WASHINGTON — Revisions made to a proposed rule aimed at curbing the ability of container ship carriers to refuse to provide vessel space to their customers has delved into the dangerous area of price regulation, according to the carriers.
In a rulemaking proposed last year, the U.S. Federal Maritime Commission attempted to define what is an “unreasonable refusal to deal or negotiate” the vessel space that carriers provide for their customers’ containers.
After both carriers and shippers took issue with the agency’s effort to modify the regulations — with carriers calling the proposal overly burdensome and their import and export customers contending it didn’t go far enough — the FMC revised the proposal through a supplemental notice of proposed rulemaking (SNPRM) issued in June.
But carriers say the revised proposal strays even further from what they consider to be reasonable modifications to improve customer protections.
They point to a provision that would allow the agency, in evaluating whether an ocean carrier’s refusal to deal or negotiate on vessel space is reasonable, to consider a list of factors that includes when carriers quote rates “that are so far above current market rates they cannot be considered a real offer or an attempt at engaging in good faith negotiations.”
The Pacific Merchant Shipping Association (PMSA), which represents ocean carriers and marine terminal operators at U.S. West Coast ports, said such a provision would make it “hard to ascertain where the FMC intends to draw the line such that it does not act as a pricing regulator,” stated PMSA Vice President Mike Jacob.
“The commission has no authority to regulate prices,” asserted the World Shipping Council (WSC), which claims to represent 90% of the world’s liner vessel services. “There is no scenario under which an agency that does not have authority to regulate rates can permissibly use rate levels as a measure of reasonableness, and that legal reality is the end of the matter.
“Clear law aside, the commission’s proposal cannot work as a practical matter,” WSC added. “How high is too high, and on what basis is the commission to decide?”
Carriers also pointed to what they consider to be another dangerous revision proposed by the FMC, which would require carriers to file with the agency an annual export policy.
The policy, according to the revised proposal, would include submitting the carrier’s pricing strategies, services that it offers, its strategies for providing container equipment, and descriptions of the markets it serves. The carriers want the provision removed.
“Revealing intricate details of a company’s strategies to the greater public can put businesses at a significant competitive disadvantage,” according to container ship operator Hapag-Lloyd (America) LLC.
“In the global market, companies must safeguard their trade secrets, market research, pricing structures, and supply chain information to maintain their edge over competitors. If any of this critical information becomes publicly accessible, it may be exploited by rival companies, leading to a loss of competitive advantage and potential market share erosion. As a result, ocean carriers may become hesitant to innovate or invest in export strategic initiatives if their proprietary data is not adequately protected.”
Container ship operator Maersk warned that having to create an export policy would not only add costs, but would not support the goals of the FMC.
“The regulation should not transform the Shipping Act into a loaded gun pointed at ocean carriers for each difficult negotiation with individual customers about vessel space in a tight demand market,” stated Douglas Morgante, Maersk Agency USA’s vice president of government relations.
“We are not aware of any comments … that identified shipper-ocean carrier contract practices as unreasonable and the root cause of shipper capacity problems.”
Shippers support changes
In contrast, carrier customers, which pushed the FMC to make the proposed rule more restrictive toward ocean carriers, were mostly happy with the changes.
Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), said that providing a broader basis for determining if a carrier’s refusal to provide vessel space is reasonable is “one of the most important revisions” made by FMC.
Specifically, AgTC supports the FMC’s revision replacing carriers’ pursuit of “profitability” and “compatibility with business development strategy” with “transportation factors” in determining if they are reasonably rejecting exports.
Such factors include “vessel safety and stability, weather-related scheduling considerations and other factors related to vessel operation outside the vessel operators’ control,” according to the proposal.
“Fortunately, the supplemental rule now rejects … pursuit of maximized revenue as a reasonable justification for export cargo denial,” Friedmann said.
The Retail Industry Leaders Association (RILA), whose members account for more than $1.5 trillion in annual sales and include nine of the 15 largest importers in the U.S., wants the FMC to go a step further by including an import policy as well as an export policy.
“Importers have also been negatively impacted by unreasonable carrier conduct — schedule changes with no or insufficient advance notice, receiving inaccurate and unreliable information, quotation of unreasonable rates, etc. — and not just during the pandemic,” commented Sarah Gilmore, RILA’s director of government affairs.
“Requiring carriers to submit and follow an annual documented import policy would allow the commission and interested stakeholders to examine whether a carrier’s behavior is fair and reasonable across all types of transactions, and otherwise consistent with the [U.S.] Shipping Act. Similarly, whether or not a carrier adhered to that policy should be added as a consideration for the commission … when it considers whether the carrier’s conduct is unreasonable.”
Lou
from a free market perspective allowing the service providers to work directly with those are interested in purchaseing services is absolutly essential. ANY amount of government intervention will increase prices. Why? Because service providers are a business and they exist not to provide the service but to make $. Bottom line is they offer the service in exchange for $. If providing the service costs more then the price they charge will go up. If anyone is under the impression that government intervention will pursuade service providers to offer their services at greater cost and effort for lower profits I would ask then to consider this one question. Why would they do that. It is possible that they could continue to make acceptable profits that are lower than what they want and still remain in the market but they will simply try to find ways to optimize profitability within whatever cost struccture they are allowed…and that is when service levels will diminish. Alternatively if the government can simply address market manipulations (like price fixing by colaborating carriers) the market of freight buyers and service providers can compete (rapid self adjustment) their way to more freight at lower rates or less freight at higher rates and allow each party to negotiate for the value they are willing to offer/pay. government cannot control a market as quickly as a competative marketplace can. With the ocean freight industry we just have to accept that adding ships (capacity) is a slow process and is costly. Many shippers are ignorant of the costs of maintaining assets as costly as fully staffed container ships so they can be ready for seasonal or temporary volume fluctuations. Shippers want the lowest cost irrespective of limited supply and competitors willing to pay more. Those who are willing to take the risk might consider ordering their own vessels running their own freight (like Amazon did) so they have more control. If AgTc for example were to do this they would quickly realize that their members are competing with one another for space and the issue at hand is really that all of the shippers want to blame service providers for not giving them priority. The carriers who are in it for profit just as shippers are in their respective businesses for profit and its really a competition for whose bottom line gets padded most. Pretending that this is all just because carriers are taking advantage of innocent shippers is myopic. We need the FMC to look at the entire market and be aware of the negative affects of their intervention…..well intentioned as they may be. Currently they are exclusively focussed on benefitting shippers and they are turning a blind eye on carrier interests. The blind spot this creates is where costs will increase beyond their view. And lets face it: when profits are not adequate given the massive investments needed to operate as an ocean carrier…they go out of business. How many shippers have taken a look in the mirror at their part in the demise of Hanjin. If you were getting “great rates” you were part of the team that took them down. Certainly not the only cause but part of the lift of reasons that made them insolvent. FMC and shippers beware. Your myopic view may appear to work but the carriers might just decide to deprioritize USA operations and focus on places willing to pay more. FMC regulation might be just what the EU needs to help increase supply and reduce their prices. In a global economy there will be many willing to pay for ocean freight services at higher prices than may be justified for low value products. If you were running an ocean line what would you do?
Butch Cassidy
Not to be insensitive as I don’t want to get censored, but the importers have no chance of regulating how carriers do business are far as P&L goes. If it passes costs will be much higher and service much, much worse. Thank you for listening.
Butch Cassidy
Further to Mr. X’s comment, the “Importer’ has surrendered the control of their supply chain to a Communist country with all the attendant consequences. This also speaks to the destruction of the US owned liner shipping industry. There isn’t one. So Asian and European based companies have your US interests under their control. Many of these companies are from countries trying to take over our share of AG and every other export we have. Exporters and Importers have demanded rock bottom prices but fail to realize this has resulted in fewer choices and a much more competitive market in which to make a profit. Now these same folks believe they can control what liner operators can make and how they price. Sure. Please go right ahead with that plan. Some of us have all the imported stuff we can ever need. Many can’t afford anymore. When you are down to 2 carriers both based in China, let us know how that’s working out for you.
Stephen Webster
We need min rates and maximum rates of 2 times the minimum amount. And limit to storage and detention rates. To protect both sides.
Mr. X
“Importers have also been negatively impacted by unreasonable carrier conduct — schedule changes with no or insufficient advance notice, receiving inaccurate and unreliable information, quotation of unreasonable rates, etc. — and not just during the pandemic,” commented Sarah Gilmore, RILA’s director of government affairs.
Importers maybe need to explain why they moved their businesses to Asia.
Were the US workers as “unreasonable” as the carriers in their demands to have a living wage ?