Federal Maritime Commission Chairman Mario Cordero said one of the items that has been on his agenda since becoming chairman in 2013 is to have a better funded and better resourced Federal Maritime Commission.
Mario Cordero, the chairman of the Federal Maritime Commission, said his agency needs more resources to be an effective regulator in the face of growing importance of foreign trade to the United States and concentration in the liner shipping industry.
He said one of the items on his agenda since becoming chairman in 2013 “is to have a better funded and better resourced Federal Maritime Commission. And I think I’ve gone on record to say that if there’s ever a time to have a well-funded, well-resourced FMC, it is today.”
Cordero said the need is there for two reasons.
First, there is the growth in cargo volume and increased dependence of the U.S. economy on trade. Last year, 31.5 million TEUs moved in U.S. liner trades and volumes could double by 2029, he said.
In testimony before the U.S. Senate Commerce Committee’s subcommittee on surface transportation and merchant marine infrastructure, safety, and security in March, Cordero said “International trade moving through America’s coastal gateways accounts for 32 percent of America’s gross domestic product and some predict that by 2030 this figure may rise to 60 percent. Ensuring that U.S. ports handling international ocean-borne commerce are able to efficiently handle current and projected volumes is a key priority for the commission.”
(If that 60 percent projection seems surprisingly high, the U.S. Department of Commerce’s International Trade Administration said the world economy is already there. In a 2014 report the ITA noted that trade accounts for more than 60 percent of the gross domestic product, and trade volume, which typically outpaces real GDP growth, is expected to continue doing so over the next five years.)
All that trade creates a lot of work for the FMC.
Last year carriers, marine terminals and other businesses filed 258 agreements with the agency, 38 percent more than the prior year and the highest number since 2006. In fiscal year 2015, 51,109 new service contracts were filed, about 16 percent more than the prior year, and 653,315 contract amendments, a 14 percent increase over fiscal year 2014.
In an interview with American Shipper, Cordero said the growing amount of trade “calls for a serious discussion as to the kind of job that the FMC needs to be doing” at the highest level of government.
At the same time, the transportation industry is being roiled by change. The industry seems to be entering a new period of consolidation with the mergers of China Shipping and COSCO, CMA CGM and APL, and possibly Hapag-Lloyd and United Arab Shipping Co. announced in the past six months.
“Mergers and acquisitions—I don’t think we’re done with what’s to come in the future,” Cordero said.
At the same time, carriers have organized themselves into increasingly large and powerful vessel-sharing alliances. Just this spring, carriers announced the creation of two giant vessel-sharing alliances, the OCEAN Alliance and the THE Alliance.
With record low freight rates and many carriers reporting financial losses or low profits, Cordero said it is natural for carriers to look for ways to achieve economies of scale through mergers or alliances.
Container carriers assert that vessel-sharing alliances, which allow several shipping companies to share space on the same ships, have become essential. By employing larger ships, carriers can drive down the cost of moving individual containers. They also allow carriers to extend their global reach, offering shippers transport between more port pairs and options for transshipment and optimization of global networks.
But Cordero said “The jury’s still out in terms of what the impact of these alliances are on our American shipping community and for that matter on our U.S. ports.”
Shippers complain the alliances make services that carriers offer more homogenous.
Peter Friedmann, an attorney who works with shippers and intermediaries such as freight forwarders and customs brokers, said carriers may have separate marketing and customer service groups, but if they all share space on the same vessel their schedules and policies become similar.
“Ultimately the concern is competition,” Cordero said. “Is competition being impacted and reduced? That’s the question the FMC addresses when monitoring these alliances.”
The FMC does not have a direct role in deciding whether a merger of two shipping companies can be permitted. But it does have the power under the 1984 Shipping Act to seek an injunction against an agreement such as a vessel-sharing agreement that it believes “is likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost.”
The FMC has only used that power once and unsuccessfully in 2008 when attacking portions of the Clean Truck Program of the ports of Los Angeles and Long Beach.
Being able to use that injunctive power creates a very high bar for the FMC.
The big ships and alliances have also created challenges for marine terminals, drayage companies, and other port-related businesses. And ports are an area of strong interest to Cordero—he was a member of the Board of Harbor Commissioners at the Port of Long Beach for eight years.
Big ships dump and load more containers and terminals are struggling to figure out how to deal with the steeper peaks and valleys in their operations. If anything, this dilemma is expected to grow when the new, larger locks open at the Panama Canal later this month.
For the FMC to do its job adequately, “I definitely need a handful of people right now in the form of economists and analysts to engage in what our mandate is before us, the monitoring of these vessel-sharing agreements,” Cordero said. Ultimately, he added the agency may need to be much larger as trade grows and becomes more central to the U.S. economy.
“The work the Federal Maritime Commission does, and its relevance to ensuring the efficient and lawful transportation of ocean-borne international trade to the benefit of the American shipping public, represents magnitudes of value beyond our operating budget,” Cordero told Senate lawmakers.
In an interview, he said with about 125 full-time equivalent employees, the agency faces a resource challenge, and the agency has to prioritize its work. In March, Cordero told House lawmakers the FMC was seeking $27.49 million for fiscal year 2017 to support 134 full-time equivalent employees.
He also observed last year at his reconfirmation hearing in the Senate that the head of the European Shippers’ Council expressed regret that the European Commission did not have the same resources as the FMC to devote to oversight of the ocean shipping industry. However, unlike the United States, the European Commission does not give antitrust immunity for carriers to form conferences or discussion agreements that the FMC monitors.
Fellow FMC Commissioner Richard A. Lidinsky Jr., who was Cordero’s predecessor as chairman of the agency from 2009 to 2013, expressed similar concerns about whether the FMC’s resources were keeping up with its growing mission.
Lidinsky had a prior stint working as an attorney at the commission from 1973-1975 before returning more than three decades later. In the early 1970s, he noted the FMC had 333 employees and trade was a tenth of what it is today.
“The commission has had this tremendously strong mandate of protecting and watching the growing U.S. international waterborne commerce with about less than half the people we had then, and you can’t account for computers and other things taking up the slack,” Lidinsky said.
He agreed the FMC needs skilled economists, analysts, and attorneys who “understand what type of new shipping industry we’re dealing with.”
“You hire people in two ways within the federal government,” he explained. “One way is that you hire someone fresh out of college or fresh out of a military career and they are trained into the system, that’s good. But the other way, which is a way that I think gives more value to the government, is to have somebody who worked for a freight forwarder, for a shipping line, for a trucking company and understands the industry.”
The FMC needs more of those experienced hands to wrangle with a changing industry, he said.
(The FMC is an independent federal agency with five commissioners. In addition to Cordero and Lidinsky, they include William Doyle, Rebecca F. Dye and Michael A. Khouri. Lidinksy’s term expired last year, but he continues to serve as his successor makes his way through the confirmation process. Obama nominated former Rep. Daniel B. Maffei, D-N.Y., last December to take Lidinsky’s place.)
Port Backups. In 2014 and 2015, U.S. ports experienced worsening congestion, a trend that has been variously attributed to the growing size of containerships, new large alliances, the decision by many carriers to no longer provide their own fleets of chassis to move cargo to and from ports, and difficult and protracted labor negotiations between the International Longshore and Warehouse Union and its employers.
Many shippers were outraged by long delays in retrieving their import containers or being able to get exports loaded on ships in a timely manner, as well as detention and demurrage charges that were imposed on them.
Cordero said the FMC did not, however, receive a formal complaint or petition about detention and demurrage charges, which he said is a prerequisite for the agency to engage the issue.
However, an inquiry by the commission in November 2014 resulted in many carriers backing away from congestion surcharges. In some cases the FMC’s Office of Consumer Affairs and Dispute Resolution helped resolve disputes over detention and demurrage.
During periods of congestion Cordero said some marine terminal operators still are not able to have containers available at a time that has been agreed upon.
“So there is a legitimate issue. Again, our challenge to the shipping community is file your formal complaint,” he said.
Lidinsky said he shared Cordero’s disappointment that complaints about detention and demurrage were not made in 2014-2015, adding “I think the time and circumstance were exactly right for those people who felt aggrieved to come up and file proceedings and create some precedent and some procedures and rules just to make sure it doesn’t happen again.”
He said he was troubled that some shippers seem reluctant to speak up for fear of retaliation by the carriers. Many shippers instead seem to prefer to have an association or group of associations speak for them, he noted.
But shippers have asked the FMC for help in reducing congestion at major gateway ports. Cordero said just three ports—Los Angeles, Long Beach and the New York/New Jersey—handle about half of U.S. containerized imports and exports and that the next eight ports another 35 percent.
In late 2014, each of the FMC commissioners participated in “listening sessions” in various ports around the country, and two reports were issued by the agency in April and July 2015, examining the detention, demurrage and free-time, and port congestion more broadly.
Last month, what Cordero called “phase three” of the agency’s effort to examine the congestion issue, began with the launch of a Supply Chain Innovation Team Initiative.
That effort is honchoed by Commissioner Dye and brings together representatives from ocean carriers, U.S. ports, marine terminal operators, chassis providers, longshore labor, trucking, railroads, intermediaries, and shippers, and is expected to include an additional team focusing on U.S. exports.
“Our teams are not being asked to help draft policy papers or offer general industry suggestions devoid of specific implementation recommendations. The goal of our teams is to produce and help implement actionable supply chain process improvements,” Dye said.
One participant told American Shipper that the first day three teams of industry leaders, each with about 10 participants, met. He said they were asked not to discuss their conversations in any detail in order to promote a frank discussion, but reported being pleased with the dialogue. He thought they would eventually produce some good recommendations.
He applauded the decision to put participants from different segments of the industry and parts of the country together on panels so that the FMC effort would not duplicate the local Council on Port Performance in the Port of New York and New Jersey or the supply innovation optimization groups that the ports of Los Angeles and Long Beach have created.
Cordero said the staff of the FMC is also continuing to study PierPass, the program set up by terminal operators in the ports of Los Angeles and Long Beach to collect fees on cargo moving through terminals during the day and use that money to fund operations at night.
He said in fairness to PierPass, it has succeeded in getting about half the drayage trucks calling those two ports to conduct their business at night, helping alleviate road congestion.
But he said there is a question whether the program has maximized its potential and if ports in Southern California or other parts of the country need to move toward operating 24 hours a day, seven days a week.
“The reason we are looking at this is complaints from the shipping community, pure and simple,” because of the rising cost of the Pier Pass traffic mitigation fee, Cordero said.
Industry Anniversaries. 2016 marks two interesting anniversaries, Cordero noted —the 60th anniversary of the first sailing of Malcom McLean’s Ideal X and the birth of containerized shipping, and the centennial of the Alexander Act or Merchant Marine Act of 1916 which created the U.S. Shipping Board two years after the opening of the Panama Canal.
A century ago there was concern about the importance of the need to strengthen the U.S. Merchant Marine on the eve of the United States’ entry World War I and again in 1936 when the Merchant Marine Act was revised prior to World War II.
But Cordero noted the laws also focused on the commercial concerns the United States, and ultimately in 1961 the job of promoting the U.S. merchant marine was made the focus of the Maritime Administration, while the Federal Maritime Commission was created to regulate the movement of U.S. exports and imports on foreign-flag ships.
Cordero said that decision to create a separate agency to regulate the movement of international cargo was “visionary.”
“Who would have thought in 1961 that containerization and the globalized business as we know it today would have come to what we have today? It’s an amazing story, because 90 percent of trade is by water,” he said.
“Given the importance of the sector, maritime transportation, I think it is important for the FMC to have tools to do its job,” he added.
Cordero declined to be specific about what those powers might be—“that’s a question we’re addressing right now…I don’t want to jump the gun.”
Lidinsky said when he was chairman he felt the Shipping Act needed a “tune-up. It didn’t need to be repealed, it didn’t need to be totally rewritten and I still stand by that position.”
By reforming some of its procedures and rules, “despite some of the non-21st century regulations and laws that we operate under,” he feels, “we’ve brought the best we can to an agency that can operate in today’s climate.”
He believes the issue of antitrust immunity for carriers, nearly all of which are based overseas, “is one of the core issues that Congress, the commission, those involved in our business have to address. Because if our role is to protect the American shipper, then we’ve got to look hard at the procedures and the statutes that are in place today.
“There would be not a better tribute to the 100th anniversary of the Shipping Act than to start a new process to say, what kind of Shipping Act do we need for this new century?” Lidinsky said.
