{"id":1290,"date":"2013-10-22T15:03:30","date_gmt":"2013-10-22T19:03:30","guid":{"rendered":"\/?p=1290"},"modified":"2018-08-16T15:04:39","modified_gmt":"2018-08-16T19:04:39","slug":"chairman-cordero-addresses-the-national-association-of-waterfront-employers","status":"publish","type":"post","link":"\/chairman-cordero-addresses-the-national-association-of-waterfront-employers\/","title":{"rendered":"Chairman Cordero Addresses the National Association of Waterfront Employers"},"content":{"rendered":"<div>October 22, 2013<\/div>\n<h3 style=\"text-align: center;\">Chairman Mario Cordero<br \/>\nFederal Maritime Commission<br \/>\nRemarks at the National Association of Waterfront Employers Annual Meeting<br \/>\nWashington, DC \u2013 October 22, 2013<\/h3>\n<p>Good morning and thank you for this opportunity to speak to the National Association of Waterfront Employers. I have been asked to speak on the topic of consolidation in the vessel carrier industry through present or future operational agreements. This important issue can be best addressed by looking at several types of operational agreements currently on file with the Commission, examining how common operational agreements are analyzed, and reviewing some of the questions that I would like to see answered regarding the announced P3 Alliance of Maersk Line, CMA CGM, and Mediterranean Shipping.<\/p>\n<p>Limited anti-trust immunity has long been provided to certain members of the ocean shipping industry. The purpose of this immunity has been to ensure a stable and dependable ocean transportation network allowing for the United States\u2019 vigorous participation in vital international trade. Historically, carriers took advantage of this immunity through membership in rate conferences. Over the past ten years, however, carriers have been entering almost exclusively into operational agreements involving the sharing of vessels or vessel space.<\/p>\n<p>While these operational agreements do allow for carriers to provide capacity in a more efficient manner, it is fair to say that some operational agreements are not without risk to competition. It is here that we see the importance of the Commission\u2019s longstanding responsibility; to balance the need for a stable and dependable ocean transportation network with the need to protect shippers and the public from unfair practices. To that end, the Commission thoroughly analyzes these agreements when they are filed to ensure that they are not likely to result in an unreasonable increase in transportation cost or an unreasonable decrease in transportation service, and continues to monitor the behavior and competitive impact of the agreement on U.S. trades while on file with the Commission.<\/p>\n<p>Operational agreements come in a variety of forms. At their most simple, one carrier might file an agreement that allows it to charter space from another carrier on an existing service, either in exchange for slots or payment. Perhaps two carriers might agree to introduce a new service string cooperatively, reducing the risk for either carrier individually. These examples represent operational agreements that have few negative competitive effects; they allow carriers to expand the services being offered to shippers in a more cost-effective manner.<\/p>\n<p>However, other operational agreements may ultimately mean less capacity in a market and fewer calls by vessels at U.S. ports. These agreements can be filed in a single trade or across the globe, and may range from a few weeks in duration to long-term arrangements. All of these factors are taken into account when the Commission is reviewing the likely competitive impact of these agreements, and ultimately, will inform the Commission’s determination as to whether an agreement is likely to result in an unreasonable increase in transportation cost or an unreasonable decrease in transportation service. As representatives of MTOs, you are all aware of the fact that shipping volumes vary depending on the season, and with it, the need for containership capacity. For example, as the slack season for the inbound trans-Pacific trade approaches in November, many carriers work to scale back their service offerings in line with reduced cargo needs. Some carriers may elect to cancel sailings on a given service string. Others, however, may work with competing carriers to find similar service strings which may be consolidated into a single string that is shared by both carriers. These types of service consolidations are generally temporary, and the independent services are often reintroduced separately as import cargo volumes pick back up the following spring.<\/p>\n<p>Generally, the Commission views these temporary service consolidations as creating a more efficient operating environment, and perhaps more importantly, they allow for larger numbers of carriers to maintain a presence in the U.S. trades during these seasonal down cycles, thereby providing a more stable presence of ocean transportation providers.<\/p>\n<p>But what about the longer-term, more complex consolidation of services? These agreements typically are filed due to systemic economic changes in the container transportation industry, such as the deployment of larger, more efficient vessels, or global economic changes such as the recession of 2008 and 2009. When these types of agreements are filed with the Commission, we review several different factors to determine the likely competitive impact of such an agreement. Ultimately, it is through this detailed review process that we are able to assure ourselves on behalf of the shipping public that the agreement is not being formed for the primary purpose of limiting or lessening competition to the detriment of the underlying shippers.<\/p>\n<p>The broadest, most far-reaching of operational agreements among ocean common carriers are known as alliances. While we will analyze the upcoming P3 Alliance shortly, there are currently three generally recognized alliances operating in the global container trade; the New World Alliance, comprised of APL, Hyundai Merchant Marine, and Mitsui O.S.K Lines, the Grand Alliance which includes Hapag-Lloyd, NYK, and OOCL, and the CKYH Alliance, consisting of Cosco, K-Line, Yang Ming, and Hanjin. The Grand Alliance and the New World Alliance have also combined resources in the trade between Asia and the U.S. East Coast to form the G6 Alliance.<\/p>\n<p>In layman’s terms, an alliance is created when two or more steamship lines agree to contribute their vessel space to form a global network of services, generally focused on the major east-west trades. The carriers then exchange space on each others’ service strings in various trades under conditions that they can review and change over time. Some of these service strings might be independently offered by the vessels of a single carrier, but ultimately, any member of the alliance can book space on that vessel provided that arrangements for reciprocal space availability have been made.<\/p>\n<p>In reviewing the competitive impact of a global alliance, we look at the changes in capacity that would result from the re-alignment of previously independent service strings, and how those capacity changes might affect shippers given current market conditions. As alliance agreements do not contain rate authority, these agreements heretofore have not been determined by the Commission to present competition concerns under the Shipping Act. In fact, many shippers view alliances as beneficial to them; the increased efficiency and reduced cost gets passed down to them provided the marketplace remains competitive. The concern that shippers have with alliances is the possibility that close cooperation among a large enough percentage of the market can lead to concerted restraint of capacity.<\/p>\n<p>Like the rest of the container transportation industry, the FMC has been keeping abreast of the developing news on the upcoming P3 Alliance to be made up of the three largest global containership companies. I have received several expressions of concern regarding the potential competitive ramifications of such a large alliance. As a result, I will issue a call to fellow regulators for a global regulatory summit.<\/p>\n<p>The P3 will represent the largest cooperative agreement that the container transportation industry has ever seen. The world\u2019s three largest containership operators will be sharing space on 255 vessels representing 2.6 million TEUs across 29 service strings operating in the three major east-west trades. The P3 Alliance appears to be the most visible evidence yet that the new breed of ultra-large container vessels, while presenting valuable economies of scale, cannot be filled independently even by the largest steamship companies.<\/p>\n<p>The P3 Alliance represents a considerable level of cooperation across the world\u2019s three largest containership lines, and the Commission will be particularly rigorous in its review of the agreement\u2019s impact on U.S. trades. We will review the agreement\u2019s authority and data and determine whether the agreement is likely, by a reduction in competition, to result in an unreasonable reduction of transportation services or an unreasonable increase in transportation costs. More specifically, Commission staff will analyze the details of the P3 agreement once filed and develop a before-and-after picture to determine the extent to which overall capacity, port coverage, and services may be changed in the various U.S. trades.<\/p>\n<p>It is important to note that unlike other regulatory agencies, the FMC can make a determination that an agreement poses no immediate threat to the ocean transportation industry, and still take steps to monitor the behavior of that agreement, and its impact on the industry on an ongoing basis. The Commission may well choose to implement special reporting requirements wherein the members of the P3 Alliance may be asked to regularly provide data to Commission staff on capacity utilization, vessel calls, and revenues on a confidential basis to identify potential competitive issues.<\/p>\n<p>Finally, the Commission prides itself on our ability to stay connected to our constituents and to address any concerns that arise quickly and efficiently. The container transportation industry continues to change and evolve every day, and we are constantly working to stay abreast of these developments and to take them into account as we work towards a fair, efficient and reliable international ocean transportation system, and to protect the public from unfair and deceptive practices.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>October 22, 2013 Chairman Mario Cordero Federal Maritime Commission Remarks at the National Association of Waterfront Employers Annual Meeting Washington, DC \u2013 October 22, 2013 Good morning and thank you for this opportunity to speak to the National Association of Waterfront Employers. I have been asked to speak on the... <a class=\"read-more\" href=\"\/chairman-cordero-addresses-the-national-association-of-waterfront-employers\/\">Read More »<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[28],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/posts\/1290"}],"collection":[{"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/comments?post=1290"}],"version-history":[{"count":2,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/posts\/1290\/revisions"}],"predecessor-version":[{"id":1292,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/posts\/1290\/revisions\/1292"}],"wp:attachment":[{"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/media?parent=1290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/categories?post=1290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/tags?post=1290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}