  • SM operates Gunpo’s (South Seoul) largest shopping center and mall.
  • SM Group is the owner of Korea Line Corporation, operating about 32 ships transporting LNG, coal, ore, nickel, product oil, cars and trucks.

Digital Service Developments: NYSHEX and Maersk-Alibaba

We’ve heard a lot lately on the digital interface between ocean shipping and e-commerce. Maersk Line has teamed up with Alibaba to allow customers to reserve space on its vessels. According the Maersk, this digital service allows existing Alibaba "OneTouch" users to lock in the price of required cargo spaces on selected routes by pre-paying a deposit amount.

The New York Shipping Exchange (NYSHEX) has completed its pilot program for digital bookings. According to NYSHEX over 500 TEU’s have been shipped under pilot and beta testing with a select group of ocean carriers and shippers.

The way this exchange would work is that there would be a fixed "all-inclusive" rate for a guaranteed number of slots and containers. The shipper would collect a penalty if the carrier does not meet its contractual obligation. A penalty also exists for the shipper if the shipper cancels the booking. Each booking is its own service contract agreement that would automatically be filed with the Federal Maritime Commission.

Coalition for Fair Port Practices

Proposed FMC Statement of Policy on Ocean Common Carrier and Marine Terminal Operator Demurrage, Detention and Per Diem Charges

I have reviewed your petition or rulemaking with the Federal Maritime Commission. It is over 210 pages. I know it has been a long time coming – but you finally did get it filed. I take particular interest in the actual verified statements of stakeholders injured by excessive fees—including truckers, port draymen, customs brokers and shippers.

First, if I have this correctly, the Coalition is not actually asking for a "rule" per se, but rather a Commission statement of policy on demurrage, detention and per diem charges. That said, the petition nonetheless is filed pursuant to the FMC’s rulemaking process, specifically to clarify what constitutes "just and reasonable rules and practices."

Next, the Coalition specifically requests Commission guidance as to the reasonableness of charges when port conditions prevent the timely pick up of cargo or the return of carrier equipment because of broad circumstances that are beyond the control of shippers, receivers, or drayage providers.

This issue is now before the Federal Maritime Commission and my comments are limited here as the petition works its way through the agency.

Thank you, I will now take questions.

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.