Chairman Cordero Addresses Maritime Administrative Bar Association

Chairman Cordero’s Remarks at the Maritime Administrative Bar Association – October 22, 2014

I would like to thank the members of the Maritime Administrative Bar Association for this opportunity to address issues confronting the Commission and the maritime community it serves.

Please appreciate that my comments today are mine alone and do not necessarily reflect the views of the FMC.

Carrier Alliances and Vessel Sharing Agreements

As you know, there have been significant developments with respect to the complexity and scope of agreements among vessel operating carriers that have been filed with the Commission. These agreements include highly coordinated Alliance agreements and Vessel Sharing Agreements among the largest container vessel operators in the world.

The P3 Network Vessel Sharing Agreement, filed by Maersk, MSC and CMA-CGM, would have been the largest and most tightly coordinated alliance had China not found the agreement too large in the Asia – Europe trades and too integrated operationally.

The Commission cleared the P3 in March of this year after conducting the comprehensive competitive analysis required by the Shipping Act of 1984. In the course of its review, the Commission delayed the otherwise automatic 45-day effectiveness of the agreement by asking the agreement parties to provide additional information regarding the parties’ market shares in the agreement trades, certain agreement provisions, and anticipated operations under the agreement. Further, after completing its Shipping Act review of the agreement, the Commission imposed specifically tailored, rigorous reporting requirements.

The Commission recently reviewed the 2M Agreement between Maersk and MSC, which also involves the trades between the United States and Asia, North Europe and the Mediterranean. The Commission cleared the agreement and it became effective on October 11, 2014, the 45th day after filing.

Though 2M is smaller and not centrally controlled like the P3 agreement, 2M nonetheless represents the combination in those important U.S. trades of the two largest container carriers. In light of the size and nature of this combination, the Commission is requiring the parties to regularly submit reports designed to enable close monitoring of agreement operations and impacts.

The Commission’s consideration of the 2M Agreement was also limited solely to the impact of the agreement on the U.S. trades it covers. The Commission’s review, as with all such agreements, is governed by the substantive and procedural requirements in sections 5 and 6 of the Shipping Act and the Commission’s agreement filing regulations in Part 535 of 46 C.F.R.

Additional agreements involving other of the largest container carriers include the G6 Alliance Agreement (between APL, Hapag Lloyd, Hyundai, MOL, NYK and OOCL), the CKYH Alliance (between COSCO, K-Line, Yang Ming and Hanjin),  and the recently filed agreement between China Shipping Container Lines, United Arab Shipping Company and CMA-CGM, which has quickly become known as “Ocean Three.”  Ocean Three became effective upon its October 6, 2014 filing as a low-market share agreement, pursuant to section 535.311 of the Commission’s regulations.

Significantly, the CKYH Alliance members along with Evergreen Line Joint Service Agreement filed the “CKYHE Discussion Agreement,” which became effective in July 2014. The Commission required the discussion agreement to submit tailored monitoring reports. Hence, this discussion agreement signals the growth of the market share of the CKYH Alliance.

In view of the growing size of alliances and vessel sharing agreements, it is increasingly necessary to require special monitoring reports from agreements among the world’s largest container carriers, pursuant to section 535.702 of the Commission’s regulations. The potential benefits of cost savings and efficiencies for the agreement parties that come from the coordinated deployment of new, larger vessels must be weighed against the harm that could result from the concentration of agreement control on matters such as ports of call and vessel schedules. Monitoring reports will help ensure that the Commission can quickly identify conditions under an agreement that result in a reduction in competition that unreasonably reduces services or unreasonably raises rates triggering section 6(g) concerns. Let there be no doubt that the Commission takes its responsibilities seriously, having signaled a growing expectation of enhanced monitoring of alliances and vessel sharing agreements.

The tough economic environment in which ocean carriers find themselves pushes them to eliminate costs via ever larger carrier alliances and extensive vessel sharing agreements. The efficiencies of larger vessels, however, are lost unless the carriers can fill them. It appears certain at this point that the evolution of the carrier industry will see further consolidation of carrier operations under the limited antitrust immunity provided by the Shipping Act.

In any event, the Commission will continue to work to identify new developments with respect to ocean carrier agreements in order to protect the public from adverse effects that may arise.

Port Congestion

Another matter of great concern to the Commission and the maritime community is the massive and widespread congestion at U.S. ports on all of our coasts and at inland locations in the U.S. Of course, congestion problems are also plaguing major ports worldwide.

As many of you are aware, the Commission is conducting forums on U.S. Port Congestion at four major port gateways. I hosted the first forum on September 15, 2014 in Los Angeles. The second forum was hosted by Commissioner Doyle, and co-hosted by Commissioner Lidinsky, at the Port of Baltimore on October 1, 2014.

Two more forums will be held soon. Commissioner Khouri will host a forum next week in Charleston, S.C. on October 30, 2014 and Commissioner Dye will host one in New Orleans on November 3, 2014.

A primary goal of these forums has been to jump-start dialogue by industry stakeholders, regulators, and the general public on the causes and implications of congestion at U.S. ports. The first two forums were very well attended and resulted in candid discussions on the record and, by all accounts, many informal discussions. I trust that the two remaining forums will be similarly enlightening.

Based on statements made at the forums on the causes of congestion and as covered by the press over the past months, there are numerous causes of port congestion, many of which are common in our leading gateways. An important source stems from the impact of the introduction of 15,000 to 18,000 TEUs vessels. These vessels help carriers to significantly reduce costs; however, when the vessels are unloaded they flood the port facilities with containers. Furthermore, alliances make calls at multiple terminals used by their members and further disrupt the productivity of the affected terminals. In addition, where such vessels miss their berth target time, other vessels are delayed awaiting access to berths. These delays may be significant as alliance vessels may have berthing priorities.

Truckers have also been negatively impacted. With so many containers needing to be picked up in a tight time frame, terminal slowdowns result in significantly reducing the number of turns truckers can make in a day. This turn-time issue is more pronounced at some ports, with other ports experiencing episodic problems. Press reports indicate that the delays are causing shortages of drivers due, at least in part, to their inability to make an adequate living. If that trend continues, such driver shortages will further slow getting containers into and out of terminal facilities.

The unavailability of chassis has also become a significant cause of congestion at ports and inland locations around the country. Ocean carriers serving Los Angeles-Long Beach, New York-New Jersey, Baltimore and other ports have been withdrawing from the business of providing chassis as a part of their services. Instead, truckers are now often made responsible for bringing a chassis with them before they get to the port facility.

In this regard, it is heartening that the Port of Long Beach Harbor Commission recently voted to direct port staff to develop plans for purchasing and providing truck chassis to relieve congestion during peak periods. Jon Slangerup, Chief Executive of the port, indicated that the port had determined that a root cause of congestion is due to the lack of chassis to support peak-level volumes “and no one else was stepping up to address this critical problem.”

Some may wonder what the Commission’s interest is with respect to the negative impacts of terminal congestion and chassis unavailability on truckers’ turn-times. Two of the Shipping Act’s objectives call for the Commission to foster an efficient and economic transportation system in the ocean commerce of the U.S. and to promote the growth of U.S. exports. In pursuit of those objectives, the problems of the truckers are symptomatic of larger problems at U.S. ports that are experiencing congestion. Hence, solutions that solve the overall congestion problems go hand-in-hand to help solve the turn-time problems of truckers.

Unfortunately, the sources of the problems are multiple and do not appear to be subsiding during this peak season. While there may be a reduction in congestion in the next few weeks, it seems likely that congestion will increase with the cargo surge in advance of the Chinese New Year. Unless root causes are addressed around the country, congestion will continue.

Once the remaining two Public Forums have been held, the Commissioners and staff will do a deep-dive into the transcripts and other available information about port congestion and work to identify what the next steps should be.

In the meantime, please keep an eye on the Commission’s website.  We will be posting the transcripts for each of our Port Congestion Forums and will keep you informed on the next phase.

The Commission’s Notice of Proposed Rulemaking to amend the OTI regulations – Docket 13-05

As a final note, I want to remind you all that the Commission’s proposed changes to its OTI regulations were recently published in the Federal Register. Comments on the proposed rule are due December 12, 2014.

The current Notice of Proposed Rulemaking reflects our review of over 80 comments submitted by the public in response to the Advance Notice of Proposed Rulemaking. In addition, we took advantage of the flexibility at the Advance Notice stage to meet with OTIs and their representatives to receive additional input. As a result of the comments and meetings with the industry, the Commission dropped some of the most controversial provisions from further consideration. Perhaps most notably, the Commission dropped all of the bond increases that had been proposed.

The Commission, however, carried forward the requirement that OTI licenses be renewed. However, the period between renewals is increased from every two years to every three years. OTIs will be able to renew their licenses quickly on-line by verifying certain information, or correcting out-of-date information. Additionally, there is no proposed fee for the renewal envisioned by the NPR. License renewal will result in information that is more up to date, benefitting the public and the Commission.

The proposed rule also carries forward the requirement that common carriers be able to verify at a single location on the Commission’s website whether an OTI has a license or registration, the location of its tariff publication and has provided the required financial responsibility.

In addition, the proposed rule carries forward the expedited hearing procedure for license application denials, license revocations, registration terminations, or license suspensions. This procedure will not result in summary revocations, terminations or suspensions. Also, the proposed rule requires licensees be given notice and a hearing opportunity for failure to renew a license and that OTIs may appeal adverse decisions to the Commission.

I believe that license renewals validate the idea that licenses are valuable assets signifying something in which licensees may take pride. This is in distinct contrast to unlicensed OTIs that operate unlawfully and that take cargo away from licensees. The Commission endeavors to identify such unlicensed OTIs and enforce the requirements of section 19 of the Shipping Act and its regulations against them. These enforcement efforts support the businesses of all licensed OTIs.

Again, thank you very much for allowing me to talk to you today.