{"id":5159,"date":"2020-11-03T14:45:22","date_gmt":"2020-11-03T18:45:22","guid":{"rendered":"\/?p=5159"},"modified":"2020-11-03T14:45:22","modified_gmt":"2020-11-03T18:45:22","slug":"commissioner-daniel-b-maffei-presents-at-global-liner-shipping-conference","status":"publish","type":"post","link":"\/commissioner-daniel-b-maffei-presents-at-global-liner-shipping-conference\/","title":{"rendered":"Commissioner Daniel B. Maffei Presents at Global Liner Shipping Conference"},"content":{"rendered":"<p><strong>On November 3, 2020, Commissioner Daniel B. Maffei participated in the annual Global Liner Shipping Conference, on a panel entitled <em>Time for Change? Trust, Transparency & the Future of the BAF, moderated by Jesper Kjaedegaard, Partner at Mercator International, and Chairman of the Global Liner Shipping Conference. His prepared remarks follow:<\/em><\/strong><\/p>\n<div class=\"su-quote su-quote-style-default\"><div class=\"su-quote-inner su-u-clearfix su-u-trim\">Thank you, Jespar. Hello to my fellow panelists, and it\u2019s a pleasure to be with all of you. I really hope we can get together again in Hamburg soon. I am happy this conference is taking place, but I also know that it was one of the most valuable conferences that I attended back before COVID because the exchange of ideas behind the scenes \u2013 in addition to the sessions \u2013 was so valuable.<\/p>\n<p>I also want to remind everyone that I am one of the commissioners on an independent commission and what I say reflects my own view and is not an official position or the view of the Federal Maritime Commission as a whole.<\/p>\n<p>The dissolution of the Transpacific Stabilization Agreement (TSA) in 2018 meant the disappearance of an industry-wide Bunker Adjustment Factor (BAF). Without BAF, implementation of new IMO 2020 rules meant great uncertainty. Many carriers insisted the additional costs of IMO 2020 compliance would be passed on to the shippers. And many shippers were concerned that the carriers would use IMO 2020 as a convenient excuse to overinflate bunker charges. On the other hand, some of the large BCOs seemed confident they could use their negotiating power to get the carriers to absorb some of the cost of IMO 2020 implementation.<\/p>\n<p>In fact, at the start of this year, carriers were able to secure marginal increases in bunker charges from both BCOs and NVOCCs that were slightly higher through either amended service contracts or contracts subject to floating bunker surcharges. Some large BCOs did arrange all-inclusive rates that are not subject to bunker surcharges or any increases during the contract year, thus protecting them from unexpected increases in charges, but in other cases, BCOs absorbed some increases earlier this year.<\/p>\n<p>Then COVID hit, throwing everything into disarray. The new situation made the old complex arrangements seem simple by comparison. Fuel prices plummeted but some types more than others. This unpredictable situation created several categories of winners and losers.<\/p>\n<ol>\n<li>Many BCOs negotiated their service contracts pre-COVID when fuel costs were coming down slowly but generally NVOCCs negotiated in mid\/late April when fuel costs were at their lowest. This timing difference appears to have benefitted NVOCCs.<\/li>\n<li>Less than a year into the IMO 2020 regime, it appears that the multi-billion dollar investment in scrubber installation will not play out the way industry players intended. When scrubbers were presumed to be the \u201csure bet,\u201d it was expected that the spread between high and very-low sulfur fuel would be around $200 per ton, and in fact, it did reach $300 per ton early this year, pre-COVID. However, in preparation for high demand for low sulfur fuel, refineries increased production of the low sulfur fuel to meet the expected demand. When the demand failed to materialize because of COVID, the cost of low sulfur fuel plummeted. According to the publication, American Shipper: \u201cThe spread between HFO and VLSFO collapsed in the first quarter and has hovered at around $50 per ton since March. The lower the spread, the longer it takes for shipowners to pay back the cost of installing scrubbers.\u201d<\/li>\n<li>With an estimated 60-70% of overhead being energy costs, the lower cost of fuel has been a big factor in the record profits that some carriers are making as demand has rebounded since the start of the COVID crisis. Yes, spot rates are really high. Yes, capacity management facilitated in the major alliances has allowed carriers finally to get a handle on the supply of container space – sometimes through service reductions and blank sailings that can be the bane of shippers. But low fuel costs is a major factor.<\/li>\n<\/ol>\n<p>However, in all three of these areas, winners may not feel all that confident because the future looks very unpredictable. The impact of IMO 2020 that everyone expected did not come. But is it truly defused \u2013 or is it a time bomb waiting to explode at some later date?<\/p>\n<p>The Federal Maritime Commission has monitored bunker fuel charges across the industry since the end of the TSA. Even when market rates for fuel are relatively stable, the surcharges attributed to fuel across the industry differ significantly.<\/p>\n<p>For an antitrust regulator, this variation might be considered a good thing, because too much similarity in charges among carriers could indicate collusion between lines that could run afoul of the Shipping Act of 1984 which governs international ocean shipping to and from the United States. Because there are so many variables, and particularly since different carriers are taking different approaches to IMO 2020 compliance, it would be unusual to see uniform bunker fuel surcharges.<\/p>\n<p>However, as is so often pointed out, the variations are so great that many shippers believe the bunker fees have little to do with the actual cost of fuel or the cost of investments in scrubbers and cleaner ships. Take the fact that the surcharges are often not that different between carriers that use only small to mid-size carriers than they are for carriers that use mega-sized ships. Surely, the efficiency of a large ship would reduce the per-container fuel cost. On the other hand, there is often a lot of variation in bunker charges between imports and exports, where fuel should cost the same, but carriers know that U.S. exporters who are accustomed to much lower rates may not stomach such a high bunker adjustment charge.<\/p>\n<p>Given all this uncertainty surrounding fuel pricing, it is reasonable to consider whether the industry should return to a uniform way of calculating fuel surcharges similar to the BAF. However, it\u2019s not clear who would have the authority to develop a new pricing tool to replace the TSA BAF under U.S. law. The Shipping Act provides antitrust immunity to parties to agreements that are filed with the Commission if they meet certain requirements. One of those requirements – enacted by Congress just two years ago \u2013 says that parties cannot participate in rate discussion agreements and vessel sharing agreements in the same trade if the interplay between the agreements would be substantially anticompetitive.<\/p>\n<p>Currently, the major alliances already participate in vessel sharing agreements for their respective trade lanes, so in order to have discussions about rates, such as a discussion about a tool to replace the BAF, a new agreement would have to be filed and the carriers would have to give up the vessel sharing agreements among the alliances that have clearly been a factor in allowing them to get capacity under control and see profits return. It\u2019s hard to imagine they would ever do that.<\/p>\n<p>Therefore, I think it makes more sense to advocate for transparent and fair methods of calculating fuel surcharges rather than one universal approach. Ideally, surcharges would tie directly to actual costs, but it\u2019s difficult to calculate a per unit cost because of the differences among different vessels and the types of routes and services offered. \u00a0A transparent, carrier-by-carrier way of addressing these differences is the best approach from a regulatory standpoint.<\/p>\n<p>Could we ever get such an approach?\u00a0 Well, discussing industry best practices and other collaboration that does not involve the establishing of any sort of standard component price could be permitted.\u00a0 Such an approach could present an opportunity for carriers to reach consensus on how to address fuel surcharges and decarbonization strategies in a transparent way.\u00a0 The World Shipping Council recently filed an agreement with our Commission to undertake these types of discussions among its members. \u00a0So, there is some reason for hope \u2013 but only if you have faith that the industry can itself work toward better transparency.<\/p>\n<p>The COVID crisis postponed the effects of the movement toward cleaner shipping but it did not by any means eliminate them.\u00a0 In his book: IMO 2020: A Regulatory Tsunami,\u00a0Pablo Rodas-Martini argues that decarbonization is the third great revolution in shipping and that \u201cIMO 2020 has put the issues on the table, has set the pace, a pace that will not stop from now on.\u201d<\/p>\n<p>Even if the IMO 2020 impact is indeed defused due to the world-wide COVID crisis, we will continue to discuss bunker fuel surcharges and environmental efficiency for the foreseeable future as the industry and the IMO figure out the next major steps in this revolution.<\/p>\n<p>With the experience of COVID\u2019s effects on the industry in 2020, my suspicion is that shipowners, carriers, NVOCCs and cargo owners may prepare very differently for the IMO 2030, including possibly being hesitant to make large capital investments such as the installation of scrubbers. It is human nature to \u201cfight the last war,\u201d which is to say it is common to see decision-making that makes more sense in the context of the last crisis rather than the existing one.<\/p>\n<p>But as the great American philosopher Yogi Berra once said, \u201cIt\u2019s tough to make predictions, especially about the future.\u201d\u00a0 And on Election Day here in the States, when I cannot even tell you what tomorrow will look like, I think we all would be advised to be prepared for any outcome we can conceive of, and many that we can\u2019t.<\/p>\n<\/div><\/div>\n<p><strong>Commissioner Maffei wishes to thank Informa Connect for the opportunity to participate in this conference and his fellow presenters and attendees for the valuable exchange of ideas. <\/strong><\/p>\n<p><em>Commissioner Daniel B. Maffei is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not represent the position of the Commission.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>On November 3, 2020, Commissioner Daniel B. Maffei participated in the annual Global Liner Shipping Conference, on a panel entitled Time for Change? Trust, Transparency & the Future of the BAF, moderated by Jesper Kjaedegaard, Partner at Mercator International, and Chairman of the Global Liner Shipping Conference. His prepared remarks... <a class=\"read-more\" href=\"\/commissioner-daniel-b-maffei-presents-at-global-liner-shipping-conference\/\">Read More »<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[7,10,6],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/posts\/5159"}],"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=5159"}],"version-history":[{"count":2,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/posts\/5159\/revisions"}],"predecessor-version":[{"id":5161,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/posts\/5159\/revisions\/5161"}],"wp:attachment":[{"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/media?parent=5159"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/categories?post=5159"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fmc.gov\/wp-json\/wp\/v2\/tags?post=5159"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}