this subcommittee will come to order today the subcommittee convenes to consider the shortage of shipping services and regional shortage of shipping containers available to carry u s trade particularly exports a recent article in the wall street journal simply summarizes the basic problem the united states says traditionally receives more importance than which its every clique comprised of finnish consumer goods such nix and furniture then we have shipped exports which are typically comprise the bulk products including agricultural products the recession that occurred in two thousand  star nations demand for imports and reduced the chota worldwide shipping volumes causing sipping rates and the scariest profits to plummet carriers have responded by pulling ships off global trade routes and laying them up at anchor they've also responded by sailing more slowly to reduce feel costs now and just as trends container shortages are not uncommon in some regions even before the economic downturn while the limited availability of shipping capacity  empty containers would be serious concerns and any time these characters pass the constraints are carrying just as president obama has announced the goal of doubling united states exports over the next five years increasing our nation's level of exports is critical to reducing our unsustainable trade deficit and carrying it to carrying our recovery  economy forward that said individual economic trends in the maritime industry do not support the increase carried products from the united states to destinations abroad nations ability to expand its exports may be threatened even if there is increased demand for such products today's hearing when able to assess the true extent of the shipping capacity problem as well as the options that are available to the united states to deal with this problem before we hear from eyewitnesses let me take this a brief moment and place this current challenge in a broad is recounted in several excellent studies such as the weight of the ship and the abandoned ocean in the decades prior to the united states civil war more confederacy although the united states lacked adequate naval forces to protect emerging shipping when insurance premiums began to rise the united states government generally refused to offer assistance to cover these premiums united states ship owners responded by selling their vessels to foreign entities or by reflag their vessels in foreign nations predominantly britain laws in existence at the time prohibited ships ships so foreign from returning to the united states flag and shortly after the civil war ended the congress passed a law explicitly prohibiting u s owned ships that had been flagged foreign from returning to the united states flag it is estimated that more than half of the ships that had been under the united effectively been reversed even with the ship construction booms that occurred during war wine and world war two in the twentieth century as global economic forces that shape the environment  which the united states flag vessels have sailed the u s has pursued and discarded a number of policy and what has been presented as an ongoing effort to accomplish what the maritime administration now describes as its mission of improving and strengthening the united states maritime transportation system to meet the economic environmental and security needs of our nation these policies which included construction subsidies operating subsidies highly levon program cargo preference programs and now the maritime security program have been individually designed to pursue we will hold a hearing to examine in more depth the state of the u s flagged fleet however let me provide a few statistics to set the stage with today's hearing according to a study produced in two thousand ships with a carrying capacity of more than seventeen point six million dead weight at the end of two thousand and seven there were eighty nine u s flagged ships operating in the foreign trade and the ships are highly dependent on u s government and our goals as a result the u s flagged fleet is estimated by i h s to be carrying less than carriers when they move their products throughout the twentieth century these areas jointly set rates and coordinated other business activities a practice sanctioned by us law at a minimum they must be acknowledged for what they are but i would certainly hope that as we work to expand u s exports we also work to formulate a meaningful u s maritime policy that will much mr chairman like nearly every part of our economy the maritime transportation sector has been significantly impacted by the recent economic downturn during this time demand for imported goods has declined and many ocean carriers have been forced to respond by reducing the number of vessels in operation and routes serviced in order to minimize costs and keep their businesses afloat while this may have been necessary to keep carriers solvent in the near term some of the transportation community complained that it is becoming increasingly difficult to transport goods in and out of u s ports the concern appears to be especially strong for export others who have seen an increase demand for u s goods and products recently a weak dollar and other economic factors u s exports have grown significantly as economic conditions begin to stabilize in the coming years u s manufacturers may be in a position to further increase volumes of exports and in so doing create new american jobs i hope today's hearing will give the subcommittee an opportunity to hear from all parties and to lay out strategies that will support carriers shippers and u s producers in the long run it is in the interest of all parties to if you're out before you even start i want to recognize a woman who has just been just so wonderful to me and one who has spent just a phenomenal amount of time working on maritime issues  of meetings with various carriers shippers and representatives of the transpacific stabilization agreement which is the largest ocean carrier and of the west bound stabilization agreement as well we have met with the national duster traffic le national retail federation the agricultural transportation coalition and the pacific coast council brokers in free forwarders reports from shippers have been remarkably similar many say they've been forced to amend their service contracts and commit to higher at times auction rates in order to have their cargo carried many have complained of their cargo being delayed or rolled to future sailings exporters particularly agricultural exporters have had difficulty in obtaining containers carriers on the other hand point immediately to losses incurred over the past two years huge economic conditions claiming that they collectively lost fifteen to twenty billion dollars and are just being each stabilizing at this point over the last few months we as a country have emerged from economic conditions the likes of which we have not seen for seventy years and the shipping industry is no exception it appears that the core of the problem is that carriers move esle from service after a dramatic drop in demand in the depths of the perception from late two zero zero eight through to nine recently demand for container transportation has increased as the american economy has begun to recover but by all reports vessels have not been redeployed as fast as the man for space has increased ocean carries advise us that they doing to zip a moderate capacity increases bringing in new vessels and expanding service but according to respect forecasters there will be an increase o approximately two percent this april in capacity to new lines will work in the pacific but nevertheless projected april capacity still more than six percent below where capacity stood in april of two thousand and nine the ocean carrier's cautious reaction might be explained by the tremendous impact the recession had on their finances as well as economists uncertainty over how much the recent uptick resulted from restocking of low inventories as opposed to a sustained increase in demand on the other hand available shipping space is a key ingredient for the financial recovery of american exports and importers the commission understands the aftershock of the tremendous economic swings of the past two years affecting both parties we know from experience that trades are almost never in perfect balance as to imports and exports from the outset of containers asian fifty years ago there have been fluctuations between under capacity and overcapacity however we are also mindful of the increased demand for cargo space representing a good sign for the economy and this industry overall in this regard cargo shipments in the january february time period of two and nine saw a thirty two percent increase for the ports of los angeles and long beach as opposed to a year ago liner imports increased thirteen percent in that period as well nevertheless we are seriously concerned with the current situation particularly with reports of s export is unable to obtain space as you know it's expressly stated in the shipping act that this agency is to quote promote growth and development of united states exports through competitive inefficient ocean transportation and by placing a greater alliance with the marketplace and as the chairman mentioned in his statement the president has directed all federal agencies to quote use every available resource to increase exports over the next five years the commission is doing its part to advance congress's in the president's proposals in two key areas we have resilient number of avenues but we recently met with the department of agriculture staff and the west bank conference in an effort to develop an information system that would enable agricultural shippers to identify the locations of available at the shipping containers into fishing container availability has been a recurring problem affecting our agricultural exporters addressing the current problems with container availability and the location of equipment for explores or choir coordination among several modes of transportation and the agencies that regulate them my fellow commissioners and i have recently met with his two young  our complaints as assured us that these issues will be discussed in detail just a few hours ago i also received a message from mr camp stating that members of their which the agreement are willing to meet in a in all of our discussions both with your present carriers we have stressed the need to be partners in recovery as each is dependent on the other for economic recovery and growth the commission will continue to serve as an honest broker between these partners working to achieve the results that we all want i'm also pleased to announce that on march eleventh the commission unanimously voted to initiate a non u adjudicatory fact finding investigation into the space and equipment shortages the fact finding investigation will be headed by commissioner back at di and she will conduct a full and fair analysis of the circumstances explores ways in which we can which can help resolve the current situation in light of our current limited ability and authority and report results of the commission along the way with any recommendations of a policy or regulatory nature as well as suggestions for any possible legislation that might be needed we will be sure to keep the committee apprised of how the investigation is proceeding and we were happy to share our reporting recommendations when the investigation is complete finally the commission has consistently reminded all parties that issues between individual shippers and carriers can be resolved with the assistance of our consumer affairs in dispute resolution service which specializes in resolving disputes through mediation and other alternative dispute resolution services we encourage carriers and shippers alike to use these services if you chairman and may remember we we had a real morale problem at the f m c and people were complaining and i can tell you that i've heard from a number will feel a lot better about yet but do you believe that the united states export as a karen lee experiencing a lack of vessel capacity and will that lack of vessel capacity affect the achievement of the president's goal of increasing the nation's exports over the next five years and further could you explain how your back buying will help the karen crisis do you think it might help and so i must die if you want to chime in you certainly welcome to do so thank you mr chairman first of all let me say thanks again for your comment about the agency as you know i return to the commission after a short absence of thirty five years where i trained under helen bentley so i'm back home but i was i was struck by the fact that the same spirit of dedication is there although the angel has half the size of what it was in those days but it was just a matter of redefining ambition that was always there and  commission staff was energized and some of these issues and you're going to see results in the commission in the coming days so thank you thank you for that now as the question of capacity there's no doubt there's a capacity shortage is no doubt that it's hurtful for  now well the reason you know you know when you said you said that automatically made my ears perk up because you know i love deadlines we may because there's no way you we can measure things unless we have timetables and deadlines and that's why that's why we're going to have a hearing i'll take that challenge ok we're going to have about we're going to figure out are we going to have any hearing sometimes sometime after june fifteenth but no later than july fifteenth we're going to i just we just had to look at the schedule because we want you to come back so we can see where we are right now but i and i do appreciate you saying that because it thinks things can go on and on and on and as i told a group american man mariner folks yesterday i said that when it comes indirect complaints from shippers that have been deprived of containers we also have several services that we use economic experts who give us weekly reports of container shortages and do you know whether she lies have been cutting export shipments so they could ship empty containers back to asia where we've heard reports of that and this is a shipping pattern that's not new to this crisis because lines will be dedicated to a particular service all of the legal authority it needs to address the problems faced by u s exporters regarding carrying the data capacity but we do at the moment and we would hope the commission would die study would point to where we might be short on that but at the moment we feel we do have adequate authority and just one more thing and then i'll come back after my solo band up and just as f m c ever ordered more capacity of vessels or more containers into a trade or to a part of the united states we have not mr chairman and the reason for that is that in the decision making process of the commission we don't micromanage companies in terms of what they have to do in terms of containers or vessels now theoretically there could be a complaint brought there could be a proceeding investigation where that might be a remedy but it's never happened before in history the commission so that is what you have the authority to do it is do you think you have the authority is that i would defer to our legal counsel and tha chairman i think it would be a question a very close question of a matter of fact if for example the commission found that carriers were coordinating their services in a way under a filed agreement that would violate the standards of section sixty of the shipping act the commission could order a remedy which would be the dissolution of this kind of collaboration and necessarily probably what would happen was each  carrier would have to put in its own capacity and and thereby capacity would enter the trade but of course i don't believe as and as a particular remedy the commission could order specifically that containers be is larger shippers do larger shippers are very often in contact with not just the carriers but with an deo as he sees other equipment suppliers container leasing companies that do have access to and do containers so each each export or has to fashion their own export strategy but there's no central repository to come to to say here's five hundred containers sitting in new york or six hundred sitting in baltimore that does not exist now the u has held meetings with us to try to talk about such a system particularly for agricultural exports and those talks are in their early days but that's the gist of what they would like to do does your agency on but i would prefer to consider guy with a question yes mr levy on oh that's the type of thing i think that these types of solutions that were exactly that we're looking for and if we can be a facilitator on that matter that's something that we'll consider i think it's appropriate for this that binding so that would be something you'll be looking at three now on june fifteenth yes  carry company each unit that we've met with acknowledges there's problems and as i mentioned in my statement that it's not unusual to see in the day to day shipping process day the shipping is not a science it's an art if it was a science we have all trades perfectly balanced no container missing i worked for twenty years for a container manufacturer and supply company and the toughest aspect of that is getting it right tween the carriers and the agricultural shippers to identify the locations of available empty shipping containers what is the outcome of the meetings and will container information system be developed and when will it be online and how do you envision that working well the meetings are still going on in progress but the u s d a invision such a system that you describe and i can't give you any deadlines today is that when it might be finalized or what we've the reality of it agricultural exports are much more difficult position than regular exporters of course because they've got crops which times are unpredictable they can't give a date certain very often for movement of the goods moon of the grains and different things we would work with what u s d a visions is that they would be carriers would work through central registry to report empty containers in this region in that region so that the agricultural shippers can hook up with those empty containers and move to port and i mean i know you can't say no you know it's a difficult problem to address but do you have any idea when you you know you thank you might be able to have it resolved them in my trying to hold you to date i would think that in the that such a major problem i hope that that will be i'm sure it already is on the top of your list trying to figure that one out say after so many that you'll be able to hold a hearing on july the second among the actions taken by cartel members what assessments do you undertake to compare the actions of cartel members and what results have you found well i would defer to counsel but i would say that we very carefully look at the minutes of each meeting of the groups we then follow up by our own feel represented is observing in various ports what's happening economic reports monitors all filed carrier agreements and their impact depending on the authority of the agreement there are different levels of monitoring emitting requirements with the agreements that discuss rates particularly having the highest scrutiny of monitoring other agreements or monitors and as well for their activities with regard to capacity deployment and other activity  these these are we have a team of economists but watch for the effects and and have to predict likely effect of of these agreements that are filed with the commission so they closely monitored and how many challenges as the f m c board against agreements filed with it on the grounds that they are anti competitive so it's an act of the shipping act of nineteen eighty four there has been one such challenge and what type of matters is the commission addressed in the past fact finding actually in past fact finding action the commission has addressed a wide variety of matters but several having to do with the coordinated activities of carriers in the past we've had fact findings concerning particularly the transpacific stabilisation agreement and its activities with relation to service contracting how they treat their  shippers whether they're acting and in a coordinated fashion to discriminate against certain types of shippers and that sort of matters where we have looked in the past at particular trade lanes and we've looked at particular commodity issues there have been a wide variety of fact finding some have resulted in settlement agreements with the of the carrier agreements some have resulted in further enforcement action and some have not resulted in any further action so there's a wide variety of of outcomes that we've seen from fact finding one last question before we before we get to mr larsen what legal authority does the f m c have to  international shipping such as eliminating terror filing and publication requirements the commission has quite broad authority under section sixteen of the shipping act to deregulate where it fin under the shipping deregulate excuse me the shipping supply the committee with the exact number but my feeling was the chairman would be vast majority moving under contract and to what extent do you believe that ocean common carriers are colluding in setting the rates that are being charge even on the confidential service contracts and what impact is such collusion having on prices well i would answer the question is was very much i think the service contracts that came out of the one nine hundred ninety nine ocean shipping i perform act have been tremendous success there were two million of these contracts filed and i think that most individual shippers feel that they are negotiating one on one with the carrier with the  service that they're involved with if there was any evidence of any kind of collusion or any kind of the anti competitive activity any kind of excessive negotiating power over the shippers we want to know about it we will act to we will now i'm here for my second panel the mohawk trading company and hayden swofford is the executive director of the pacific northwest asia shippers association and mike oprah's on is president a chairman i have a written statement with your permission i'd like to submit for the record so i did and i have some material that i'd like to use use that material to summarize some remarks or good morning mr chairman mr lo bianco thank you for giving me an opportunity to speak with you today my comments today are from an ocean carrier's perspective from a p l's perspective i'm not representing other carriers i'm not representing other carrier groups in my appearance today is part of a p l's ongoing efforts my company has been a leader in trying to have more transparency and more engagement with our shippers our shipper groups and regulators like the federal maritime commission a p l american president lines is the fourth largest container shipping company in the world we are one hundred  sixty years old in one hundred sixty years we've been a u s flag carrier we have one hundred forty six ships deployed in global trade twenty of which fly the us flag we employ six hundred forty merchant seamen since before world war two we served our nation proudly in peace and in war i've been with a p l for twenty eight years and i'm very proud of our industry i'm very proud of my company's history and legacy we've are we are emerging from two years of truly unprecedented events in the global economy that's impacted global shipping historically global shipping grows at about ten percent per annum in two thousand and nine containerized imports to the united states were down by fifteen percent we have never seen anything like that before exports were down just a little bit about one or two percent at the same time carriers had been taking in the delivery of new ships to keep up with customer supplied suppl there was a disequilibrium if you will in terms of demand for container space and too many ships during that time also i'd like to point out that the price the fuel doubled from two hundred fifty dollars a metric ton to nearly five hundred dollars a metric ton so ocean carriers frankly were facing a perfect storm my company lost seven hundred and fifty million dollars the largest loss be the riposte that in the industry lost upwards of twenty billion dollars we had choice but to take action on president action and carriers moved quickly to try and reduce costs we did lay off ships and we idled capacity because frankly in two thousand and nine there wasn't enough cargo moving to fill that c what we're seeing now however sir is late in the fourth quarter we started to see a rebound in u s exports and in the last eight or ten weeks we're seeing some light at the end of the tunnel on u s imports u s imports are growing for the first time in over a year i think also what exacerbates the problem with the u s exports is that for agricultural products which is a big driver of u s exports historically only one or two percent have moved on container vessels lately in the last couple of years ten percent have moved on container vessels and they've moved away from bulk ships these bulk ships have left the u s trades and gone to foreign to foreign trades from brazil  australia in and out of china so that's left the u s exports are a little bit in the lurch and the container companies have committed and frankly provided a solution there are structural issues in the trade that really are beyond the control of ship carrier we bring in twelve million to use into the united states from asia and we only export six million there's an imbalance in the trade where the cargo wants to go to imports want to go to consuming locations metropolitan areas where the people are because we import consumer goods exports from the united states the largest export from the united states's waste paper the second largest to scrap metal followed by things like agricultural products they come from more rural areas so there is a need for containers frankly where they don't necessarily go to also the weight is different you talked about moving empty containers we have no choice but to empties because we can only carry back half as many exports as we put on the ship coming in the average weight of an impound container is ten metric tons the average weight of an export container because of it raw material its lumber and scrap metal and waste paper is over twenty metric tons you dead weight out the ship and we also have to move empties back so the m p s are available for importers like j c penney and sears and target to move their products to market we acknowledge there's been some shipper complaints and we acknowledge that there have been some container shortages and this is not unusual but we believe that as demand comes back and as we recover from two thousand and nine and as rates begin to go to compensatory levels carriers will be able to reimplement capacity and alleviate their shortfall we also want to continue our engagement with our customers  are going to have a meeting here on the nineteenth of april it is one of many many meetings we've had in the last three years frankly under my company's leadership and working hand in hand with the f m c to hear directly from shippers and to try and reach so a better understanding between both parties thank you very much congress thank you for allowing me to speak here today the reason i'm here today is because i'm basically at the end of my rope situations that have occurred and recent times with exporting my product which is cattle about the problem with getting enough containers i would like to say that the bigger problem is even when we can get these containers today we can't get them on a ship i cannot ship my product to the customers who have bought it  the delays have become tremendous the customers are complaining they cannot manufacture their goods overseas from the goods they depend on from my role material basically the fact is that exports are not the priority for the shipping companies and that needs to be said we are second the exports of foreign companies to this country are the priority vessel capacity is definitely insufficient and now we have to plan our shipments four to six weeks in advance whereas before it was just one or two weeks and while you may think that's not a big deal and it isn't we can plan that out what's happening is that the space reservations that we make for these vessels are being canceled at the last moment case in point on february twenty second i had bookings or shipping space reservations made with one shipping company i've been doing business with for more than twelve years and they just send us an e mail that all of those bookings were canceled and we had already made these bookings weeks in advance planned it out for four to six weeks in advance we did what we were supposed to do and reserve the space and the carrier just decided that we couldn't have that space anymore in the current shipping environment there's nowhere for me to go because everybody else has a full ship so essentially they blew a big hole into my edgell and i was unable to what i said it was going to do as a businessman i fully understand the needs of the carriers to make revenue i also need to make revenue the problem is you cannot wreck other people's businesses to save your own that is just wrong and this carrier that i was working with had been moving the same cargo for us weekly for the last nine and ten months and suddenly they were not going to take it anymore it left me in a devastated position the booking reservations that we make have no meaning and that's a problem that needs to be solved because with any other industry any other business when you make a reservation and the day comes for that reservation to take place you have that reservation but that's not true in the shipping company booking system basically even if we can get a container and we can keep our space reservation our cargo gets the loading cord and we only find out two days after the vessel sails that they left it behind or they left part of it behind and they can't even tell you when they're going to ship the rest of it even though it's loaded and sitting at the port but we are not consulted about that whatsoever and i asked carriers for years and years please just call us because sometimes if you need to cut our cargo there might be three other containers that we would rather have cut than the three you chose or when you split our shipments it creates a lot of problems also because we an agricultural product we need to have documents signed in issued by the u s d a a lot of foreign governments would hire them to be signed prior to sailing not after and when they have to be reissued we run into these these situations where the dates can't match up and it becomes an importing problem for our customer in the foreign country so essentially there's no more reliability in this shipping industry i've been doing this for almost thirty years and the reason i came here today truly is because i don't know what the do anymore when that when that shipping company canceled my booking reservation for all seventy five of those containers i literally begged them please do not cancel all of them i need to ship at least something to my customers please just cancel half if you don't have the space they wouldn't do it they need want to hear it the problem is that i don't understand how i can reserve the space and i can plan it out but they can't it's their ship and they know how much fits on it they know the weight of my mind and all the other commodities if you take that reservation why can't you see that's the big problem we cannot ship our products we compete with other people in the world if they can buy my product they'll buy it from brazil they'll buy it from australia they'll buy it from from south america thank you very much  i can only reiterate what mr miata malawi is saying about the circumstances up against and what you have to deal with i work with shippers association we're sixteen members we are a fairly small shippers as individuals but as a group we represent a fair amount of cargo that is moved i can tell you a story about one of our members i have a couple of things here but it's a small member who ships and struggle for years to gain a foothold in the export market and finally been able to develop a strong relationships with foreign buyers for his longer products and as things go he goes along make his space reservations six weeks in advance to sailing and he has to go through all the  purchasing it from the supply source is buyer will then go out of course raise for the financing and make sure that the terms of that sale transaction is re to be completed we have coming cases very often where that bucking or it's base reservation sometimes a day or two days prior to sailing that vessel is cancelled he's out of business that week that represents his income for that week that shipment and the carrier arbitrarily is canceled that with no remedy or recourse and there'd be no space for him to go back to try to rebook that cargo get on a vessel for six weeks which is the first time the carrier will open up new space for new sailing it's an untenable situation for us to deal with as exports of this country but it's not only just exports of the imports as well that happen some of our members will import and they cannot get their goods on to vessels at foreign ports to bring them in capacity is been over reduced and have some u s flag ships under their management but they are not a u s merchant marine carrier anymore and bob also mentioned fuel prices doubling they fail to recognize the fact that the cost of the fuel has been passed on to the shipper in our rates our rates will have an ocean freight rate and will have a fuel charges well so we are helping them pay for that variable cost on every container that we ship since july of last year we have also faced five rate increases that we've had to deal with and most of these increases comment a short period of time my read testimony i explain to you the sales cycle that we deal with is usually about a ninety day size all from the execution of a sales agreement between the buyer in the seller and then they would manage to go out and prepare the goods and get them ready for shipment the reservation is made to actually execute that shipment and under these current maritime law rate increases can take place thirty days in advance to that time that rate is to take place while that's thirty days short shifts are shippers and our export is because the the execution of that already been in place and somebody has to make that adjustment the buyers are unable to do that because their financial instruments are already in place and most of our business runs on layers of credit and once those are issued the terms are usually unal able they may be amended sometimes to allow for changes in shipment dates but that's very difficult and costly so the export or then absorbs that rate increase i've been working with carriers for quite some time say give us some predictability so we can work this into the sales cycle and make this work and pass those on to our buyer and for the most part the carriers have a deaf ear they really don't care there are a few that are willing to work with us and say well we'll help you in this regard and i'll admit a p l is one of those that understands the cycle but for the most part of the fifteen major carriers that are all foreign owned foreign flag carriers they really pay no attention to what our needs are that way thank you for the opportunity to speak i appreciate it thank you very much as a result thank you mr chairman good morning i'm michael gerson and i'm here today representing the national industrial transportation league the nation's oldest and largest association of companies and gauge in freight transport as a member of the league i serve as the chairman of our ocean transportation committee whose members the concern of the transportation of goods the bessel carriers including line a carrier is regulated by the federal maritime commission we have submitted a formal statement and i would as it be including included in the hearings record the league is no stranger to the issue of international shipping and the oversight of the industry by the federal maritime commission we were actively engaged in past reforms of u s international shipping that led to the adoption of the shipping act of one hundred eighty four and more recently the ocean shipping reform act of one nine hundred ninety eight or as its common referred to was from the reforms brought forth by us for a most significantly the introduction of confidential contracting between line of carriers and shippers and later with third party intermediaries have resulted in commercial benefits for both carriers and their customers as well as improved working relationships between them despite these significant statutory and regulatory reforms we do not believe it is appropriate to stand on the sideline admiring past accomplishments ocean liner carriers still engage in collective discussions regarding supply and demand as well as stablish ing benchmarks for rates and surcharges for the us trades through carrier organizations known as discussion agreements the deep economic recession this past year has impacted both shippers and carriers both of how to control costs and adjust their operations in response predict to a decline in freight volumes it should be noted that during this downturn the carriers through one discussion agreement known as the trans pacific say realization agreement or t s a and early two thousand and nine sort of the already from the federal maritime commission to expand on their filed operating reman to permit collective discussion and coordination over utilization of inbound vessels by approximately eighty five percent of the market participants it was and is the league's e u that the t s a press proposal for collective discussion would have permitted carriers to substantially reduce capacity and i can sordid fashion that action would in turn artificially decreased service options and increase transportation rates after further inquiries from the f m c regarding the t s a s plan the t s a ultimately chose to withdraw proposal nevertheless its chairman ronald d widow stated at that time and i quote t s a members remain convinced that today's unprecedented trade conditions justify exploring a coordinated approach to operate more efficiency the league is in total disagreement with this philosophy and believes that continuation of a limited anti trust immunity for discussion agreements to engage in rate and service options is a barrier to achieving an even more robust competitive and efficient maritime industry since the t s a is withdrawal of their request for authority to manage capacity shippers of seeing higher price increases to carry their goods in these increases are noted in our prepared state testimony while we recognize that this is the result of a higher demand for space against a substantial reduction in capacity shippers generally believe that these terms should be determined by each individual carrier rather than through a discussion agreement it should also be noted that in the call for this hearing we requested several shippers to ascertain whether they would be available to publicly share their recent operational experience experiences with carriers regarding prices capacity and services without exception al declined the march and april timeframe of every year marks the period that moishe present carriers normally begin to go she agents for the new contact year contract period typically beginning on may one the delicate nature of these commercial discussions presents an enormous incentive at not upsetting these talks to a public dissemination additionally the league applauds the recent announcement of the f m c to review the impact on u s trade from the decision taken by your and european officials to eliminate the ability of carriers to fix prices and that regimes in national trades while that review takes place we would like to note that unlike the us european regulations of never permitted discussion agreements to operate in their respective international line or trades it is our belief that the european system presents a more market based environment than the us and as a result the system provides european companies a distinct advantage over their u s counterparts in conclusion while the economic recession has been hard for both carriers and their customers the reduction in vessel capacity in the east on trans pacific trade has made it difficult for the supply of space to meet the rich the upturn in demand moreover in today's economic environment the recent practices pricing practices of t s a members of straining the commercial relationship between shippers and carriers swapping indicate that if there was sufficient space and equipment that members would be able to ship fifteen to twenty percent more containers and last year what efforts have you undertaken deal with and even though that we don't have direct contracts with and trying to gain space allocations or regular space on every sailing out of the puget sound where we have experienced a forty five percent decline in our passably since september of last year to a carrier they have all stated we can't do that we don't know how to do that we can't give you allocated space you'll just after go ahead and continue to buck as you do we can't guarantee you anything in the meantime just yesterday was traveling here one of our members said we have a facility that if we can find space we can buck and into another hundred containers of mine going to foreign markets and utilize and bring this facility on to line employing ninety people full time in the production of lumber but if we can find space if you can tell me there's a carrier available for me to shift this we're not going to enter a agreement with the smell to produce along with that we need to have that this hearing is very very timely and very important and i appreciate you and mr libby on the getting together on it and the interest of our members but also of the shipping public the president announced a national export initiative at the very time he's putting an emphasis on exports there aren't enough vessels in apparently not enough containers available to move those exports we've had rising numbers reports about shortage of containers in the inland areas of the united states cargo being rolled over for weeks cargo sitting on the docks some which we've heard this this morning and and concurrently with that is the down from five thousand five hundred at the end of world war two and twenty five million dead weight tons of shipping by nine hundred seventy five we had eight hundred flight vessels we were eighth in the world that was dead last after the polish atlantic fleet or the ball to atlantic fleet the polish we in now thirty five years later we have eighty three vessels in the americans like service after millions of dollars and in  construction differential subsidies operating differential subsidies all sorts of incentives to keep the americans likely going and we keep falling further behind and and our witness from the  it in maritime these are issues we need to address in this hearing is a foothold on the future as mr cummings in his typical fashion will be very aggressive and very  engaged and pursue this matter to its fullest we'll have another hearing next week and we're going to continue pursuing these matters america cannot lose its place in world shipping but we certainly today but continuing on a little bit from your testimony and from your from your written testimony as well is this in your eyes and your members eyes is this would you characterize this problem as an issue of market to bandler's where there is increased market demand on the market in the markets to turn around its outstripping the supply that is the supply of containers and vessels or is this something that  structural in the market where there is not just despite increasing man there will not be an increase of supply of vessels and and containers to to supply your members and other members of the shippers i think the best way to answer that mr larsen is since last september we've seen kerry's withdraw services from the trade transpacific trade started even before that currently i believe there are over five hundred vessels an acre light around the world that are unemployed and they've done this in response of course of the economic downturn and all the carriers coming to the united states all foreign flag carriers predicate their services on the import market not the export market as export as we've seen the reduction of our capacity  severely and like i mentioned the northwest by forty five percent which impact not just our ability to export impacts all agricultural shippers ability to export i had the honor of consulting with minnesota shipper association several years ago and worked with their foreigners in trying to help them find ways to export their so i beams and one of the gateways with the northwest and that's virtually been withdrawn from them they have to go through los angeles we've had other occasions where just recently a carrier decided to suspend a service out of seattle in order to move empties back to asia and we were losing those eight hundred containers that we everybody would i don weekly so it's almost a false situation of supply for us at the same time our demand is up the weak dollar is helping us find ways to export product and employ people frankly and it's just we can't get the containers out  it's not just empty containers it is sheer capacity availability we've had council bookings two days before we need to go and like i mentioned everything was in place all things were in motion and there's no way to replace that space that we've lost through an arbitrary cut of the cargo on that last point can you do you have the top three things the top three ideas that we ought to be considering then as a fix are may i'll be honest with you i really don't but i think our main concern is that the carriers find a way to equalize the demand to their capacity to our demands i've got to disagree with mr burgess on i trust immunity i don't think that the current circumstances allows for the communication between the customer in the carriers to be as large as it should be because a rather have their meetings that they've had for the last hundred years it kind of a secretive situation and discuss with themselves industry circumstances then get to know their customers as well as it should there is a comment a recent conference that i attended that who knew that it may be pushing their buttons at the same time to resupply mba tori's i think anybody who spends time with their customers would have known that and while we were searching for capacity out there the carriers as a whole are reticent to find a thing for us and bring in a though from kerry's side of things what do you see is the fix here question mr larson i can't speak for all carriers but i can speak for my company we took capacity out in two thousand and nine because the trade dropped fifteen percent and because exports were down that's why we took a pass and the imports were down for out all of two thousand and nine and exports only began to recover in the fourth quarter this year we're starting to see a rebound in imports over the last ten weeks ten weeks we're seeing it in a rebound in imports are the is that rebound sustainable or not is the economy truly recovering or is it simply a restocking a very low inventories i talk to my customers every day i spent time walking through my customers warehouses in southern california last month those warehouses are one third full inventories have never been this low for u s retailers so the question is do i overcorrect do i put back more capacity on the heels of a seven hundred million dollar loss or do i see if in fact there is a sustainable growth that would warrant the addition of more capacity also on the subject of rates rates dropped last year thirty percent the average rate for an inbound container from asia to the united states drop thirty thirty five percent and exports freight rates dropped last year it wasn't till the end of the year that we started to go back and talk to customers about rate increases all the rate increases that are done are done on a voluntary basis every carrier is free to negotiate with each individual shipper any rate they want it's voluntary and it's nonbinding also with regard to service contracting it's been ten years twelve years since the asura has taken effect and we've seen frankly i agree with the chairman of the d n c we've seen a wonderful success in carrier in chipper sitting down and negotiating individual contracts but all too often ladies and gentlemen it's been i'll give you this many containers if you promise me this rate we haven't yet mature the process to talking about service specifics why is that i personally believe that's because it takes too much time it takes time for the carrier in the shipper to sit down and talk about forecasts specific needs pacific equipment types from port to port whether it be importer export that's a lot of work but frankly it's where the industry has to go believe me if my company could deploy more ships we build ships not to park them we build them to fill them with cargo and support the commerce of this country are going to have to jum ten minutes after that the last vote members will be back in session thank you very much trade for the carriers you wrote in your testimony that deployed vessel capacity is driven by him for the man and you explain that import rates in effect subsidizing much of the costs of exports does this mean that exports are essentially assets to imports and that shipping economics of fundamental structural differences in the trade or structural facts that exist in the trade imports pay more historically because they're manufactured goods fashion goods consumer electronics and so forth and the physical makeup of these goods is that they're light so you can load a lot of them on a ship so in very simple terms i can carry a whole lot of imports at a high price and i can't carry physically because of weight constraints a lot of raw materials or exports which really only can bare a lower price historically the price difference between an import box and an export box has been as high as twenty five hundred dollars for forty foot container right now it's more about thirteen hundred dollars because rates have come down in both trades the fact remains that for my company and i believe for most carriers the economics are such that the imports are going to drive the deployment of additional ships and containers so we're going to have to see if import or imbalance volumes increase and rates go to compensatory levels then we can redeploy capacity which will alleviate the export shortages if you work for one of the last remaining u s flagged and tender carious however american president lines is owned in singapore is that right yes or were owned by the n o l group and do you think that the u what flag you fly on a ship a company has to be able to employ a vessel and make a proper return so regardless if we had if every one of our ships were u s flagged ships or there were all foreign flagships and we have twenty u s flagged ships out of the one hundred forty six ships we deployed the economics are such that you simply have to be able to make a return so the import cargo is important to allow to deploy capacity so you can carry exports and do you believe that there's there that believe there's a shortage of containers in the united states sir i don't believe that necessarily there's a shortage of containers in the united states frankly exporters didn't have problem getting space and equipment last year this year they are because there's been a rebound since the fourth quarter the shortage of containers always exist as i mentioned my opening testimony because imbalance boxes go to consuming locations and most of the export boxes go for more rural locations so there's some inherent imbalances in the system that exist i think once capacity is reintroduced yes sir i have i've heard of carriers that roll containers and don't load containers to achieve their intended vessel and there's a lot of reasons for that this is a complex operation  also some of the reasons as it relates to bookings customers making booking a lot of customers book cargo and then cancel the bookings when space is tight a lot of customers book cargo with a number of shipping companies in the hopes that they're going to secure some space and then cancel those bookings we call them ghost bookings so it's difficult there's always of fall down so we know as an example that from shanghai to l a there's generally about a twenty percent fall down of cargo booked that actually materializes unloaded containers to go to the ship so we overbooked the ship accounting for what is a historical fall down and we do the same thing on exports we overbooked the ship knowing that there will be some fall down some shippers will cancel bookings were not always one hundred percent precise  we could do and it was proposed i think about two years ago from the export side that there should be some kind of agreement between carrier and ship or of a penalty system for eliminating for example these ghost bookings as we just heard and versus also not supplying this space that you said you would and we as exploiters put that out there to to the shipping community and it never went anywhere so i think that it was still be some type of viable solution to at least you know guaranteeing both sides that if we say we're going to do something we're going to do it otherwise there's a penalty for not doing it as far as the container shortage issue there's many times as we heard that the loaded containers go to major cities for example let's say chicago and by choice because there's not that many exports out of chicago many times the carriers will return all those empty containers on the rail all the way to the west coast and put them on ships empty whereas if they could just maybe send them to another city for example kansas you know kansas city i can load cargo from kansas city in various places in kansas where the rule areas are and i can use those containers so while there's a cost to ship it back to the west coast there's also a cost to ship it to kansas city and i just think that there should be some solution for that let's put them where we can use them rather than just sending them back empty because we need them we absolutely need them and i think one thing that maybe this government can look at is some incentives maybe to the carriers for providing some support to shippers of a and the t s a and we certainly share our forecasts our economic outlook if you will for the trade where we expect things to go whether we expect trade to be up or down yes  sir i don't believe that's the case carriers are in business and certainly a p l is in business and i don't want to speak for other carriers but i believe it to be so we're in business to build ships and move cargo we're not in the business of limiting capacity  the sharing of broad economic data the sharing of information around growth or lack thereof in various trade lanes around the world or u s foreign commerce is absolutely not something that leads to a restriction of capacity mr chairman if i might interject here i was at a recent meeting between the carriers in the a t c in san francisco where the carriers were kind enough to share with us some of their projections that they had as far as export cargo  and there were thirty five x porters i believe that as members of the a t c there and not one of them could agree with the small projections that they were making their decisions on as a group and it was a group information that they were all utilizing to base decisions on all of us felt that we would be at minimum ten to twelve percent type of growth pattern on the export side and i believe their project of that time was about four point one percent so you can see there was a carriers are reticent to move containers a place other than where they end up because it costs them a great deal of money and from that point of view it's easy to understand that they don't want moving to kansas because they'll cost in several hundred dollars but the same time if they were moving that same container back to the west coast that would probably cost them a great deal more without any revenue it so what regions of the u s and the the greatest shortage of containers and and so i understand why it is but which areas have been degraded shortage i'm sorry i equated i wish to god i i'm not able to answer that i can tell you from my own experience that we have more spatial quickly the issues in the northwest but i gotta believe that midwest shippers in particular in medicine or in kansas or some other non urban areas off a similar problems thank you mr chairman in my testimony i included a map of the united states and i showed where the major imbalance destinations are for him bound cargo and where the major export origins are places like los angeles new york there's rarely container shortages i wouldn't say never but i'd say rarely container shortages in those major locations but in the heartland of the u s in the farm areas yes in the pacific northwest because we export more from the pacific northwest than we bring into the pacific northwest while that's a vibrant and important part of the united states it's not the biggest consuming location and we ship a lot more lumber in logs out of the pacific northwest that we do bring in wearing apparel any goods there are some chronic locations where there are container shortages my company spends almost four hundred million dollars a year we are moving empty containers around the world because we try to get containers to where the cargo is if there are empty containers in the united states i assure you i'd much rather put a load of cargo in that that pays me some revenue that have to move it empty but the fact is the trade imbalance the structural imbalance doesn't leave us any choice but to have to move empty containers  but mr chairman yes i have looked at that possibility we happen to be in a position where there are leasing companies available to us who are willing to to work with a very low cost or no cost basis the other side of that though is that every carrier i've talked to about this and i haven't talked a p l i've met but every carrier i have talked to about this that said we're not willing to take chaperone containers period so all of that is not a solution for us either short term or long term it is a situation where they're going to move their own equipment and not somebody else's even when they don't have a quick meant for us available if i might take a moment to set the record straight i want to apologize to mr burns on misunderstood his comments concerning i trust immunity we're actually on the same page we both feel that the trust community is a situation that should be taken a look at and should not be there any longer doesn't help us at all  comment on what the impact of this action has been on carrier services into the thank you to chairman the the elimination of the block exemption on the part of the   much more favorably on negotiating with the separate ocean carriers than we have here in the united states and so that when it when it comes to let's call it fair trade the the e u does have an advantage over us here and i think this is something that that the federal maritime commission is going to be looking into shortly regarding the transatlantic trade right now it's it's it's pretty much in balance and what you find for instance with regard equipment and bob so i feel if i'm going off on a tangent please correct me but there seems to be enough equipment on both sides of the ocean to to be that way and it's you know when we when we talk to two shippers here in the united states and as i mentioned in my oral testimony we weren't able to get live shippers to attend here because of the the fact that most of them are science working on their service contracts at this point but we do have anecdotal  comments from from many shippers who are very very concerned about the the the availability of equipment and they are also  feel that there is there is collusion and they are certainly they get very upset when all of a sudden the the contract rate which they have signed with an ocean carrier the ocean carrier was suddenly says no it's not that anymore it's this much more so they're there and that does not happen only with one carrier but it happens from what we're told with with service sir frankly speaking the current regulatory regime has absolutely nothing to do with the problem worshippers are experiencing right now absolutely not and frankly the block exemption or the elimination of the block exemption in europe is interesting it's something that should be studied and requires further review but it's one year old and it doesn't mean just because europe did it the united states had rushed to follow them in the last year there's b more disruption and volatility in prices and service in the european trade than ever before when they allowed conferences or discussion agreements and in my discussions with shippers what they want most importantly whether they're importers or exporters is predictability of service and predictability of rate and that can be gotten out by carriers working together and working hand in hand with our shippers on the point of collusion to keep space out we have no authority to agree on or implement any space capacity under the discussion agreements t s a and w t s a those meetings are minute id they're under the auspices of the federal maritime commission and counsel and we do not collude to keep capacity intentionally out of the trade right let me we're going to we're going to close the hearing now but let me say this first of all let me go back to the first pan against the council i want to thank you all first of all for sticking around what we say to option is a panel first panel comes on and they lead and so they don't stick around for the testimony and is considering this is something that you can read to look into it's helpful that you're here and i thank you for doing that and i mean that second i hope that you gentleman and i'm sure i don't know comments because i think they might be helpful helpful in her coming out with a balance investigation and one which is thorough because we want to be effective and efficient in five and let me remind all of us as i say quite often we are for the home team we are just trying to make things work well so that we can make sure that our exports are already the highest level they can be and that we're doing everything right and we're doing things in an effective and efficient manner so the one thing i love about being the chairman of this subcommittee and i was so calm which woman bentley this many times and that is that  it seems that many just about everybody wants to get something done and they want to get it done right and so i think we need to just make sure that we go in with that attitude  and so i look forward to that and again this is a this is a this is an opportunity where we are can play a part in coming up with a solution to a difficult problem