Federal Maritime Commission Chairman Says that Carriers seek New Alliances

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Mario Cordero, the chairman of the Federal Maritime Commission (FMC), said that as container carriers form new alliances and merge, they are seeking new powers, causing some nervousness among shippers.

“Carrier consolidation combined with capacity in the global container fleet far exceeding the needs of a slowing global economy necessitated the re-ordering of the carrier alliance system,” Cordero said in a speech at the 2016 World Shipping Summit in Shanghai last week.  “The privileges lines are seeking in this new generation of partnerships are markedly different from the past, with shipping companies asking for permission to work more jointly. The four common characteristics sought in this second generation of alliances are vessel sharing, operations centers, information sharing and joint procurement.”

Cordero noted how in the past 10 months mergers have been successful.

“We have seen a significant merger, acquisition, and consolidation activity among the carriers since this past January,” he said.  “CMA-CGM purchased NOL/APL; Hapag-Lloyd bought United Arab Shipping Company; and here in China, COSCO and China Shipping merged to form one line.  On top of all of this, Hanjin Shipping exhausted all its options to restructure its debt and was forced into receivership, toppling a ‘top ten’ carrier. As shippers and carriers scrambled to adjust to the consequences of Hanjin’s demise, the question on everyone’s minds was ‘who is next.’  This week, we learned the three Japanese lines – MOL, K-Line, and NYK – are going to form a joint venture.  Any one of these developments in and of itself would have been impactful, but taken together; these represent generational changes that have the potential to significantly change the very structure of the shipping industry.”

“Speaking frankly, global shippers are uneasy at best about the new alliances.  Some shippers are suspicious of carrier motives and distrustful that the new alliance structures will be anything other than a framework for limiting service and raising rates.  Many parties have been vocal in their reservations about the new alliances and they have been effective in their arguments before the Commission,” he said.

Cordero noted that “Information sharing and joint procurement, in particular, are two areas where the Commission wants to move at a deliberative speed, carefully assessing whether increased sharing of information and purchasing power benefits or harms shippers and other parties.”

“That is why the Commission worked so hard on the OCEAN Alliance agreement.  We needed to strike a balance between the concerns of the shipping public and giving carriers a path toward the efficiencies they seek and so obviously need.  I fully believe the alliance structure can be mutually beneficial to carrier and shipper, and that it can also be the vehicle for addressing issues related to congestion, port efficiency, and even supply chain optimization. Done properly, alliances can be vehicles that deliver commercial and policy benefits. Done poorly, they will reinforce every bias of the most skeptical shippers.”

In the wake of Hanjin’s insolvency, Cordero called on shipping lines to “give shippers confidence they are doing business with solvent entities; and, to install safeguards to give shippers comfort that if there is ever another bankruptcy, things will be handled much more smoothly, particularly in the context of an alliance relationship.  Here, I suggest incorporation of basic corporate responsibility on the part of carriers.”

He also said, “Shippers need to realize the obligation they have to accept conditions that allow carriers to exist to move cargo. Rates are not only unhealthy, they are unrealistic and unsustainable.  Shipping lines are businesses and they are supposed to at least break even, if not make a profit.  Simply put, rates are going to have to rise at some point.  While the Commission is always vigilant against anything that might be considered anticompetitive behavior, it is important for shippers to recognize that not every rate hike is a case of gouging or carriers engaging in price fixing.”

In addition, Cordero made a pitch to his audience about the benefits of international trade.

“All of us have seen how countries that enter the trading system create opportunities and higher standards of living for their citizens.  Free trade helps to keep inflation in check, adds to growth, improves economic efficiency, and spurs innovation.  Perhaps most importantly, trade bridges distances and helps create stable, meaningful relationships between nations and people.”

“To each of us, the benefits of free, open international commerce are apparent; but to the general public, the gains of trade might be more intangible and difficult to recognize than we would like.  For those who feel they are casualties of the economy, it is not surprising that global trade serves as the target for their blame.  This narrative of victimization at the hands of global commerce is perhaps understandable, but is certainly incorrect,” he said.

He said there is a need “to assure that trade is a positive endeavor to both business and the citizens of the economies engaging in global commerce.”

“While we can point with justifiable pride to the many very good jobs that trade creates on terminals, in distribution centers, and in the corporate functions that support the industry, we must also recognize that the positions directly linked to moving containers are only a small part of the overall labor pool.  Additionally, we must acknowledge it is difficult to ask an out of work factory worker in the heartland of the United States to concede trade creates good jobs if the truck driver hauling a container from a terminal to a distribution center cannot make enough money to support his or her family.  If a trade is perceived by the average citizen to be an exploitative system, we are handing over fuel and matches to those who seek to indict international commerce as the cause for economic woes.”

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Source: Federal Maritime Commission

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