FMC tackling capacity shortage
Programs and possible reforms proposed to benefit shippers.
By Chris Dupin
A shortage of ship capacity and shipping containers has the Federal Maritime Commission proposing programs, and possibly legislation, aimed at helping U.S. exporters and importers get products to market.
| Lidinsky |
FMC Chairman Richard A. Lidinsky Jr., in testimony to the House Committee on Transportation and Infrastructure's Subcommittee on Coast Guard and Maritime Transportation on June 30, said the agency is seeking to help exporters through programs like a project with the U.S. Department of Agriculture that would create a database of where empty containers may be available. It also plans to stress to exporters in remote locations that they 'have to pay their fair share for positioning and other costs associated with moving that box inland and moving it back to the port area.'
Lidinsky also said Congress could consider changes in the Shipping Act that would give the commission a greater role in resolving disputes between importers or exporters and ocean carriers quickly through mediation or arbitration.
Today, the Shipping Act says 'unless the parties agree otherwise, the exclusive remedy for a breach of a service contract is an action in an appropriate court. The contract dispute resolution forum may not be controlled by nor in any way affiliated with a controlled carrier or by the government that owns or controls the carrier.'
| Related News • Boxed-out |
Chris Koch, president of the World Shipping Council, the major trade organization for liner carriers, said he wanted to get more specifics on what the FMC was proposing before offering an opinion on its merits.
'If what they are doing is offering themselves as a forum that willing shippers and carriers can come to work out issues, then I don't think that anybody has a serious issue with that. If what they are talking about is setting up the FMC as somehow being a binding arbitrator of issues, then I certainly need to understand more specifically what they are talking about and how they plan to do that,' Koch said.
Lidinsky suggested there may be a need for further reforms, referencing a September 2008 Congressional Research Service report that noted the 'virtual disappearance of the U.S. liner fleet in foreign trade raises the issue whether the interests of shippers should be given greater weight in shaping policy.'
He suggested that perhaps U.S. importers and exporters 'should be first served by those shipping lines that freely chose to come to this country,' saying he was 'very troubled to learn that that a number of carriers refuse to take third-party boxes.'
If shippers are unable to get containers from a shipping line for their product and are still willing to supply their own equipment by renting a container from a leasing company, the carrier may still not accept what is sometimes called 'shipper's boxes.'
'I think we have to clarify our regulations or maybe clarify the law that a carrier must take that box in our trade,' Lidinsky told the committee. 'When you come to these shores as a foreign carrier you have to honor the Coast Guard regulations, Customs and other things. I think you should honor the exporter's needs.'
That statement seemed to strike a chord with Rep. Elijah Cummings, D-Md., chairman of the subcommittee, and Rep. Howard Coble, R-N.C., who both said the idea was 'not unreasonable.'
At the hearing, FMC Commissioner Rebecca F. Dye said that to assist U.S. importers and exporters grappling with shortages of containers and ship capacity, the agency had agreed in June to:
' Establish so-called 'rapid response teams' within the FMC's Office of Consumer Affairs and Dispute Resolution Services to quickly address disputes between shippers and carriers over issues such as container shortages, canceled bookings and rolled cargo. It plans to ask carriers to each name a representative to work directly with the FMC and be available to quickly address capacity problems and other urgent problems.
' Beef up oversight of discussion agreements in the transpacific trade, by requiring the Transpacific Stabilization Agreement and the Westbound Transpacific Stabilization Agreement to provide the FMC with verbatim transcripts of certain agreement meetings.
' Direct FMC staff to prepare recommendations on ways to increase oversight of global shipping alliances.
' Extend the FMC's fact-finding investigation until Nov. 30, so it can see what happens during the peak shipping season.
' Organize 'best practices' discussion pairs between shippers and carriers to consider ways to resolve the most pressing problems with practices including booking cancellations by shippers and cargo rolling by carriers.
' Develop model shipping contracts with the idea that many disputes can be eliminated if there is 'mutuality of understanding' of what rights and obligations of both shippers and carriers are clearly spelled out.
' Establish an export working group where shippers and ocean carriers can meet under the direction of the FMC to discuss availability of vessel capacity for U.S. exports.
' Create an intermodal working group for ocean carriers, shippers, trucking intermediaries, software providers, chassis pool experts and railroad representatives, that will address what the FMC said is 'chronic unavailability of export containers for certain American exporters.'
The FMC proposals sparked interest from shipper representatives such as Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, who said his members were having difficulties in getting capacity on ships for imports as well as facing early imposition of peak season surcharges.
In June Maersk Line said its decision to impose heavy peak season surcharges ranging from $600 to $1,200 per container from Asia to Europe was mostly due to a surge in demand that has caused a global shortage of containers expected to last until the third quarter.
It said the surcharge would help it recover higher costs caused by the increased volumes and equipment shortage.
Peter Friedmann, executive director of the Agriculture Transportation Coalition, also said he was encouraged that the FMC was seeking to address problems faced by some of his members, and was especially pleased that it was trying to 'come up with some short-term remedies that do not require significant amendment of the Shipping Act. That's the trick, if you want to implement something you can't wait for Congress, because Congress does nothing quickly.'
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| Zaninelli |
The equipment availability issue 'is not a problem that we can't surmount, but it is a problem that people have to participate in to fix,' said Ed Zaninelli, vice president of the transpacific westbound trade for OOCL.
The shortage issue is not one of absolute lack of equipment, he said. In mid-June, for example, there were enough containers in North America to meet demand for perhaps two-and-a-half weeks.
'Equipment is a location problem, not a count problem,' he said. Many carriers in Los Angeles and New York have 'super surpluses' of empty containers, perhaps four to five weeks worth of boxes, while equipment is scarce in the areas such as the Great Plains, where many agriculture exporters are located.
As distribution has become more focused at fewer locations, containers are less likely to be shipped into rural areas where shippers are desperate for containers, Zaninelli said.
The problem is compounded by the fact that carriers must grapple with the disparity in weights between U.S. imports and exports. Because containers carrying outbound shipments of commodities such as grain, hay, cotton, forest products, and wastepaper are much heavier than imported consumer goods, carriers can only fill their outbound ships partially with loaded boxes and then fill out the slots on their vessels with empty containers in order to get the boxes back to the Far East.
While carriers reduced the number of containers they purchased last year, Zaninelli said, 'we don't want to run the way we are running, but I think everyone was forced into it by the recession. We all curtailed our normal ebb and flow on replacement and it will take time to recover. Nobody did this on purpose, it's just a result of the catastrophic events.'
At a meeting of the Agricultural Transportation Coalition in June, some shippers raised the idea of having carriers pool containers, much as they are increasingly doing with chassis, on the theory it might be easier to obtain equipment if there was a bigger pool from which to choose.
But this idea, while raised in the past, is fraught with problems, Zaninelli said. These include technical issues of tracking containers, and charging for per diem use or damage that comes when equipment is pooled. But he also said carriers could take unfair advantage of such pools slashing rates to attract cargo and customers that they would then haul with competitor's equipment.
And since carriers trade on similar routes, he felt it unlikely that one carrier would often have surpluses of equipment in areas where its competitors don't, making such pools less useful.
Some carriers are experimenting with ways to structure rates so that they can solve some of the problems that have aggravated the container shortage program.
For example, carriers have complained that shippers often overbook space on vessels, reserving, for example, slots for 50 TEUs but then only producing 20 boxes.
Earlier this year Maersk launched an experimental program on a couple of routes where it would penalize shippers if they overbooked to address this problem, which is called 'falldown.'
On the other hand, Maersk also offered to pay shippers on one route a penalty if it 'rolled' their cargo, or was unable to load it on the ship on which it was booked, and put it on a vessel sailing sometime later.
Shippers say they overbook because cargo is rolled, and they need to have assurances that cargo will be shipped.
In June Maersk announced a much more ambitious project to address that concern. It said it would allow carriers to pay an additional fee for a 'priority product upgrade' that would guarantee their cargo would leave on the ship where they had reserved space.
The price that shippers would pay for that guarantee would be adjusted according to demand for the service.
Under questioning from Cummings, Lidinsky said the FMC would probably need to double the size of its consumer affairs division to handle the increased mediation or arbitration he envisioned the agency doing, adding perhaps 20 people to an agency with a total staff of about 130.
Lidinsky said he thought that expenditure would be worth it because 'we are all working toward the goal of the president of doubling our exports. To the extent that anyone leaves the export business out of frustration over treatment by an ocean carrier, that's a loss for the country. Any investment we make in speeding these cases along is an investment well made.'
'This reform you are asking for, this is major stuff,' Cummings said.
He asked Lidinsky to submit to the committee in a month a list of changes he would like to see.