U.S. Federal Maritime commissioner has asked the commission chairman to review the rapid approval of the alliance.
Federal Maritime Commissioner Richard Lidinsky is asking the chairman of the agency, Mario Cordero, to look into the process by which the Ocean Three vessel-sharing alliance was allowed to go into effect.
The deal will align the container liner companies CMA CGM, United Arab Shipping Corp. and China Shipping. It was approved by the agency earlier this month, just days after the 2M alliance of Maersk and MSC.
Lidinsky also said he is concerned that there needs to internal reforms so that commissioners have sufficient time to review recommendations from the agency’s staff.
Earlier this month, Lidinsky had wanted to stop the clock on 45-day waiting period built into the approval process for large agreements such as the 2M and seek answers to additional questions in an additional 45-day waiting period.
He was outvoted by his fellow commissioners 4-1 on Oct. 8, and the 2M agreement between the world’s two largest container carriers came into effect on Oct. 11, though the two carriers do not plan to actually start operating the alliance until next year.
With approval of the 2M alliance, Lidinsky noted interest was high in the Ocean Three VSA. CMA CGM is the world’s third-largest container carrier, and China Shipping is the seventh largest. UASC, which while only the 18th largest, has ambitious growth plans reflected in a large orderbook for new ships.
After the G6 alliance (between APL, Hapag-Lloyd, Hyundai, MOL, NYK
and OOCL), 2M, and CKYHE (between COSCO, “K” Line, Yang Ming, Hanjin and
Evergreen), the Ocean Three alliance was to be the fourth major
alliance to be approved. Lindinsky said the agreements are reshaping the
face of maritime regulation in the U.S.
In an interview with American Shipper, Lidinsky said he was surprised on the afternoon of Oct. 16 when he received an email from Florence Carr, the head of the FMC’s Bureau of Trade Analysis, that “not only had O3 been filed, it had been filed on the 6th of October, two days before the 2M vote, and under this so-called low-volume provision, it was already in effect.”
“That’s how it meets it end? That’s how it is approved here?” asked Lidinsky.
Lidinsky agrees the approval of the agreement was legal, noting that the Shipping Act of 1984 has a provision for “low-volume” agreements. In the Shipping Act, there is a provision (46 CFR 535.311) that allows carriers to apply to the Bureau of Trade Analysis if they are a “low-market share agreement,” which allows agreements with less than a 30-percent share to be exempt from the 45-day waiting period requirement for vessel-sharing alliances and other agreements.
He says the Ocean Three could have filed the agreement without invoking the low-volume clause. The decision to do so was “their choice. I’m not disputing that. I just think it would have been better for the process and for examination by the commission if they had gone the 45-day route like everybody else.
“My concern is that it took 10 days for staff to advise me and the other commissioners that they had received the document and approved it, and it was already in effect. Maybe it would have changed votes in the 2M decision, maybe it wouldn’t have. But if something happens prior to a major vote on a major alliance — and this is a major alliance — it should be brought to the immediate attention of the commissioners. That’s why I have asked the chairman to look into it and report back in an open meeting what he found out — why this wasn’t brought upstairs.”
Mario Cordero, the chairman of the FMC, said he was confident that the Ocean Three agreement, with a maximum 26-percent share, qualified for the low-volume treatment, and he said, “I support staff 100 percent.”
Cordero continued, “I’m confident that they acted in accordance with the regulations that are in place right now and rules.” He noted that there have been 64 low-level vessel sharing agreements filed this year, including O3.
He also noted that the FMC is going to monitor on an ongoing basis the large vessel sharing alliances.
Cordero said the last time the FMC reviewed the low-volume regulation (46 CFR § 535.311) was in 2002 when staff recommended, and the commissioners agreed, that low-volume agreements would be effective upon filing.
He said that if there are concerns about the regulation “the appropriate time to ask about these low-volume agreements would be at the time the commission revisits them, and we do plan to do that,” just as the FMC has done with regulations for ocean transportation intermediaries and service contracts.
Cordero said the low-volume regulation is on the list of subjects to be reviewed and since Lidinsky has expressed concerns about it, the commission may look at it early next year.
Lidinsky said there have been powerful groupings of ocean carriers — be they conference or alliances — for a century. He said he has recently looked at documents from the 1914 “Alexander Report” by the House Committee on the Merchant Marine and Fisheries in preparation for a speech he is repairing.
“If you read that report … you would think we were talking about today in terms of the ocean lanes being controlled by certain number of carriers who are relentless in their approach to the shippers, and the shippers can’t band together effectively,” said Lidinsky.
He believes there needs to be a thorough review of the Shipping Act of 1984 — though he is also skeptical whether Congress has much interest in doing so.
“When the 1984 Shipping Act was passed, it contained the 45-day provision to mainly help U.S. flag carriers compete,” he said.
During a five-year review of the act, he said several Congressional commentators said there was a trend toward U.S. flag shipping companies going out of business and “if we set this thing up just to benefit foreign flag carriers, we better take another look at this act because that is not what we intended to do, we intended to make this a good process for American carriers.”
He said that over the past 30 years, there have been more than 1,500 agreements that have risen to the level of commission approval, and with the exception of the Los Angeles/Long Beach Clean Truck program, not one has been stopped by the FMC staff or commission by seeking an injunction.
He believes the 45-day rule needs a “thorough airing and possible changing” and that other companies should be put under the jurisdiction of the Shipping Act such as container lessors and chassis pools, and that the FMC’s Consumer Affairs and Dispute Resolution Service should have additional powers. He also said the FMC should have more jurisdiction over the cruise industry. He noted other commissioners may want other changes. But lacking that, he said the FMC has the authority under federal regulations “to make changes in these agreement procedures.
“This is one example,” he said. “The moment [the Ocean Three] agreement was filed, knowing its importance, knowing its importance to the other three major alliances, there should have been instantaneous contact with the commissioners that this had been filed — not to change the process, though maybe it needs to be changed. But working under existing regulations, all that needed to be done was to tell commissioners this was being considered and this was the route the agreement was taking.”
He also said that he would like to see a change in policy within the FMC so that when regular agreements not covered by the low-volume exemption are filed, the staff of the FMC should be required to report within 21 days to examine and make a recommendation to commissioners so that they have remainder of the 45-day period to make a decision. Today, he said some recommendations are given to commissioners six to two days before the 45-day period expires.
“There are a bucketful of agreements that are filed every month that really have no impact, except on the people in a small trade or some sort of feeder service,” said Lidinsky. “I’m not talking about that. I’m talking about major, earth-shaking agreements that have to be given consideration by the commissioners themselves.”
FMC’s Lidinsky critical of Ocean Three approval process
