Global carriers are heavily curtailing ocean services as the coronavirus decimates import demand. Just as it makes sense to rationalize vessel deployment, it also makes sense to rationalize terminal usage. There will inevitably be terminal winners and losers in the months ahead.
The legal fight in Staten Island, New York, could be a sign of things to come. The coronavirus is front and center, at least in terms of rhetoric.
Restraining order sought
Global Container Terminals (GCT), which operates the facility on the island, is seeking an emergency restraining order to prevent A.P. Moller Maersk (APM)-owned Maersk Line and Hamburg Sud from pulling out and switching over to the nearby Port Elizabeth, New Jersey, site operated by APM subsidiary APM Terminals (APMT).
Maersk said in a letter on April 10 that Maersk Line and Hamburg Sud vessels would cease calls at GCT New York by May 1. It said it was willing to pay a settlement of $5.5 million, including an early termination fee of $2.1 million and additional consideration of $3.4 million.
GCT USA President John Atkins claimed in a court filing Monday that its agreement with Maersk ran through Dec. 31, 2022, and could only be terminated early on Dec. 31, 2021, and only if six months’ notice is given.
Atkins said the termination notice was sent without cause 20 months before it was allowed on “the Good Friday public holiday … in the midst of the ongoing COVID-19 emergency in the metropolitan area … [with] a mere 20 days’ prior notice in the middle of an unprecedented and crippling global pandemic.”
“The timing could not be worse with social distancing and stay-at-home directives in place and attendant concerns about the spread of infections making an emergency management response … extremely difficult,” he said.
He alleged that Maersk and Hamburg Sud are attempting to move to Port Elizabeth “for the financial benefit of their sister company, APMT, which is a direct competitor of GCT,” and that Maersk’s “reprehensible conduct [its early contract termination] is magnified by the fact that Maersk is essentially stealing business from GCT to give to its own corporate affiliate, APMT.”
He said the services run by Maersk and Hamburg Sud through GCT’s Staten Island site account for 60% of the terminal’s ocean container business and 46% of all box throughput including local barge business. Maersk’s departure “will have immediate and catastrophic effects on the business and financial well-being of GCT and its employees, which are exacerbated by the timing of the purported termination.”
Atkins maintained that GCT is one of the top employees on Staten Island and the early loss of Maersk’s business would put 100% of Staten Island longshoreman jobs “at risk as it jeopardizes the viability of GCT’s business.”
GCT alleged in its complaint that the Maersk action could cause the Staten Island terminal to “cease to be a going concern” and would “reverberate through the Staten Island economy and have adverse tax-revenue effects for the city and state of New York.”
Maersk’s response
Asked by FreightWaves for a response to the allegations in the court filing, a Maersk spokesman sent a written statement. “Maersk can confirm that it is currently involved in an ongoing contract dispute with Global Container Terminals,” the statement said. “We can also confirm that Global Container Terminals alleged in its lawsuit that if Maersk ceases to call [at] Global Container Terminals that Global Container Terminals will cease to be a going concern.
“We believe claims that Global Container Terminals, which is owned by multi-billion-dollar investment funds, will go out of business as a result of this contract dispute to be intentionally inflated to create unnecessary fear during this time of uncertainty and the product of a litigation strategy to distract from the contractual rights and remedies that Global Container Terminals previously negotiated and now regrets,” said Maersk.
Vancouver-based GCT operates four terminals, two in British Columbia and two in the U.S. (in Staten Island and Bayonne, New Jersey). As noted by Maersk, GCT does indeed have some big-pocketed owners. It is owned by three very large institutional investors: the Ontario Teachers’ Pension Fund owns 37.5%, IMF Investors 37.5% and British Columbia Investment Management 25%. These three entities have aggregate funds under management totaling $534 billion — the equivalent to the gross domestic product of Egypt.
In its termination letter, Maersk said its $2.1 million termination fee was “a generous estimate given the uncertainty related to COVID-19,” on top of which it was offering the “additional consideration” of $3.4 million to “satisfy all obligations.”
The termination fee calculation relates to volume credits that would have been issued. Atkins countered that “this termination fee is not intended as a proxy for damages that GCT may suffer as a result of any breach by Maersk resulting in premature termination; instead, it is to refund the volume discounts which were solely provided to Maersk in exchange for extending the term of the agreement to Dec. 31, 2022. … If not for these promises and commitments from Maersk, GCT would not have reciprocally agreed to the volume discount program and favorable contract rates set forth in the [2018] amendment.”
FreightWaves asked the Maersk spokesman whether the decision to switch calls from GCT New York to Port Elizabeth APMT would have occurred if there had not been a coronavirus outbreak.
Maersk replied, “We cannot and will not speculate as to what may have happened under different circumstances, but this decision was not made lightly. It is regrettable that GCT has violated its confidentiality obligations by making settlement discussions publicly available, but in the current environment in which other transportation providers are seeking force majeure and other protections, Maersk has continued to deliver a reliable product and business continuity to its customers and this move will only reinforce Maersk’s ability to continue to keep the supply chain moving and essential goods moving to customers.”
A court hearing on the emergency restraining order — to be conducted, of course, by telephone — is scheduled for Friday. Click for more FreightWaves/American Shipper articles by Greg Miller