Speech of Jewel M. Jennings-Wright, Counsel to Federal Maritime Commissioner Richard A. Lidinsky, Jr. on Behalf of Commissioner Lidinsky EMLO Spring Seminar 2016

Good morning. I first want to thank Lord Phillips and the seminar committee for inviting the Commissioner to share with you this morning some current important matters at the FMC, and in the U.S. Maritime industry in general. I would also like to thank the seminar committee and staff for their assistance. As we say in baseball, I am pinch hitting for the Commissioner this morning, who apologizes for having to miss today’s seminar, and the committee and staff have been most helpful.

For those of you who follow our regulatory activities will know that for nearly a year the Commission has been focusing on the general issue of “port congestion.” This all-encompassing term covers everything from the size and stowage of import vessels, to the peculiar terminal operations and container handling practices in our ports, to the shortages of chassis and other vital equipment to keep the intermodal cargo flow moving.

To understand this issue, we must go back to the end of 2014 when there was a serious cargo unloading problem in southern Californian ports. There are various theories and excuses as to what occurred, but there are two major legacies of those photographs of nearly 30 vessels sitting offshore awaiting their berths.

The first legacy is the Commission’s denial of carrier imposed congestions surcharges. During the height of the congestion, carriers came to the Commission asking us to approve increased “port congestion surcharges.” Essentially, they wanted to profit from a situation in which they had a hand in creating. The Commission gave them a resounding “no,” preventing a situation where the carriers were shifting the costs of the congestion to one specific party, the shippers.

The second legacy is the diversification of shipper port use. As the congestion worsened, importers determined to not put all of their transportation needs in a West Coast basket, and thus causing the surge in East Coast cargo from the Far East via the Suez Canal. We have heard many shippers say they will continue the use of diversified port use, even though congestion has alleviated.

During this time, there were repeated rumors of shipping associates filing a petition which would have triggered a FMC rulemaking that would have presumably solved future congestion crises. Such a petition never materialized, though concerns continued throughout last year and into 2016. The Commission issued an order on February 1, 2016 to institute the Supply Chain Innovation Project. With this project, stakeholders in the shipping supply chain formed Supply Chain Innovation Teams to discuss and develop commercial solutions to supply chain challenges and port congestion concerns. The first team initiative was held on May 3 and 4, 2016 at the Commission in Washington, D.C. We are hopeful that meaningful results and guidelines can be achieved short of instituting a formal regulatory proceeding.

More recently, the Commission has turned its focus to the container weighing dispute. As you all are well aware, the requirement for container weighing for the IMO SOLAS amendments becomes effective July 1, 2016. In the U.S., there was an initial phase of parties attempting to shift responsibility. Shippers had assumed that ocean carriers would provide the weighing service and documents, while the carriers wanted to shift this function to the shippers and terminal operators.

The U.S. Coast Guard entered the fray by seemingly taking sides with the shippers, and carriers responded with suggested practices that shifted responsibility back onto the shippers. On April 28, 2016, the Coast Guard announced in its Maritime Commons bulletin that it had sent a letter to the IMO stating that current U.S. laws and regulations for providing verified container weights were in fact compliant with the IMO SOLAS regulations. The Coast Guard also noted that there are multiple acceptable methods for fulfilling these requirements.

In previous weeks, we have seen a push by many of the parties involved to create a fair and efficient method of providing verified gross mass, including carriers along with marine terminal operators and six owner-operator East Coast and Gulf Coast ports filing an agreement with the FMC to enter into a discussion agreement to develop a common VGM framework that will purportedly simplify procedures for shippers, MTOs, and carriers alike. Further, the 19 carriers OCEMA have agreed to add a tariff rule to eliminate the potential liability of the shipper if the container tare weight is incorrectly labeled on the container.

While the FMC doesn’t have direct jurisdiction or regulatory authority over SOLAS rules, the Commission will continue to monitor the situation to provide the best support for the shipping public. To that extent, the FMC hosted a public listening session, on behalf of the U.S. Coast Guard, regarding the SOLAS regulations on February 18, 2016. The FMC will continue to do whatever it can to aid the shipping public in this transition, but SOLAS remains a multiparty issue, and all of those involved will have to come together to find a solution.

While we are monitoring new developments in our industry, the Commission is also keeping watch on the changing nature of Alliances. Just a few years ago with the formation of the original four alliances, there was great speculation of how they would evolve. On top of that, were two key factors in maritime activity — the introduction of mega vessels and the continued slow growth of world trade — that are continuing to influence container shipping.

In the past 6 months, we have witnessed the first major realignment of container shipping alliances. We have seen ocean carriers acquiring other ocean carriers. First, we received word that CMA CGM was moving to acquire NOL, operating under the APL brand. We then saw a consolidation of the Chinese carriers, creating China COSCO Shipping. We have seen CMA CGM, China COSCO Shipping, Evergreen, and OOCL come together to potentially form the second largest alliance called the Ocean Alliance. With this came the end of the Ocean Three Alliance, carriers leaving the G6 and CKYHE Alliances, and the unique situation of having carriers in multiple alliances. These so-called “orphaned” alliance members then came together and formed the proposed The Alliance. With the four alliances now becoming three, there are some carriers that have been left out, with the interesting case of APL who while not a formal member of any alliance, could benefit from CMA CGM’s involvement in the Ocean Alliance. While we are still awaiting action of the remaining members of each Alliance, it is clear that this is only the beginning of the evolutionary process.

In light of these recent developments, the FMC, along with our EU and PRC colleagues, must continue to closely monitor alliance activity, which in my opinion can be very beneficial both for the industry and shippers alike if they act responsibly and within agreed guidelines, to ensure that fair competitive practices continue in our industry, and most importantly that shippers are not left holding the bag.

Finally, in less than a month, the new expanded Panama Canal will open. Over the past several years there has been speculation over who will be hurt and who will be helped. West Coast ports naturally fear diversion of cargo on larger vessels, while U.S. East Coast and Gulf Ports are dreaming of a windfall bonanza of cargo. The true effect of the opening of the expanded Canal will undoubtedly be somewhere in the middle. As with the other issues facing U.S. ports and shippers, and highlighted here, the FMC will continue to monitor this situation.

Thank you for this opportunity to briefly touch on these key issues, and once again EMLO provides the forum for review, debate, and projection as we look into the future.

Office of Commissioner Richard A. Lidinsky, Jr. Disclosure:
Richard A. Lidinsky, Jr. is a Commissioner with the U.S. Federal Maritime Commission. The Federal Maritime Commission is an independent regulatory agency responsible for regulating the nation’s international ocean transportation for the benefit of exporters, importers, and the American consumer. The FMC’s mission is to foster a fair, efficient, and reliable international ocean transportation system while protecting the public from unfair and deceptive practices. With that said, it should be emphasized that the thoughts and comments here are the Commissioner’s or are approved by the Commissioner – they do not reflect the position of the Commission, and they should not be construed to represent the positions of any of his fellow Commissioners.