Commissioner Dye’s Keynote Address to the Global Shippers Forum Annual Conference
Remarks of Commissioner Rebecca Dye
Global Shippers Forum Annual Meeting
Thank you for the kind introduction. And thanks especially to Chris Welsh for inviting me to come to Melbourne to speak with you.
I’m pleased to be here to meet all of you and gain additional insights into our common freight delivery system challenges, including demurrage and detention issues.
Competition and Cooperation
The last time Chris and I spoke was in my office in Washington DC. At that time, our topic of discussion was the creation of the carriers’ three strategic operational alliances and its possible impacts on pricing, customer service, and terminal operations. In fact, broadly speaking, we exchanged ideas about how industry changes – driven, as they are, by market forces – likely would affect the surviving lines and international shippers.
Because the Federal Maritime Commission is first and foremost a competition agency, we use very similar tools to spot market competition problems to those employed by our sister competition agencies, the Federal Trade Commission and the U.S. Department of Justice Antitrust Division.
In that regard, notions of industry consolidation – that is operational cooperation among lines that still price and market separately – and industry concentration – involving the actual elimination of rival sellers by merger or bankruptcy – are central to our analysis of competition issues.
Today, all three alliances are up and running. As they work out the bugs in their new collaborative effort, they’re grappling – with greater or lesser success – with customer service and terminal operations challenges. But, as expected, the formation of alliances hasn’t increased market concentration in U.S. trades, and competition among member lines remains strong.
The individual lines’ continue to market and price separately. And the FMC continues to closely monitor their individual and cooperative behavior – including through detailed reporting requirements, and meetings with our Bureau of Trade Analysis staff once or twice a year.
In addition, as many of you know, the Transpacific Stabilization Agreement (TSA), a rate discussion agreement covering the Asia/US trades, ended its 29-year history on February 8th. In closing its operations, TSA declared that its original mission “was no longer viable.”
But, what you may not know is that TSA’s decision to give up collective rate increases was just one in a series of similar actions. On January 5th, the rate agreement in the northbound Australia/New Zealand to US trade was terminated. The rate agreement in the US/Venezuela trade was terminated on January 10th. And, on January 15th, the Pacific Islands Discussion Agreement was terminated.
TSA was by far the most important of these agreements, and its demise represents the capstone in a clear trend toward the elimination of carrier rate discussion forums.
But, today’s decline in rate agreements and the focus on greater competition in ocean shipping began in 1988 with the passage of the Ocean Shipping Reform Act. The Reform Act eliminated the authority of shipping conferences to regulate their members’ service contracts and introduced one-to-one confidential contracts as the primary vehicle for liner pricing.
Many of you here today were instrumental in that effort. The Directorate General for Competition adopted the Reform Act’s general approach to contracting freedom and flexibility in guidelines it rapidly instituted in Europe. And, within three years of the Reform Act’s passage, one-to-one, confidential service contracting had been extended to all three major East/West trades.
The gradual disappearance of rate agreements, however, isn’t the only trend we are seeing at the Commission. In addition, there is a growing interest among container ports and the marine terminals that service them, in cooperative working agreements of various sorts.
Sometimes the initial driver is an effort to establish common environmental standards. Sometimes ports are seeking to cooperate with others in the same state or coastal range to make themselves more commercially attractive as a gateway to interior markets. Sometimes local terminals want to work together to increase throughput velocity, improve customer service or correct inefficiencies that impede the ocean freight delivery system – including, congestion.
Whatever the reasons, increased interest in establishing port and terminal cooperative working agreements appears to be on the rise. Such agreements can, of course, have competition implications, but they can also if properly executed, generate supply chain efficiencies and other outside-the-port-gates benefits.
Which brings me to my main subject: the Commission’s current demurrage and detention investigation.
In March, the Commission announced an investigation into the demurrage and detention practices of liner shipping companies and U.S. marine terminals – officially titled Fact Finding Investigation 28.
That announcement was in response to a petition filed by the Coalition for Fair Port Practices, a group of 26 trade associations representing a wide variety of American exporters and importers, drayage providers, freight forwarders, customs brokers and third-party logistics providers, including the National Industrial Transportation League -and followed two days of public hearings before the FMC in mid-January.
Those hearings included seven panels composed of shippers, ocean transportation intermediaries, carriers, drayage trucking companies, ports and marine terminal operators.
The Coalition asked the Commission to issue a policy guidance statement that would clarify what the Commission would take into account when deciding if certain demurrage and detention practices should be deemed legally unreasonable. Shippers, intermediaries and drayage companies supported the request and recommendation; carriers and terminal operators opposed them.
After considering a variety of options, my colleagues and I unanimously elected to initiate an investigation.
At the FMC hearings, I stated that my focus would be on how detention and demurrage practices could optimize the performance of America’s international freight delivery system. And I added that any meaningful improvement in demurrage and detention practices would require closer coordination among carriers, marine terminals, and American importers and exporters.
Our aim will be to improve America’s ocean freight delivery system in light of the Commission’s statutory authority. This outcome that, would require greater flexibility and accommodation by all the parties. Industry leaders will not only need to look carefully at the challenges we face in the US but compare our practices with how detention and demurrage are addressed in ports around the world.
As the trade press has reported, the Commission has already issued extensive information demands to liner companies serving U.S. trades, and we are in the process of doing the same for container terminals serving our top container ports.
Although the investigation’s central focus will be on the interaction of carriers, terminals and shippers, I believe it is also important to include the perspective of port authorities. So I will be interviewing leaders of major American container ports as well.
Encouragement from Shippers and Trucking Companies
Because the demurrage and detention controversy is as much a customer service issue as a risk allocation issue, shipper participation in the investigation is crucial. Consequently, I have scheduled a number of meetings with shipper groups.
Originally, it was drayage truckers who urged us to take up this issue. Soon thereafter, beneficial cargo owners and ocean transportation intermediaries asked us to become involved with these practices. The participation of shippers, truckers and intermediaries in the investigation phase is essential.
We expect shippers and other interested parties to establish the extent and nature of their detention and demurrage problems. In particular, we need a better quantitative understanding supported by documentation that shows the challenges they face.
Our emphasis in the investigation will be on organizational behavior – analysis of specific practices, legal obligations and responsibilities, and the actual control and transfer of cargo.
We will be looking into the nature and consequences of today’s demurrage and detention practices in U.S. trades; whether those practices – to the extent they may be legacy approaches, for example – still make sense in today’s system of increasingly high-tech supply chain networks; and how they compare with detention and demurrage practices in Europe and Asia and other parts of the world.
While we’re aware that some parties may have initial concerns about any potential impact on commercial costs and risks – our aim will be to improve the freight delivery system as a whole. By reducing unnecessary operational complexity. By promoting throughput efficiency. And by minimizing misunderstandings between service providers and their customers.
Of course, I have made no final decisions on actions under the investigation, and will postpone those conclusions until my staff and I thoroughly review the information we requested from industry representatives.
Supply Chain Innovation Teams
At this point, I should note that, before the demurrage and detention issue arose, the Commission’s involvement with port and terminal issues had been expanding. In part, that is due to our regulatory mandate regarding marine terminal operators – a mandate that includes ports, not just terminals – which has led to significant FMC expertise in the area.
But it’s also, in part, on-going interactions with American exporters and importers, drayage trucking companies, and chassis providers. Experience related to our direct regulatory responsibilities — coupled with our knowledge of, relationships with related industries — made our role as a catalyst possible.
Serious port congestion problems in New York and New Jersey in 2013 and 2014, and in Southern California in 2014 and 2015, led stakeholder groups to encourage the Commission to give port operations greater attention. We began our involvement with a series of four Commission regional port forums in the Fall of 2014.
In response to further stakeholder prompting, the Commission issued an Order directing me to form supply chain innovation teams – ultimately there were six teams, three import and three export – composed of leaders of all sectors of the supply chain to develop commercial solutions to port congestion and related supply chain challenges.
Let me repeat that: To help develop commercial solutions, not promulgate federal regulations.
That Order resulted in a two year initiative in which we worked closely with small, multi-stakeholder teams of industry leaders to develop a broad systems perspective on our supply chain problems under conditions that promoted active engagement by all the participants.
By the time the Coalition for Fair Port Practices submitted its petition on demurrage and detention, our preliminary research and our work with industry-wide teams had provided many useful insights into the commercial relationships, operational practices and organizational challenges involved.
In short, the Commission’s supply chain initiative was an excellent foundation for the current fact finding investigation. Both our import and export team members told us that supply chain visibility was the key concern, and that each supply chain actor had specific pieces of critical information that they needed. Not large amounts of data, but specific pieces of “actionable” information.
For example, U.S. import shippers said their key critical information need was accurate and timely notification of when the import container was available for pickup. Export shippers, on the other hand, needed to know when and where empty containers were available, and when was the earliest time they could deliver loaded containers to the terminal.
Which may sound simple, but it’s not. A fuller breakdown of the supply chain actor critical information needs that the teams identified is available in the final report. And I’d encourage you to go online and read it.
The key point, however, is that the knowledge and relationships developed during our supply chain project prepared us to undertake this deeper dive into demurrage and detention issues.
Questions We Will Address
So, Fact Finding 28 has been launched. Information demands, document requests, interviews and related activities have commenced. We have provided a dedicated e-mail address – FF28@FMC.gov — for those who are willing to share relevant, specific information and supporting documentation. We need this evidence!
And we have imposed two deadlines on ourselves: An interim report to the Commission by September 2nd. A final report by December 2nd.
As for the questions we will be asking — some are designed to clarify what the American detention and demurrage landscape looks like today. Some identify where and why detention and demurrage may be a recurring concern for the affected parties.
As the ocean carriers highlighted in their hearing testimony, situations that give rise to demurrage and detention are often a problem for all the parties – not just shippers or truckers. Carriers need their equipment back in productive use. Terminals want improved throughput velocity and should not be serving as unwilling de facto storage sites.
That being so, we should expect there to be a common interest among carriers, marine terminals, shippers and drayage trucking companies in alleviating frustrations, delays and unnecessary administrative costs all around.
To that end, we’ll be asking about the use of terminal space and carrier equipment (not just charges to shippers) – and how demurrage and detention practices do or do not improve their efficient use. Whether or not those charges are effective incentives for greater freight movement efficiency? What practical changes, if any, might make them more effective?
As the saying goes, “If it was easy to do, someone else would already have done it.”
Nevertheless, with the active cooperation of industry leaders representing shippers, marine terminals, port authorities and the container lines,
I believe that we can surmount today’s demurrage and detention challenges, and reap the economic benefits of a more efficient international ocean freight delivery system.
Thank you all for your kind attention. I very much appreciate it.