Commissioner William P. Doyle Votes on amended G6 Alliance Agreement

Contact: David Tubman, Counsel to Commissioner Doyle

Amendment to the G6 Alliance Agreement

I am in favor of not taking any further action to delay the implementation of the amended G6 Alliance Agreement that was filed with the Federal Maritime Commission (FMC or Commission) on December 2, 2013.

The amended G6 Alliance Agreement provides for an additional 17 services. The parties intend to jointly coordinate the operation and sharing of space on about 180 – 220 container vessels with a maximum capacity of 14,000 twenty-foot equivalent units (TEUs).

The parties to the G6 Alliance are American President Lines, Ltd. (APL), Hapag-Lloyd Aktiengesellschaft (Hapag-Lloyd), Hyundai Merchant Marine Company (Hyundai), Mitsui O.S.K. Lines (MOL), Nippon Yusen Kaisha (NYK), and Orient Overseas Container Line Limited (OOCL). Furthermore, the G-6 Alliance is a vessel sharing agreement between parties of the New World Alliance (APL, Hyundai, and MOL) and the parties of the Grand Alliance (Hapag-Lloyd, NYK, and OOCL).

I have reviewed all the public comments, submitted my own questions to the G6 Parties as part of the Commission’s request for additional information (RFAI), and reviewed the G6 Parties’ RFAI responses. I am pleased that the G6 Parties have recommitted in this amended agreement to abide by the applicable laws and regulations and will maintain their separate and individual identities pertaining to sales, pricing and marketing functions. I also appreciate APL’s and Hapag Lloyd’s commitment and support to the United States with respect to jobs and the commercial ships they have registered under the U.S.-Flag. The G6 Parties have provided quality information with respect to their environmental program.

I am highlighting as a concern Article 5.9 of the amended Alliance Agreement where the Parties have added the term tug services. Tug owners and operators should be aware of the vague language in this clause. In any event, the G6 Parties must comply with all U.S. laws should they discuss and agree upon jointly contracting for tug services. The application of this provision should require special purpose monitoring.

The G6 Parties should be mindful of the antitrust probes that are being conducted in the oceanborne transportation sector – worldwide. To this end, the FMC will continue to monitor this Alliance. Specifically, the Federal Maritime Commission will be modifying its current monitoring program to reflect the new services outlined in the amendment.

Overview of FMC Authority: 6(g) Analysis

The FMC has the responsibility to review all agreements prior to their implementation and to seek to enjoin any agreements that are substantially anticompetitive. Under the Shipping Act of 1984, the Commission evaluates agreements for potential anti-competitive activity under what is known as the 6(g) standard:

Action by commission.— If, at any time after the filing or effective date of an agreement under chapter 403 of this title, the Commission determines that the agreement is likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost, the Commission, after notice to the person filing the agreement, may bring a civil action in the United States District Court for the District of Columbia to enjoin the operation of the agreement. The Commission’s sole remedy with respect to an agreement likely to have such an effect is an action under this subsection.
46 U.S.C. § 41307(b)(1)

The FMC’s Bureau of Trade Analysis is responsible for competition oversight and market analysis, and is an expert on the economics of international liner shipping and maritime agreements. Through their economic analysis of the G6 Agreement amendment, legal analysis by the FMC’s Office of General Counsel, and subsequent representations by the parties, it appears that the amended G6 Agreement is not likely, at this time, through a reduction in competition, to result in an unreasonable decrease in transportation service or an unreasonable increase in transportation costs.

Identity of Parties, Pricing, Sales, Marketing and Compliance with Laws

The G6 Parties have left unchanged their original language with respect to their own separate identities. Article 15.1 of the G6 Agreement states:

Each Party shall retain its own separate identity, shall have its own sales, pricing and marketing functions and organizations, and shall be responsible for its own interests in the Trade. Each Party will issue its own bill of lading, handle its own claims and will be fully and solely responsible for all expenses, obligations and liabilities applicable to it pursuant to this Agreement.

The G6 parties have also left unchanged their original language with respect to compliance with the law. Article 12 of the G6 Agreement states:

The Parties shall, individually and collectively, conduct their operations under this Agreement in compliance with laws and regulations applicable to any one or more of the Parties, including but not limited to applicable regulatory compliance and trade sanctions, anti-boycott, anti­corruption and bribery, environmental, labor, competition, and privacy laws.

Expanded G6 Service

The G6 Alliance was formed in December 2011. This arrangement brought together members of the New World and Grand Alliances to create the G6 Alliance. The New World Alliance members comprise APL, Hyundai Merchant Marine, and Mitsui O.S.K Lines. The Grand Alliance members comprise Hapag-Lloyd, Nippon Yusen Kaisha and Orient Overseas Container Line.

The G6 Alliance began operations in March 2012 in the Asia-Europe and Mediterranean trade lanes. The cooperation expanded to the Asia-North America East Coast trade lane in May 2013.

This amended G6 Alliance Agreement will provide a network covering all three major East-West trade lanes, operating a total of 29 services. The G6 Alliance members represent that they will continue to market these services individually (including with small businesses).

U.S. Port Rotations

In February 2014, the G6 Parties publicly released their proposed port rotations for Transpacific West Coast and Trans-Atlantic services. Of note, each Grand Alliance carrier will add Seattle, Washington to their U.S. West Coast services. In addition, each Grand Alliance carrier will add calls at the ports of Jacksonville and Miami in Florida.

Overall, each Grand Alliance carrier will offer an additional 49 port connections in the Asia-West Coast trade and the New World Alliance carriers will offer an additional 39 port connections. In the Transatlantic trade, Grand Alliance and New World Alliance carriers will increase their ports connections by 28 and 67 respectively.

U.S-Flag Component of G6 Alliance

APL and Hapag-Lloyd indicate their current intention is to keep the same number of vessels under U.S.-flag registry in their fleets operating within the G6 Agreement. Further, APL and Hapag-Lloyd currently intend to keep the same number of vessels enrolled in the U.S. Maritime Security Program (MSP). The MSP maintains a core fleet of U.S.-flag, privately-owned ships operating in international commerce which are also available under agreement to provide capacity needed to meet U.S. Department of Defense (DOD) requirements during war and national emergencies. To be clear, both APL Marine Services, Ltd. (with 9 U.S.-flag vessels), and Hapag-Lloyd USA, LLC (with 5 U.S.-flag vessels), have renewed their MSP contracts through September 30, 2025.

APL Marine Services and Hapag-Lloyd USA also participate in the Voluntary Intermodal Sealift Agreement (VISA). The VISA program is a partnership between the U.S. Government and the maritime industry to provide the Department of Defense with “assured access” to commercial sealift and intermodal capacity to support the emergency deployment and sustainment of U.S. military forces. Intermodal capacity includes dry cargo ships, equipment, terminal facilities and intermodal management services.

Environmental Benefits

The G6 Alliance has provided the following information with respect to their environmental stewardship.

The implementation of G6 brings larger, more modern ships that have better overall consumption/emissions per unit. Neither the Grand Alliance nor the New World Alliance had 10,000TEU ships deployed on the US West Coast prior to the implementation of G6. Currently there is a full loop of 10,000 TEU vessels in service (SC1). With the implementation of this new tonnage the G6 is better able to comply with the California CARB legislation. Overall under the combined G6, the carrier lines can better manage the shore side power requirements under CARB.

The six carrier lines pooling their volumes create better load factors. Thus, each individual sailing will be better utilized, which equates to better fuel efficiency and less waste per unit. The G6 Alliance can do this without reducing the available capacity.

In addition, by pooling volume they can limit the amount of speed-up to recover schedule delays, again saving fuel and reducing emissions. This allows the carriers improved commercial transit times while still achieving economical sailing speeds and thus reducing both emissions and consumption fuel.

I would also like to point out specific publicly available information with respect to the environmental stewardship and programs provided by some of the carriers of the G6 Alliance.

NYK Line is a pioneer of sorts with respect to Alternative Marine Power (AMP). AMP equipped ships “plug in” to shore side electrical power instead of running on diesel while in port. About a decade ago, NYK sent the world’s first container vessel built with AMP-type specifications to the Port of Los Angles, and since then it has been building ships with this technology in mind. NYK’s annual report indicates that it has reduced CO2 emissions by 30.6% over FY 2006.

APL reports that it is on target to reduce its carbon exhaust emissions by 30% by the year 2015 across its global operations. This means the company aims to minimize to 130 grams of CO2 for every TEU of cargo transported per nautical mile. APL has introduced 10 new vessels with another 22 to be delivered in the next two years. APL took the lead in installing and testing an advanced emission control technology in which seawater is used to scrub contaminants from a ship’s auxiliary engines and boiler before exiting the exhaust stack of a ship. This technology reduces PM by up to 85%, VOC by 90%, NOx by 10%, and nearly eliminates all SOx emissions.

MOL has completed several environmental improvements with more on the way: Reduce CO2 emissions by 10% for FY2015 compared to FY2009 (For FY 2010-12, MOL reports reduced CO2 by 7.5% compared to FY2009). The company plans to reduce NOx and SOx by 10% for FY 2015 (for FY 2010-12, NOx was reduced by 7.5% compared to FY2009; Sox was reduced by 15.0% compared to FY2009). MOL has developed and installed ballast water treatment systems on 11 of its vessels during FY 2010-12.

Monitoring

The current G6 activities are monitored by the Federal Maritime Commission, and the expansion of services under this amendment will likewise be closely watched. The monitoring system is intended to provide an early warning system to detect a reduction in competition. FMC’s monitoring activities include, among other things:

• Submission of information by each party regarding capacity.
• Regularly scheduled reports concerning cargo loaded and number of sailings.
• Monitoring of rates in connection with Agreement activities.

Conclusion

In closing, it appears at this time that the amended G6 Alliance Agreement is not likely, through a reduction in competition, to result in an unreasonable decrease in transportation service or an unreasonable increase in transportation costs. However, the Commission will apply a modified version of its existing G6 monitoring requirements to the Parties’ participation in trades within the expanded geographic scope to help ensure that the G6 Parties play by the rules.