MAERSK SEALAND BACK OSRA, BUT QUESTIONS FILING PROCEDURES
Maersk Sealand told the U.S. Federal Maritime Commission that the Ocean Shipping Reform Act has allowed ocean carriers “to increase efficiencies, control costs and expand service offerings,”
of 1998 has been given a ringing endorsement by Maersk Sealand.
The reforms have also played a role in fostering “the development of a more dynamic commercial environment for liner shipping” where carriers are more responsive to customers’ needs, Maersk Sealand said, in a filing to the FMC.
However, the large containership operator questioned the need for filing standard efficiency enhancing agreements, such as space charter agreements with the FMC. Such agreements have never been challenged since the enactment of OSRA, and the filing procedures add to the burdens and costs of carriers, Maersk Sealand said. And “more importantly, this approach can delay the implementation of service enhancements by several weeks” to the detriment of shippers, Maersk Sealand said.
Also, Maersk Sealand urged the FMC to remove carriers’ responsibility to police non-vessel-operating common carriers' tariffs and bonds. Under the reform law, carriers are required to obtain proof that NVOs are tariffed and bonded before signing a service contract.
“We see no reason for shifting this responsibility to the (carrier) industry,” Maersk Sealand told the FMC. “It creates a significant burden on carriers, who must ensure that all their shipper representatives and agents around the globe are aware of this requirement, and have procedures in place for checking records that are easily at the commission’s disposal. Also, it injects a cumbersome regulatory requirement, and attendant delay and disruption, squarely in the middle of the service contracting process.”
Maersk Sealand said it did not believe it was Congress’ intent, when passing OSRA, was for the FMC to set rules that force carriers “to perform government-record checks on each of their customers, every time they seek service.”
Still, Maersk Sealand said it continues to respond to customers' needs by making long-term investments in ships, terminals and information systems to meet both commercial and U.S. national defense needs.
“These gains have been made with remarkably little market disruption,” said Mark Johnson, vice president of Maersk Sealand. “Due to the careful and balanced approach taken by Congress and the (FMC), liner shipping has avoided being stricken with shortages, bottlenecks and other pitfalls that have followed regulatory reform efforts in other infrastructure sectors in recent years.”
Maersk Sealand said it expects the post-OSRA business practices to evolve and make progress in upcoming service contract cycles.
Under the reforms, Maersk Sealand’s contracting has changed from conference to individual contracts, with “the most dramatic shift” occurring in the 1999 contract year. Maersk and Sea-Land, before they were merged, participated in about 1,900 contracts during the 1998 contracting season, and nearly all were conference contracts, the company said. But in 1999, Maersk Sealand had about 3,400 contracts, with less than 10 being conference contracts.
Multitrade and global contracts have also increased under OSRA, Maersk Sealand said.
The reform law has not dramatically impacted rates or rate structure, Johnson said. “While the introduction of confidential contracting has made the marketplace operate more efficiently, it did not alter the fundamental premise that liner rates are determined by existing supply-and-demand conditions … OSRA did not prompt rate or supply shocks in the liner market.”
Because rates are no longer public, it is now more difficult to “ascertain specific market rates,” Johnson said. “In speaking with our customers, we can get a sense of the general range of rates in the market, but without published rates we cannot achieve the same level of certainty as we could before OSRA.”
Under OSRA, service issues have taken on a greater importance in contract negotiations, Johnson said.
All Maersk Sealand contracts contain confidentiality clauses, and breaching confidentiality has not been a problem under OSRA, Johnson said.
Market forces have a greater impact on rates than voluntary guidelines adopted by carrier agreements, Johnson said.
“Overall, OSRA has had a very positive effect on Maersk Sealand,” Johnson said. “In particular, confidential contracting has created a win-win situation for both the carrier and the shipper.”