Jun 21

Container lines back using current weighing process to meet SOLAS

| Jun 20, 2016 2:57PM EDT  JOC.com

U.S. exporters finally achieved the carrier uniformity they were seeking on the SOLAS container weighing requirement when 19 major container serving the U.S. gave their support for the use of on-terminal scales to comply with the international rule that takes effect on July 1.

The Ocean Carrier Equipment Management Association, which represents 19 of the largest container lines in the U.S. trades, stated that it “strongly supports the use of on-terminal scales to obtain the verified gross mass of containers, as required by the Convention on Safety of Life at Sea.”

The OCEMA announcement is significant because it should allay the concerns of exporters that each line would attempt to impose its own requirements on customers for submitting a VGM. Furthermore, since U.S. ports and terminal operators for years have been using on-terminal truck scales to weigh containers in order to meet Occupational Safety and Health Administration safety requirements, exporters can feel comfortable in knowing that there will be no process changes or delays in the loading of their containerized shipments onto vessels.

“While this is expected to alleviate much of the confusion surrounding VGM and simplify the process for most stakeholders, there may be operational constraints that require different processes for determining and transmitting VGM,” OCEMA said in a statement. “In cases where the Terminal Weighing Approach is not feasible, OCEMA will continue to evaluate ways to achieve VGM compliance.”

Under the International Maritime Organization’s Safety of Life at Sea amendment, passed in May 2014, container lines are obliged to only load containers with a VGM onto a ship. The rule is aimed at cracking down on misdeclared container weights, which have contributed to maritime accidents.

Agricultural exporters meeting in Long Beach at the weekend, three days before the OCEMA terminal-weighing approach was announced, had expressed concerns about a lack of uniformity among the almost two-dozen major container lines in the U.S. trades.

Peter Friedmann, executive director of the Agriculture Transportation Coalition, said as recently as last week AgTCmember companies had been receiving disparate messages from individual carriers as to whether the use of terminal scales was acceptable, or whether the exporters had to sign off on the weights that had been provided by the ports or terminal operators to the shipping lines at the time of loading onto the vessel.

The South Carolina Ports Authority, which operates the marine terminals in Charleston, took the lead among port authorities back in February when Jim Newsome, president and chief executive officer, said Charleston would continue to weigh the combination truck-container units at its in-gates, as it had been doing for the past 25 years, and would provide the weight to the shipping line for use in calculating the VGM.

Newsome told the AgTC conference that exporters at the Port of Charleston will not have to sign each VGM separately. “We will file a tariff rule. The shipper using our port authorizes us to submit the VGM,” Newsome said.

Charleston is one of a half-dozen South Atlantic and Gulf Coast ports that have filed for permission from the Federal Maritime Commission to form a discussion agreement through which they will develop a uniform approach on the VGM requirements, further assuring exporters that processes will be uniform from port to port in the region.

The OCEMA announcement that carriers will accept on-terminal weighing as fulfilling the International Maritime Organization’s SOLAS requirement is important because the regulation specifically states that the shipper is responsible for assuring that the VGM is submitted to the ocean carrier. However, thanks to an “equivalency”declaration by the U.S. Coast Guard, which states that there are a variety of paths to comply with SOLAS, it became clear that a third party could submit the VGM on behalf of the exporter. The Coast Guard is the U.S. enforcement agency for the SOLAS regulation.

Ocean carrier executives realize that in their industry, where company headquarters are scattered throughout Asia and North America, mixed messages were being delivered to U.S. exporters. Richard Craig, CEO of MOL America, said that in the U.S. trades carriers were working with OCEMA on developing a common approach. The process took some time, but exporters should now be assured that carriers all support the OCEMA terminal weighing approach. “We’re in full agreement here,” Craig said.

George Goldman, president of Zim Integrated Shipping Services America, said the common approach of carriers on the terminal-weighing process should also relieve exporters of the fear that carriers would each go their own way on SOLAS in order to seek a competitive advantage. “It is not in our best interest, or yours, to go off on a competitive binge,” Goldman said.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Apr 29

Ocean Alliance must overcome Regulatory Scrutiny

WASHINGTON — A big new container shipping alliance aimed at blunting the power of a partnership between the world’s two largest ocean carriers and promising to shake up the other major vessel-sharing agreements will not set sail April 2017 until it passes muster with global regulators.

The outlook for the Ocean Alliance is good since only one major vessel-sharing agreement has ever been rejected — and that one included the top three global container lines. U.S., Chinese and European regulators will zero in on the Ocean Alliance’s market share in major east-west lanes to determine whether the tie-up of CMA CGM, China Cosco Shipping, Evergreen Line and OOCL could reduce competition. The alliance, encompassing more than 40 services involving 350 ships, would have the largest market share in the two busiest routes, Asia-Europe and trans-Pacific, according to shipping analyst Alphaliner.

However, regulators will consider more than just market share in determining whether to approve or reject the alliance. Because U.S. regulators consider the likelihood of alliances causing an unreasonable decrease in service, the impact the alliance will have on port congestion will be one of the many factors the U.S. Federal Maritime Commission considers. Although they cooperate operationally, alliance members still compete on price and are forbidden to market services together.

The discharging of containers for numerous liner companies at a single terminal is contributing to port congestion, considering that the containers of various alliance members often are discharged at a single terminal call. That also has repercussions on the type of service shippers can expect. Shippers, including those now ironing out trans-Pacific contracts, easily could find that the goods contracted to one carrier might be moved by an alliance member with inferior service reliability.

The formation of the Ocean Alliance would force remaining members in the CKYHE, G6 and Ocean Three to reassess whether they stay put, join other VSAs or go without entirely.

Without membership in another major VSA, a so-called orphan line would not have the same shield against overcapacity. By allowing alliance members to pool their resources around larger, more efficient ships, carriers can blunt overcapacity and better their odds of surviving the all-but-certain consolidation already gnawing at the industry.

Regulators have given the go-ahead to all proposed shipping alliances, except for the planned tie-up of the three largest lines in the P3 Network. In 2014, China rejected the tie-up of Maersk Line, Mediterranean Shipping Co. and CMA CGM, spurring the first two to create the 2M.

Alliances do not attract the regulatory scrutiny of acquisitions and mergers, the likes of which are now being discussed between Hapag-Lloyd and United Arab Shipping Co. However, regulators will still be watching to ensure that their importers and exporters have fair access to ocean shipping transport and, in some cases, that their homegrown carriers are not hurt. China’s rejection of P3 was seen by many in the industry as an attempt to protect ailing state-owned carriers Cosco and China Shipping, which have since merged into China Cosco Shipping.

Shippers’ initial unease with alliances has faded as dismal spot rates on the Asia-Europe and trans-Pacific trades suggest that if there is collusion, then it is of the most bumbling kind. Smaller carriers — having already gained efficiencies via slow-steaming and under increased pressure for improved profitability — have banded with each other or with larger carriers as a lifeline.

What is not as clear is what impact shipping alliances have on service. The mega-ships save carriers money via greater economies of scale, but they push cost onto other links in the supply chain, the National Customs Brokers and Forwarders Association of America said in comments on an FMC proposal to require carriers to provide more data on VSAs. The actual savings made on the ocean could be dwarfed by those accrued on land, the Organization for Economic Cooperation and Development’s International Transport Forum warned in a report in 2015.

“VSAs — and similar forms of collective operational agreements — have historically been regarded as arrangements that do not inhibit competition (and) that achieve cost reductions through their supposed enhanced efficiencies,” the NCBFAA said. “Perhaps it is time to re-examine that conclusion and not automatically assume that all VSAs necessarily meet those goals.”

Federal Maritime Chairman Mario Cordero told JOC.com earlier this month that “the jury is still out” on what impact shipping alliances have on service. In meeting with Ocean Alliance members before the announcement, Cordero said he was encouraged that executives were sensitive to how the VSA could impact port productivity. He expects carriers to submit their plan by June.

Once received, the agency will start the clock on a 45-day review to determine whether the alliance is likely to produce an unreasonable increase in transportation cost, an unreasonable decrease in service or both. The FMC can stop the clock on its review of the VSA to ask the carriers questions and a new 45-day regulatory review process would begin after the carriers have responded to the agency’s queries.

If the agency rules that the alliance would violate competitive issues in the Shipping Act of 1984, it can pursue an injunction in federal court to block it. Without an injunction, the massive vessel-sharing agreement would have a U.S. regulatory greenlight once the 45-day period expires.

In Europe, the alliance’s market share is key to whether additional regulatory scrutiny will be triggered. If an alliance’s market share on the trans-Atlantic and Asia-Europe trades is each 30 percent or less, than the VSA can take effect immediately. The alliance would control 35 percent of the Asia-Europe trade and 38.9 percent on Asia-North America routes. Ocean Alliance members may rationalize some capacity connecting to Europe in order to not hit the EU threshold.

If that threshold is exceeded, then EU authorities will take a closer look. European regulators can at any time issue a statement of objections to the alliance if they determine it violates Article 101 of the Treaty on the Functioning of the European Union.

If issued, a statement of objections from the EU could be more than a year in the making and would state how authorities believed the carriers violated antitrust rules. If European regulators took such a step, the Ocean Alliance carriers could respond with comments, but the EU would dissolve the consortium if the comments did not change their stance and fines against the carriers would likely follow. EU antitrust regulators also could dissolve the Ocean Alliance years down the road if they found evidence that the network violated antitrust laws.

How Chinese authorities review proposed shipping alliances is more opaque than the processes of their Western counterparts. The Ministry of Transport requires the alliance members to file their plans 15 days after the pact is inked, Zhu Jiandong, vice general manager of China Cosco Shipping, said at a press conference in Shanghai. According to Chinese regulatory documents, authorities may look at whether the operational agreement has more than a 30 percent share of a sea route connecting to Chinese ports.

Contact Mark Szakonyi at mark.szakonyi@ihs.com and follow him on Twitter: @szakonyi_joc.