Commissioner Doyle’s Prepared Remarks to the Association of Transportation Law Professionals

Commissioner William P. Doyle
U.S. Federal Maritime Commission
Association for Transportation Law Professionals
86th Annual Meeting
Boston, Massachusetts
June 29, 2015

Panel Port Congestion: Causes, Effects and Legal Implications: A discussion of recent instances of port congestion, its causes and effects, and legal issues of interest to those advising stakeholders

Good morning. I am pleased to be moderating this panel on Port Congestion. We have a terrific panel consisting of the National Retail Federation, the Port of Oakland, and ocean carrier Zim Integrated, Inc.

I would like to provide an update on what the Federal Maritime Commission is doing to address port congestion and the related topic of carrier alliances.

As legal professionals you will appreciate the following disclaimer– the views I will express are mine and mine alone, and do not necessarily reflect the views of the Federal Maritime Commission or my fellow Commissioners.

For those of you not familiar with the FMC, the mission of the Commission is to foster a fair, efficient, and reliable international ocean transportation system and to protect the public from unfair and deceptive practices.

The Federal Maritime Commission has been very busy monitoring carrier alliances and helping to alleviate port congestion. Addressing port congestion has been one of the Commission’s top priorities.

Legal Analysis Pursuant to the Shipping Act (as Amended) the Federal Maritime Commission Utilizes in Evaluating Alliances and Other Agreements

6(g) Analysis for Carriers and Marine Terminal Operators

The FMC has the responsibility to review all agreements prior to their implementation and to seek to enjoin any agreements that are substantially anticompetitive. Under the Shipping Act of 1984, the Commission evaluates agreements for potential anti-competitive activity under the section 6(g) standard:

Action by commission.— If, at any time after the filing or effective date of an agreement under chapter 403 of this title, the Commission determines that the agreement is likely, by a reduction in competition, to produce an unreasonable reduction in transportation service or an unreasonable increase in transportation cost, the Commission, after notice to the person filing the agreement, may bring a civil action in the United States District Court for the District of Columbia to enjoin the operation of the agreement. The Commission’s sole remedy with respect to an agreement likely to have such an effect is an action under this subsection.
46 U.S.C. § 41307(b)(1)

The FMC’s Bureau of Trade and Analysis is responsible for reviewing the competitive environment and providing market analysis, and is an expert on the economics of international liner shipping and maritime agreements. The Commission relies upon its analysis of whether an agreement is likely, at the time, through a reduction in competition, to result in an unreasonable decrease in transportation service or an unreasonable increase in transportation costs. Once an agreement goes into effect, the FMC’s Bureau of Trade and Analysis continues to monitor the effects of agreements for anti-competitive impacts.

Last year 16 of the top 20 world’s largest ocean carriers came together to form or build upon four vessel sharing alliances. Currently, there are four major ocean carrier alliances (2M, Ocean Three, G-6 and CKYHE). (See Note below for membership of alliances).

Last year also saw the ports of Seattle and Tacoma, long-time fierce rivals who have been losing market share to other regions in the U.S. and Canada, file a “Discussion Agreement” with the Commission, which led to the filing of a new agreement, the so-called “Northwest Seaport Alliance.” Under the contemplated agreement, the port commissions in Washington State plan to unify management of the two ports’ marine cargo terminals and related functions, combining their respective strengths to address competitive challenges and create new economic opportunities.

In Southern California, the Ports of Long Beach and Los Angeles recently filed a similar discussion agreement in order to address operational questions and maximize their joint efforts in the management of their respective ports. Importantly, port congestion was a key instigator for this cooperative effort.

Ocean Carrier Alliances

There is evidence that certain carrier alliance models are contributing to port congestion at terminals in the United States. Moreover, larger ships in general are stretching the capacity of some gateways.

In my view, we could be experiencing some growing pains, not so much with the two-or-three company-sized alliances, but instead with the alliances that contain a larger number of companies. For example, with respect to the Asia–U.S. West Coast trade, there is evidence that the vessel loading plans have changed with the new alliances—the block stowage of containers at the load ports in some cases are disorganized and lead to confusion at the discharge terminal. Upon discharge, the containers are scattered all over the West Coast terminal(s), making it difficult and time consuming for the truckers and shippers to retrieve their cargo. Additionally, the problems also stem from vessels not meeting their scheduled windows, thus resulting in vessel bunching upon reaching the discharge ports.

I can tell you that over the past month, the alliances are doing more to alleviate problems related to block stowage and vessel scheduling at U.S. ports. This can be attributed in part to the formation of the Pacific Ports Operational Improvements Agreement (discussed below).

The West Coast is actively testing creative work-arounds. The Ports of Los Angeles and Long Beach have developed near terminal depots or drop yards. Currently, the ports have located two parcels of property to help manage the flow of cargo (30-acre and 22 acre parcels). The yards are available for the shippers to have their block-stacked containers immediately diverted from the marine terminal to the drop-yards. The shipper would then send a trucker to the yard to pick-up the inbound containers for delivery to the shipper’s distribution center. The trucker can then bring an empty container back to the drop yard, unload it, and keep the chassis to return to the marine terminal in order to pick up another inbound container. The yard can then schedule drayage pick up for the empty container to return to the ocean carrier.

Now, it is not just alliances causing congestion. There is a laundry list of factors that contribute to port congestion. The following is a list of those factors:

Itemized List of General Factors that Contribute to Port Congestion (including but not limited to)

• Long truck turn times
• Inadequate transportation infrastructure
• Inability of marine terminals to handle cargo surges generated by today’s big ships
• Logistical complexities caused by vessel-sharing alliances (larger ships entering ports and discharging cargo)
• Shortages of truck capacity, containers, chassis, intermodal rail equipment
• Intermodal equipment dislocations
• Unavailability of berths when ships arrive at ports
• Scheduling
• Labor shortages and drawn-out collective bargaining negotiations
• Consolidation of terminals
• Exodus of truck drivers who cannot make a living wage
• Vessel bunching
• Rail service delays, including a shortage of railcars nationwide

Other Federal Maritime Commission Actions

Report: Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports

Another point of great discontent concerns demurrage fees (shippers who are ready, willing, and able to pick up their cargo yet, through no fault of their own, must pay demurrage fees for days beyond “free time” that the cargo sits in a terminal).

During the fall of 2014, the Commission held a series of public forums in four regional gateways in the U.S. In April 2015, the FMC released the report on detention and demurrage: Rules, Rates, and Practices Relating to Detention, Demurrage, and Free Time for Containerized Imports and Exports Moving through Selected United States Ports, and is currently working on the next phase of the congestion study. The Chairman acknowledged that American shippers have expressed an interest in the FMC taking action to address the claimed unfair and unreasonable costs incurred by importers and exporters as a result of congestion. The Chairman noted the Commission will consider all options moving forward.

Last week, the Commission voted to release a staff report entitled: “U.S. Port Congestion & Related International Supply Chain Issues: Causes, Consequences & Challenges.” It is a synopsis of stakeholder viewpoints expressed across the forums held by the Commission at major gateway ports in the fall of 2014. The report highlights six major themes discussed – investment and planning; chassis availability and related issues; vessel and terminal operations; port drayage and truck turn-time; extended gate hours, PierPASS and congestion pricing; and collaboration and communication. The report will be available on the Commission’s website in the near future.

Port Congestion Surcharges

Late last year, in connection with the then-ongoing PMA-ILWU collective bargaining negotiations, the Federal Maritime Commission received numerous inquiries regarding the implementation of congestion surcharges announced by ocean carriers. The carriers’ announcement was in response to so called “labor unrest” and cited tariff rules required to be published under the Shipping Act of 1984 and the Commission’s regulations at 46 CFR § 520.

The Federal Maritime Commission scrutinized the carriers’ announcement and noted that unless done pursuant to a waiver or exemption, any tariff rule (including surcharges) of a common carrier that results in an increased cost to a shipper may not be effective earlier than 30 days after publication. 46 U.S.C. § 40501(e) and 46 CFR § 520.8.

Many carriers previously published in their tariffs what they described as “advance or conditional notice” of an intention to implement surcharges in the event certain conditions are experienced. All such carrier tariff rules, however, must be clear and definite as to the implementation and termination of the surcharge based upon specific criteria related to “labor unrest.”

Furthermore, the Commission noted that the Shipping Act and the Commission’s regulations require that the rules applicable to any given shipment shall be those in effect on the date the cargo is received by the common carrier or its agent. 46 CFR § 520.7. Thus, if any labor disruption were to occur at a port after cargo has been tendered by a shipper, a carrier may only lawfully charge the rates in effect on the day the cargo is tendered (basically, loaded on the ship).

As a result of the questions and concerns raised by the Commission, the ocean carriers withdrew their attempt to apply a port congestion surcharge.

Pacific Ports Operational Improvements Agreement and Port Authority Cooperation

In mid-April 2015, the FMC unanimously voted to allow the Pacific Ports Operational Improvements Agreement to go into effect. This agreement was filed with the Commission on March 3, 2015 and became effective April 17, 2015. The agreement, filed by parties including members of the West Coast Marine Terminal Operators Agreement (WCMTOA) and the Ocean Carrier Equipment Management Association (OCEMA), allows these parties to discuss factors contributing to congestion, delays at marine terminals and inefficient interchange of equipment, with the ultimate goal of creating new ways to address these problems. Under the agreement, which will be monitored by the FMC, parties cannot discuss, negotiate, or agree upon freight rates or compensation. The agreement is a major step toward having key parties cooperate and work together on a common goal of increasing the flow of goods throughout the West Coast. Last week in closed session, the Commission directed staff to prepare for consideration and approval, an order to require the ocean carrier members of PPOIA to submit certain data and information relevant to the Commission’s oversight responsibilities and further assessment of the competitive impact of the agreement.

We do not take our hands off the wheel just because an agreement has gone into effect. The Commission needs information from the carriers. The carriers need to provide that information.

A second agreement filed with the FMC is from the Ports of Long Beach and Los Angeles to tackle operational-related questions and maximize their combined efforts in the management of their respective ports. Notably, port congestion was a key instigator for this cooperative effort.

To summarize, port congestion issues are definitely impacting the work of the Federal Maritime Commission, and more importantly that of the ocean common carriers, marine terminal operators, and the American importers and exporters whom we regulate. We have seen the progression of (1) filed agreements from carriers to build upon or form new vessel alliances to (2) the ports filing agreements to allow greater cooperative efforts, in part to address congestion, and (3) the ocean transportation intermediary community demanding some kind of FMC action regarding port-congestion related fees such as demurrage. I look forward to hearing from the panel. Thank you.

Note: Identification of Alliances: 2M: Maersk Line and Mediterranean Shipping Company; Ocean Three: CMA CGM, United Arab Shipping Co., China Shipping Line; G6: APL, MOL, Hyundai Merchant Marine, OOCL, NYK Line, Hapag-Lloyd; and CKYHE:COSCO, “K” Line, Yang Ming, Hanjin, Evergreen.