Dumped on - American Shipper

Transcription

JULY 2004
Byrd amendment ruffles feathers
Dumped on
www.americanshipper.com
UNCITRAL’s ‘deliberate deliberations’ 30
Who’s making money?
62
Ocean lines sink on service
70
Getting specific about general average 76
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Vol. 46, No. 7
July 2004
LOGISTICS
6
Regulator runaround
28
‘Deliberate’ deliberations
30
Spirited debate
36
Squeezing out logistics costs
40
Russian Customs, Clear-Pac agree 42
Boiling down food-aid transport
46
Wet containers makes shippers sweat 48
Know your supply chain variables
51
FORWARDING/NVOs
52
Data miners drill for information
52
NCBFAA weighs in on bioterror rules 53
UPS Trade Direct Ocean adds service 54
K+N acquires Dutch forwarder
54
TRANSPORT/INTEGRATORS 55
House committee backs postal reform 55
TRANSPORT/AIR
Airlines, forwarders still a step slow
BA World Cargo tackles lower yields
Lufthansa in cargo management deal
56
56
58
59
TRANSPORT/OCEAN
60
New technology at West Coast ports? 60
Cost pressures on carriers
68
U.S. ag shippers decry Pacific rates 69
Carlyle Group sells Horizon Lines
74
Bruner to head Maersk Inc.
75
USSM vows to fight takeover
81
Coast Guard: MTSA on track
81
TRANSPORT/INLAND
Con-Way to go long again
82
82
PORTS
Bills would boost port security funds
ILA members OK master contract
L.A./Long Beach seek gate user fee
83
83
83
83
SERVICE ANNOUNCEMENTS
TACA bunker charges rise ... New World
alliance adds Pacific capacity ... Alliance
resumes Asia/U.S. East Coast link ... Med/
Canada rates up ... U.S./Latin rate hikes
DEPARTMENTS
Comments & Letters
Shippers’ Case Law
Corporate Appointments
Service Announcements
Editorial
2
84
85
86
88
On the Cover
Dumped on
6
Trade policies designed to protect American jobs
have long been a hot-button political issue. Stoking the debate is a three-year-old provision in
U.S. trade law that mandates the U.S. government
compensate U.S. producers harmed by artificially
low-priced goods from foreign competitors The
“Byrd amendment” has become a rallying cry for
people on both sides of the free trade issue.
62
Mere double-digit increases in profits have become
boring. For containership operators in 2003, financial
results improved in triple or quadruple digits, while poor
performing companies swing heavily back into the black,
reaching all-time high earnings in many cases. As good
a year as 2003 was for carrier profits, 2004 should be
even better, American Shipper found in its annual survey
of container shipping lines’ results and industry trends.
Lines sink on service
70
Carriers’ cost-cutting programs and full ships are
resulting in a deterioration of the level of service that
shippers are receiving, according to major exporters
and importers. “Customer service is disappearing,”
said Geoffrey Giovanetti, managing director of the Wine
and Spirits Shippers’ Association. Moving customer
service to offshore service centers, short shipments and
the load factors of vessels are trends impacting service.
General average
76
A 2,000-year-old legal custom of the sea is costing
shippers and their insurers as much as $300 million
a year. The custom is called general average, and it goes
to the root of what shipping is about. Almost every bill
of lading contains rules and clauses pertaining to general
average, yet many shippers are unaware of the scope
and expense of this pain in the wallet that is boat hoary
and contemporary.
Subscribe online at www.americanshipper.com
AMERICAN SHIPPER: JULY
2004 1
Is the Bush administration listening?
The traditional drill at a hearing on Capitol Hill is that administration officials testify first, followed by representatives
from the private sector.
However, when administration officials finish their testimony,
they typically flee the room and end up missing the most important part of the hearing — what their constituents have to say.
It also raises the question of whether administration officials
truly understand what’s happening to their constituents when
new policies are considered or implemented.
Some administration officials leave behind a staffer to “take
notes” during the rest of the hearing, but it’s not the same as
listening for yourself what someone has to say.
Rep. Bob Filner, D-Calif., ranking member of the House
Subcommittee on Coast Guard and Maritime Transportation,
correctly recommended to his fellow lawmakers during a June
9 hearing that the order for witnesses should be reversed, with
administration officials going last. Maybe then they’ll listen.
(Chris Gillis)
U.S. airlines heading for crash landing?
Standard & Poor’s predicts a potentially serious shake-up of
the U.S. airline industry that could include the disappearance
of major carriers.
The additional burden of soaring fuel prices is the latest
threat to U.S. airlines, which already struggle with lower passenger yields, strong competition and huge debts. According
to the rating agency, the disappearance of major U.S. airlines
could happen soon.
Vol. 46 No. 7
July 2004
“A range of outcomes is possible over the longer term,”
Philip Baggaley, managing director of Standard & Poor’s Ratings Services, told a hearing of the House Subcommittee on
Aviation June 3.
“The more optimistic, but still plausible, scenario is that
most or all of the legacy airlines will scrape by, cutting costs
and benefiting from rising traffic,” he said. “Legacy airlines”
are the long-established hub-and-spoke operators American Airlines, Continental, Delta, Northwest, United and U.S. Airways.
Under the optimistic scenario, these airlines will continue to
lose market share to low-cost airlines, but will lower their costs
enough to survive, maybe through mergers.
“Even in this optimistic scenario, though, the legacy airlines
will remain relatively fragile financially,” Baggaley warned.
During the last several years, all of the large airlines have
gradually “encumbered almost all of their assets and thus
have little or nothing to borrow against,” he added. This lack
of backup resources and the overall financial weakness across
the U.S. airline industry mean that a wave of bankruptcies is
possible “in the next aviation downturn,” he said.
Eleven of the 12 U.S. passenger airlines are rated “junk
bonds” by Standard & Poor’s. Only the bonds of low-cost airline
Southwest are considered as “investment bonds” with a quality
rating. “Never before have virtually all U.S. airlines had such
low ratings,” Baggaley said.
“In an industry that faces the threat of terrorism, ‘the next
industry downturn’ could happen tomorrow,” he noted. This is
the “pessimistic scenario” in which a renewed industry crisis
occurs, airlines’ cash reserves shrink rapidly and the wave of
Publisher
Hayes H. Howard
Jacksonville [email protected]
Editorial
Christopher Gillis, Editor
Washington
[email protected]
American Shipper is published monthly, except one additional issue for the Southern Region only. Published
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Gary G. Burrows, Managing Editor
American Shipper (ISSN) 1074-8350)
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New York
[email protected]
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Copyright © 2004 Howard Publications, Inc.
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2
2004
Philip Damas, International Editor
London
[email protected]
Eric Kulisch, Associate Editor
Washington
[email protected]
Francis Phillips, Shipping Research
London
[email protected]
Simon Heaney, Research Assistant
London
[email protected]
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Jacksonville
[email protected]
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bankruptcies “could occur over the next year.” The next step
would then be the liquidation of major carriers,
“The disappearance of an airline the size of U.S. Airways would
benefit the surviving legacy carriers somewhat, but many of its
markets would likely be captured by low-cost airlines,” he said.
“The shutdown of an airline the size of United would provide
more substantial and lasting benefits to the (remaining) legacy
carriers, both because United is much larger and because its
valuable international routes would be acquired by other legacy
airlines,” he added.
Such forecasts could be described as alarmist if they came
from other organizations, but Standard & Poor’s is a trustworthy
source. (Philip Damas)
More on FABC
Your excellent write-up of the history of FABC (June American
Shipper, page 66) doesn’t start quite at the beginning. FABC
was originally a joint venture of the MEBA Pension Fund, ABC
Containerline (of Antwerp) and Levingston
Shipbuilding (of Orange, Texas). The two
ships were to be built by Levingston with
CDS, crewed by MEBA and operated with
operational differential subsidies in ABC
Containerline’s round-the-world service.
The design was developed by Levingston,
with help from Japan’s IHI.
I was Levingston’s vice president of business development and also FABC’s first president. We were about
90 percent of the way through the U.S. Maritime Administration’s
bureaucratic maze, and were planning to close the construction
contract in March 1981, when President Reagan was elected
and the CDS program came to a screeching halt. After due
reflection, Levingston withdrew from the joint venture and the
reformed FABC went off to Samsung to get its ships through
the 615 window.
At that point the ships were still destined for service with ABC
Containerline, as originally planned, and were to be named the
Antwerp and the Brussels.
Goodness, the maritime industry was a lot more fun before
Reagan was elected.
Tim Colton
Maritime Business Strategies LLC, Biloxi, Miss.
Security burden on chandlers
While terminal and vessel operators have received much of
the attention as the July 1 deadline for the International Ship
and Port Facility Code (SISPS) looms, how does the rule impact
other waterfront entities, such as chandlers?
Chandlers, who sell provisions, supplies and equipment to
ships, in the United States are often the equivalent of momand-pop grocery stores.
When asked, the U.S. Coast Guard said anyone involved with
servicing deep-sea vessels that call at American ports must file
security plans with the Coast Guard, and comply with ISPS
requirements. Even if they have facilities some distance from
a port, they must file plans and be able to produce evidence
showing, for example, that fences have been made more secure,
or 24-hour cameras installed at gates and along perimeters
— whatever Coast Guard guidelines stipulate. If not, such firms
4
2004
cannot do business with deep-sea vessels.
At this writing, there is no mitigation for the size of a chandler’s
company, or premises. If you should be a ship provisioner who
works from a single-room office, arranging by e-mail, fax or
telephone for the purchase and delivery of supplies, then each
of your vendors actually in contact with a client ship must have
filed a security plan and be compliant with the ISPS Code to
have access to the vessel.
For the Coast Guard’s guidelines, see www.maritimedelriv.com/
port_security/uscg/uscg_msib_21-04.pdf. (Robert Mottley)
Piece of history dies with Delaney
Robert Delaney died in April, two months before his widely
anticipated annual report on the state of the logistics industry
was due to be issued.
For 15 years Delaney collected government and industry
statistics on economic trends and logistics outlays to estimate
the extent to which logistics impacts the broader economy.
His partner the last few years has been transportation consultant Rosalyn Wilson. She helped provide the statistical analysis
and charts found in the report, but Delaney was the principle
author. When he died, the project was thrown into her lap to
complete by early June.
The tight deadline left little time to grieve the loss of a close
friend. Wilson’s task was compounded by distance (Delaney
lived in St. Louis, Wilson in the Virginia suburbs of Washington,
D.C.) and digital challenges.
Delaney, you see, never got around to learning how to use
a computer. Everything he did was on paper. If you wanted to
send him an e-mail, it had to go to some assistant who would
print it out for me to read. Delaney had stacks of reports, charts
and financial information and other historical data that served
as the backbone for previous reports.
Wilson tried immediately to make sure these documents were
preserved, both as a historical record and to serve as reference
material for her work. Unfortunately, Delaney’s files were
quickly discarded by members of his family.
Wilson, clearly not interested in opening old wounds, did not
give many details about the surprising loss of Delaney’s life’s
work. She is confident she had all the material necessary to
compile this year’s report, and has copies of previous editions
of the actual report. Nonetheless, the discarded data is a loss to
the logistics community and to historians who might go back
and see how deregulation, technology and American ingenuity
helped transform a relatively inefficient distribution system into
a powerful economic facilitator. (Eric Kulisch)
Glad it was friendly
Jaws dropped among guests attending the recent Silver Bell
Awards dinner in New York, benefiting the Seamen’s Church
Institute, over an exchange of comments between the Rev.
Canon Peter Larom, former executive director of the Institute,
and his successor, the Rev. Dr. Jean R. Smith. Larom, who received the Institute’s Silver Bell, presented Smith with a sailing
boat’s centerboard which, he said, would “keep you on a steady
course.” To which Smith replied, “we particularly needed that
when you were at the helm.”
A spokesman for the Institute confirmed Smith’s comment,
saying, “we are not concerned about any reactions. She spoke
in a spirit of camaraderie.” (Robert Mottley)
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Dumped on
When it comes to analyzing the impact
of U.S. trade policies the best course
may simply be to point to the law
of unintended consequences.
BY ERIC KULISCH
T
he need for trade barriers seems so simple at first. Honest
American company fights for survival against foreign
competitors willing to flood the U.S. market with very cheap
goods. Exporter takes advantage of cheap labor and government subsidies
to capture market share and drive domestic producer out of business.
U.S. company complains to the Commerce Department to enforce trade
rules by imposing a penalty tariff on goods from offending companies.
U.S. industry also lobbies Congress for more favorable trade rules.
The protective tariff raises the cost to the importer and ultimately
the consumer, who now can make a choice by comparing the foreign
and domestic products on factors other than price. The day is saved for
American growers and manufacturers.
But globalization means that international trade is not conducted in
a clear linear fashion.
The typical cross-border transaction can require companies to file more
than 35 documents with multiple customs agencies, coordinate with 25
parties and comply with more than 600 laws and 500 trade agreements,
according to Adrian Gonzalez, a supply chain analyst with ARC Advisory
Group.
So when the U.S. imposes duties on goods it determines are being unfairly
dumped in the U.S. market, the ripple effects are felt far and wide.
In 2000, Congress passed a controversial law that redirected
antidumping duties to the companies that filed unfair
trade complaints and their supporters. The Commerce
Department separately set up rules to help new exporters
caught in an antidumping dispute gain a foothold by
allowing them to post bonds against the eventual dumping
penalty instead of paying cash deposits.
The law and the regulation were ostensibly unrelated.
But many free-trade advocates complain that the Byrd
amendment has contributed to the rise in dumping complaints.
Huge dumping penalties are frequently levied against products
from China, which constitutes more than 12 percent of the U.S.
import market. Many exporters have an opposite incentive to
avoid onerous penalties, and are using the bonding privilege to
avoid paying duties. That puts pressure on sureties who back the
bonds and must pay the duties when the importer defaults.
Meanwhile, U.S. producers that rely on Chinese and other imports
say their survival is imperiled by the rise in cost of raw materials
used to produce goods in American plants and factories.
AMERICAN SHIPPER: JULY 2004
7
LOGISTICS
Byrd bath?
Critics say U.S. antidumping policy
creates domestic winners, losers.
T
rade policies designed to protect
American jobs have long been a
hot-button political issue.
Free-trade advocates and multinational
corporations say the best way to protect
jobs is to have a strong export market and
low consumer prices made possible by
offshore production that takes advantage
of each country’s comparative resource
advantage.
Labor groups and some domestic industries contend the U.S. government needs
to use trade penalties to level the playing
field and force foreign producers to fairly
compete.
Stoking the debate is a three-year-old
provision in U.S. trade law that mandates the
U.S. government compensate U.S. producers
for harm caused by artificially low-priced
goods from foreign competitors. Many
U.S. importers and manufacturers that rely
on imports of raw materials complain that
the law creates an incentive for companies
to file unfair trade complaints in hopes of
gaining a big cash payout.
The law, known as the “Byrd amendment”
after its chief architect Sen. Robert Byrd, DW.Va., has become a rallying cry for people
on both sides of the free trade issue.
Byrd amendment advocates say it has
been instrumental in helping many American companies stay in business. Critics say
the Byrd amendment and other aspects of
U.S. trade law end up doing more harm
than good because they increase costs
for domestic companies that rely on raw
materials and other imports for domestic
production.
“You nail the raw material input and
thousands of jobs are lost in downstream
industries,” said Washington trade attorney
William Perry.
Many trade lawyers, surety executives
and manufacturers say the Byrd amendment
further distorts trade because many of the
companies that petition for relief are importers seeking to repress the imports of their
competitors, not just domestic producers
who want to protect their market. Garlic
growers like Gilroy, Calif.-based Christopher Ranch and other U.S. companies, for
example, supplement their own production
with imports to meet customer demand. The
8
AMERICAN SHIPPER:
JULY
2004
“It’s really the companies
that did the exact same
thing prior to the Byrd
amendment. All it’s really
doing is shifting the money
from one pocket to another
and not really protecting
the entities it was designed
to protect.”
Scott Wollney
president,
Avalon Risk Management
cheaper imports subsidize the domestic
production so the company can be more
competitive and sell all of its products to
consumers at a lower price. Now some companies see a better chance of maximizing
profit by joining an antidumping complaint
because their cut of the dumping margin in
some cases is more than they could make
from imports, said Scott Wollney, president
of Avalon Risk Management Inc., a surety
agent based in Elk Grove Village, Ill.
“The irony of the whole thing is that
in terms of whose petitioning and who is
benefiting, it’s really the companies that
did the exact same thing prior to the Byrd
amendment. All it’s really doing is shifting the money from one pocket to another
and not really protecting the entities it was
designed to protect,” Wollney said.
The largest recipient of Byrd amendment
monies is The Timken Co., a large industrial
conglomerate known for making bearings
and alloy steel products used in automotive, rail, industrial, aerospace and other
precision applications. U.S. Customs and
Border Protection paid out $92.7 million
to Timken in fiscal 2003, five times more
than the next-largest recipient. On a calendar basis, Timken received $66 million in
dumping offsets in 2003, up from $50 million in 2002, compared with net income of
$36.5 million, according to Timken’s 2003
financial statement.
Timken merged with ball bearing manufacturer Torrington last year and in February
announced that it will receive an additional
$7.7 million from the U.S. government as
its portion of Torrington’s antidumping payment. Timken said it will use the proceeds
of the payment to reduce debt.
“Are we protecting a domestic industry
or are we protecting an American importer
from other importers? That’s not what the
antidumping statutes were meant to do,”
said Randy Ferguson, a trade lawyer with
Sandler, Travis & Rosenberg and Glad &
Ferguson who represents sureties.
The Consuming Industries Trade Action
Coalition, which includes companies such
as Procter & Gamble, Target Corp., Caterpillar and Nissan North America, as well
as trade groups like the International Mass
Retail Association, has repeatedly called for
the repeal of the Byrd amendment. On the
other side are groups such as the American
Honey Producers Association, the California Fresh Garlic Producers Association and
the Southern Shrimp Alliance.
According to a March analysis by the
Congressional Budget Office (CBO), the
dumping offset law is a net drain on the
economy, because it steers resources away
from firms producing higher-value goods to
domestic producers of low-value goods. The
CBO said the law encourages companies to
file more complaints in an effort to collect
payments than they would otherwise.
Who Benefits? “The law subsidizes
the output of some firms at the expense
of others, leading to inefficient use of
capital, labor, and other resources,” CBO
Director Douglas Holtz-Eakin said in a
letter to House Ways and Means Committee Chairman Bill Thomas. “It discourages
settlement of cases by U.S. firms, and will
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LOGISTICS
Byrd amendment ‘million-dollar club’
(Fiscal year 2003)
The Timken Co.
Bearings
MPB Corp.
Bearings
United States Steel Corp.
Steel products
Carpenter Technology
Steel products
Maui Pineapple
Canned pineapple
Allegheny Ludlum
Steel products
Regalware
Cookware
Wellman
Polyester staple fibers
North American Stainless
Steel products
J&L Specialty Steel
Steel products
Candle-Lite
Candles
Micron Technology
DRAMS
McGill Manufacturing Co.
Bearings
Neenah Foundry
Iron construction castings
Atchafalaya Crawfish Processors
Crawfish
Globe Metallurgical
Silicon metal
Seafood International Dist.
Crawfish
Total “million dollar club”
Share of total distribution ($190.25 million)
$92.75 million
$16.87 million
$7.59 million
$5.40 million
$5.39 million
$4.10 million
$3.76 million
$3.42 million
$2.91 million
$2.60 million
$2.00 million
$1.82 million
$1.61 million
$1.40 million
$1.37 million
$1.17 million
$1.05 million
$155.20 million
81.5%
Byrd amendment
allocations by sector
Bearings
Steel
Crawfish
Canned pineapple
Polyester staple fiber
Cookware
Candles
Iron products
Pasta
Mushrooms
DRAMS
Industrial belts
Silicon metal
Pipe fittings
Total of sectors
$112.01 million
$33.77 million
$9.76 million
$5.39 million
$4.15 million
$3.76 million
$3.33 million
$2.79 million
$2.18 million
$2.03 million
$1.82 million
$1.25 million
$1.17 million
$1.06 million
$184.49 million
Source: Trade Partnership LLC, from U.S. Customs and Border Protection data.
lead to increased expenditure of economic
resources on administration, legal representation of parties, and various other
costs … To the extent that other countries
adopt comparable policies, the law may
lead to further interference in the ability
of U.S. exporters to compete in the global
trading system.”
U.S. Customs has distributed more than
$750 million in proceeds since the Byrd
amendment was enacted as a rider to an
agriculture appropriations bill in 2000.
The Bush administration’s budget projects
another $885 million will be disbursed in
fiscal year 2004. The CBO projects that
distributions to U.S. companies will total
$3.85 billion from 2005 through 2014.
Byrd supporters in Congress and the
trade community say contrary to predictions that the law would spur a flood of
antidumping complaints, the number of
petitions filed by U.S. companies against
other countries has actually stayed flat or
gone down slightly since the law went into
effect in January 2001. But a recent study
by the American Association of Exporters
and Importers show that petitions for nonsteel products more than doubled in the
past three years compared to the three-year
period prior to enactment of Byrd (91 to 42).
Steel companies tend to lump complaints
about different products together in large
batches in an effort to force negotiated
settlements, which tends to mask the actual
number of petitions.
Lawyers and trade associations representing U.S. producers contend that Byrd
payouts should not be a consideration for
seeking trade barriers because of the legal
cost, lengthy appeals, and Customs’ poor
10
AMERICAN SHIPPER:
JULY
2004
track record of recovering assessed duties.
But there have been recent signs that the
money nonetheless can be a motivating factor in whether or not to support a case.
Pricing Practices. Antidumping laws
were instituted early last century to counter
predatory pricing, but most antidumping
actions today are aimed at pricing practices
that are better defined as price discrimination, the CBO said. U.S. companies routinely charge different prices to different
customers and sell goods below cost, such
as during overstock liquidations or sales
events that use loss leaders to attract traffic
for higher margin products.
“I think there are a lot less dumpers than
people think,” Perry said.
Antidumping complaints are a convenient
weapon for U.S. producers because the stan-
“Are we protecting
a domestic industry or are
we protecting an American
importer from other
importers. That’s not
what the antidumping
statutes were meant to do.”
Randy Ferguson
trade lawyer,
Sandler, Travis
& Rosenberg;
Glad & Ferguson
dards for filing a case with the International
Trade Administration (ITA) are low, but the
uncertainty associated with a potential negative ruling can chill a market for months,
even if commissioners ultimately dismiss
the case. Trade attorneys say Commerce
initiates an investigation into virtually every
petition received and finds in favor of the
petitioners 95 percent of the time.
Michael Coursey, a partner in the international law firm Collier Shannon Scott, said
the idea that it is easy for companies to purse
an antidumping case and tie up competitors
in legal proceedings is “an urban myth.”
Coursey, who represents honey, garlic and
domestic canned mushroom producers that
have sought protective tariffs, said that in
order to convince Commerce to pursue an
antidumping investigation, a company must
be able to prove injury from the alleged
unfair trade, which requires a lot of data
and resources.
“Take the most vanilla product, without
any complications, and the cost to bring
the case is $700,000 to $800,000” in legal
expenses he said.
The Southern Shrimp Alliance expects
to spend $2.5 million to $3 million for
heavyweight legal counsel Dewey Ballantine LLP; The Livingstone Group, a
lobbying firm led by former top House
Republican leader Robert Livingstone; and
another New Orleans law firm, to bring its
suit against farm-raised shrimp imports
from six countries, including China, to the
International Trade Commission (ITC) and
the Commerce Department, according to
the Associated Press. Unless the petitioners
can convince 75 percent of the companies
in their industry to publicly declare support
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for the trade remedy, “you can forget about
winning,” Coursey said.
But Perry, who worked at the ITC and
Commerce’s ITA, and other veteran trade
lawyers say they can only remember one
or two petitions that were ever rejected by
Commerce. In fact, both agencies have offices that work with petitioner’s law firms
to help them prepare a dumping case.
Follow The Leader. Other countries
have followed the U.S. lead in using aggressive trade protection measures. In
early 2000, the U.S. maintained 267 antidumping/countervailing duty orders, the
most of any country, according to CBO
figures. The European Union was second
with 148 orders. From 1995 through 1999,
the United States initiated an average of
26.4 antidumping cases per year, putting it
behind the EU with 38.8 and South Africa
with 27, and imposed an average of 16.4
new orders per year.
In one recent case, China even turned the
tables on the United States by initiating an
antidumping case against Owens Corning
for fiber optics that could jeopardize some
$750 million in exports for the Toledo,
Ohio-based building supply manufacturer,
according to Perry.
The largest users of antidumping and
subsidy mechanisms has been the steel
industry, which has 191 active antidumping orders protecting its products. Other
industries receiving significant protection
are chemicals and pharmaceuticals with
55 orders, and agriculture, forest and processed food products with 32 orders, the
CBO said.
The Byrd amendment encourages inefficient production because domestic firms that
may have ceased production because they
were not as competitive might resume production to receive the distribution, the CBO
said. The law only allows firms producing
the good in question to receive compensation for operational expenditures.
There are also apocryphal stories circulating in trade circles that some petroleum wax
producers who left the business have since
stuck a candle machine in their garages in
order to join as an antidumping petition
supporter.
Meanwhile, the law forces up the cost of
imported products to domestic industries.
U.S. consumers pay higher water bills because municipalities must pay about $2,400
to $2,500 per metric ton for potassium permanganate used in water treatment facilities,
compared to the world price of about $900
to $1,200 per metric ton ever since Carus
Chemical Co. filed a dumping case in 1983
and essentially froze out foreign alternatives,
said Perry, who works for the firm Garvey,
12
AMERICAN SHIPPER:
JULY
2004
Shrimp in a boil
Seafood processors, retailers break ranks over petition.
The Louisiana Shrimp Association
(LSA) — which represents commercial
fishermen, seafood processors and retailers — formally opposed the December
antidumping petition of the Southern
Shrimp Alliance because it was upset that
the petition only sought penalties against
imports of certain frozen and canned
warmwater shrimp, to the exclusion of
fresh shrimp.
The LSA originally joined forces
with the Southern Shrimp Alliance, an
eight-state consortium of shrimpers and
processors, in 2003 to drum up industry
support for the petition, but broke ranks
when it realized that the harvesters it
represents would not be eligible for Byrd
duty disbursements.
In a February letter to Commerce
Secretary Donald Evans, the LSA said
the Southern Shrimp Alliance misled
harvesters to sign statements of support
for the petition without indicating that
they intended to limit the scope of the
petition.
LSA also complained that the Southern
Shrimp Alliance told fishermen that if
they did not sign statements of support
they would be ineligible to receive any
Byrd amendment funds (which by CITAC
estimates could amount to $180 million
per year or $829,493 for each of 42 eligible
processors and 185 shrimpers) arising
from any antidumping duty order.
The LSA subsequently asked the department to include fresh shrimp as part
of its investigation because an amended
petition would “most clearly preserve
harvesters’ eligibility for Byrd Amendment funds.”
The Southern Shrimp Alliance did not
seek tariffs on imported fresh shrimp because fresh varieties constitute less than 1
percent of all imports, said spokeswoman
Deborah Regan. And the group did not file
its case because of the potential for Byrd
amendment money, she added.
“We think it’s a valid law, but we’ve
also told our members it’s not the reason
we file a trade action. You don’t enter
Schubert & Barer and has several clients
fighting dumping complaints.
Perry and others argue that high-dumping
margins will force many U.S. producers to
ship jobs overseas. After Sun Chemicals and
Nation Ford Chemical brought an antidump-
into it thinking you might get a part of
your qualifying expenditures five years
down the road because it’s not clear that
many companies will be around to collect the money.
“If you don’t have a very strong case,
it’s not worth risking the money. It’s an
expensive process, so you don’t engage
in it lightly,” Regan said.
The Commerce Department has said
it will set preliminary penalty rates (the
Southern Shrimp Alliance is asking for
duties ranging from 25 percent to 350
percent depending on the country) in July
if it verifies dumping in the shrimp case.
As is the case in all antidumping cases
involving market economies, companies
cited by the petitioners will be investigated
and get their own tax rate. All other companies that were not investigated will get
a rate based on a weighted average of the
targeted firms.
Meanwhile, the fight over the potential spoils from an antidumping victory
spilled over into federal court when the
LSA filed a lawsuit April 29 asking a
judge to declare whether its members
are eligible for monetary rewards. The
suit in the U.S. District Court for the
Eastern District of Louisiana also seeks
the return of $50,000 that LSA alleges
SSA enticed from its members to help
pursue the antidumping case.
Rep. Howard Berman, D-Calif., told the
International Trade Commission in February he was concerned the shrimp case could
cause a shift in the market that would affect
other sectors of the shrimp industry.
“If duties are imposed on the importation of unprocessed shrimp, foreign
exporters might enter production of
non-subject finished goods and flood the
domestic market with breaded shrimp and
other value-added shrimp products. The
resulting price pressure would sap profits
and possibly force domestic shrimp processors out of the market, thus causing
the further loss of American jobs,” he
said in February letter to ITC Chairman
Deanna Tanner Okun.
ing petition forward against violet pigment
(the kind used in Pepsi cans) last November,
ink producers began talking about closing
production plants and moving to Canada,
Perry said.
Pressure is also mounting on crawfish
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producers in Louisiana who import Chinese
crawfish to make bisque and etouffe to
move good manufacturing jobs to China.
Bob Odom, the commissioner of agriculture
and forestry for Louisiana, wants to stop all
U.S. imports of Chinese crawfish tail meat
even though farmers in his state cannot grow
enough of the crustaceans to meet demand of
the downstream producers. Meanwhile, the
distributors that buy the local crawfish hire
Mexican workers at minimum wage, instead
of Americans, to do the peeling.
U.S. producers testified before the ITC
last summer during a hearing on whether to
terminate or extend the antidumping order
on crawfish that they would be forced to
move higher wage production jobs overseas
because there was not enough U.S-only
supply to meet their requirements.
Ripples. The ripple effects of limiting
imports can extend beyond the direct downstream industries. The American Soybean
Association said in May its opposed higher
duties on imported shrimp because it said
it was concerned other countries might
retaliate against U.S. exports of soybeans
and soybean meal, which are used to feed
farm-raised shrimp. About half of all U.S.
soy exports are purchased by shrimp producing countries like Vietnam, Thailand,
India, China and Ecuador, the trade group
said. Those countries themselves annually
purchase more than $3.3 billion worth of
U.S. soybeans and soy products.
“This case will do nothing to save
American jobs, but it could cause tremendous economic damage and adversely
impact thousands of Americans employed
in the farm sector who depend heavily on
agricultural commodity exports to shrimp
producing countries,” American Soybean
Association President Ron Heck said in a
statement.
Several House members recently asked
the General Accounting Office to study the
Continued Dumping and Subsidy Offset Act
and how recipients of proceeds have used
the money. Among the questions the group
wants answered is whether the domestic
producer is also engaged in importation
of the product for which payment was
received and the impact on other domestic
competitors.
Jeff Grimson, a partner in the Washington
office of Grunfeld, Desiderio, Lebowitz,
Silverman & Klestadt, said he suspects
hybrid producer/importers try to create a
protected channel for their own suppliers
by targeting the antidumping complaints
against other exporters they don’t use.
Many U.S. producers complain that they
have not benefited from the law because U.S.
Customs has not collected all the duties that
14
AMERICAN SHIPPER:
JULY
2004
Oh, Canada
U.S. neighbor’s self-enforcing antidumping system.
A more rational approach for protecting
domestic producers without harming other
downstream industries, said Washington
trade attorney William Perry, would be to
adopt Canada’s antidumping system.
Canada has been more willing to
identify China as a market economy in
some types of industries. In the case of
replacement automobile windshields, for
example, Canadian regulators used actual
Chinese prices and costs and calculated
a very low antidumping margin.
Canada’s approach sets a normal value
based on the cost of production and any
imported good below that number automatically gets hit with duty to bring it up
to the normal price. In effect, the system
is self-enforcing because the importer
knows what the price floor is and how
much duty to apply for the entry.
Moving to such a real-time policy would
eliminate the retrospective investigations
that make it so hard for companies to
forecast their duty costs, trade attorneys
said. Importers often have to wait more
than year to find out how much of an
added value duty Commerce will slap on
the original invoice value.
Many importers don’t understand the
retroactive nature of the antidumping
laws, Perry said. When their suppliers
undergo a “new shipper” or an annual
review in hopes of getting a lower individual duty rate, they make a cash deposit
or post a bond under the mistaken belief
that the preliminary dumping margin is
the actual rate they will pay.
In one case from the late 1990s, Darden
Restaurants Inc., the parent company of
Red Lobster, thought it was importing
had been assessed on importers. Part of the
problem is that many new Chinese exporters
and affiliated importers, who are eligible to
post a bond rather than cash deposit for the
estimated duties they will owe once Commerce determines their final duty rate, have
defaulted on their payments. In an effort to
make sure Customs collects all import duties, Byrd co-sponsored a bill in May that
would force importers to place cash deposits
to guarantee future duty payments.
Byrd Backlash. The success of the
legislative attempt to eliminate bonding
privileges for “new shippers” pursuing a
lower duty rate remains to be seen. A Sen-
crawfish at a 91-percent dumping margin
only to find that the price quadrupled to
almost $6 per pound when the Chinese
exporter refused to participate in the International Trade Administration verification
process, Perry said.
“At 91 percent they could still import
and make a profit. But they didn’t realize
that wasn’t the actual dumping margin, it
was the cash deposit. The dumping margin
went to 201 percent and now the importer
owed about $100,000 per container of
crawfish,” he said.
Another mistake some importers make
is assuming that the surety company is
responsible for paying the dumping duties, he said. They are surprised when
the surety comes after them to recoup
the money they paid Customs to cover
the final duty. Perry, who once worked
for the ITA and the International Trade
Commission, blames Commerce for not
educating shippers about the ramifications
of the antidumping laws.
Many large established importers have
decided not to do business with China
because the antidumping risk is too great,
he said. “So the Chinese came in and
set up import companies, they took the
liability, and then that’s when everything
went haywire” as these companies melted
away to avoid the duty, he said.
“The current system “brings out the
worst in everybody,” Ferguson said. Under
a Canadian-style model, “it would be
easier to calculate duty and you wouldn’t
get these absurd value figures that cause
problems with not only counterfeiting,
but people fudging the value to bring the
(bond) deposit down.”
ate staff member familiar with the issue
predicted the bill would pick up support
as more senators realize that companies in
their states benefit from the antidumping
collections.
But it is unclear whether the measure
would even conform to World Trade Organization rules. The international trade
body has no provision that addresses how
countries can use the antidumping monies
they collect. Last year the WTO declared
that the Byrd amendment violates WTO
trade law and the United States is bracing
for retaliation from other countries.
The European Union wants to keep
pressure on the United States to repeal
Untitled-4
100
6/3/02, 11:40 AM
LOGISTICS
the Byrd trade remedy and is preparing to
impose punitive tariffs of up to 20 percent
on certain U.S. exports, according to the
newsletter Inside U.S. Trade. The European
Commission is waiting for a WTO arbitrator to authorize the level of retaliation the
EU and seven other complainant nations
are allowed to set. The WTO unexpectedly
delayed an early June decision on how much
the countries are owed in punitive tariffs.
Byrd supporters in Congress predict
the amount of retaliation will be minimal
because it will be hard for other countries
to show they have suffered negative trade
effects as a result of dispersing duties to
the private sector. The dispute has boiled
down to a power struggle because many
countries appear more upset that the United
States imposed a remedy that was not
pre-approved by the WTO than whether it
constituted an unfair trade action.
Rather than fight the United States on the
WTO criticisms, Byrd has suggested that
other countries would benefit by a similar
duty disbursement policy to help their own
domestic producers, the Senate aide said.
The Bush administration has put the Byrd
mechanism on the agenda for the next
meeting in the Doha round of negotiations
in hopes of affirmatively writing the rule
into upcoming trade agreements.
The Byrd amendment has strong support in Congress too. Last year 70 senators wrote President Bush urging him to
defend the law before the WTO, and seek
express recognition that member nations
can distribute duties as they see fit.
Originally, there was considerable hostility among Republicans toward the bill
because Byrd did an end run around the
Senate Finance and the House Ways and
Means Committees to slip the measure
into an agriculture appropriations bill late
at night without any debate. Members of
Congress were left with no option unless
they wanted to take the risk of voting against
a popular spending bill for farmers right
before an election. But many Republicans
came around to support the Byrd legislation after they returned to their districts
and discovered that their constituents
liked the law.
“Now who wants to be seen as the one
who took away the cookie jar?” said Grimson, whose firm often represents foreign
exporters and U.S. importers.
The Bush administration never liked
the legislation because it didn’t have any
input and it felt too much like a subsidy
for free-trade advocates. On the other hand,
the administration is reluctant to give in
to the WTO on what it sees as a sovereign
right on how to appropriate the money it
collects.
16
AMERICAN SHIPPER:
JULY
2004
Trade-remedy petitions before,
after Byrd amendment
(By calendar year)
Antidumping
Steel
Non-Steel
Total
Countervailing
Steel
Non-Steel
Total
Combined
Steel
Non-Steel
Total
Three-Year Period
Steel
Non-Steel
Total
1997
1998
1999
2000
2001
2002
2003
11
5
16
24
13
37
31
15
46
34
12
46
52
25
77
13
21
34
7
30
37
5
0
5
7
4
11
11
0
11
5
2
7
10
8
18
1
3
4
1
4
5
16
5
21
31
17
48
42
15
57
39
14
53
62
33
95
14
24
38
8
34
42
1997-99: 89 petitions
Source: American Association of Exporters and Importers from U.S. Department of Commerce data.
Even though the White House stated
in its 2005 budget request that the Byrd
amendment should be abolished, political
watchers like Coursey expect the administration to use the issue to gain leverage in
upcoming free trade talks at the WTO.
“This has the potential to smoke out fellow WTO members to see how strong they
really feel about it,” Coursey said.
Most observers agree the Byrd amendment is safe for this year at least because
no one wants to touch the controversial
issue during an election year.
But if Bush “gets another term, I
wouldn’t be surprised he’ll try everything
to get it knocked out,” Coursey added. That
could be tough unless Congress has its hand
forced by retaliation from other countries,
as was the case recently when Congress
modified the foreign sales corporation
tax. Congress delayed changing the export
subsidy until escalating European Union
tariffs targeted at goods from politically
vulnerable states for Republicans in the
“Take the most vanilla
product, without any
complications, and the cost
to bring the case
is $700,000 to $800,000
(in legal expenses).”
Michael Coursey
partner,
Collier Shannon Scott
upcoming election kicked in.
Some Byrd amendment opponents are
also trying a more unorthodox approach
to get rid of the law. There is at least one
lawsuit challenging the Byrd law on First
Amendment grounds because the payout
of money is conditioned on a certain type
of speech, according to Grimson. In order
to qualify for the disbursements, interested
third parties must check a box on the ITC’s
domestic producer questionnaire stating
that they support the petition. The plaintiffs
in the suit argue that procedure limits the
company’s free speech.
Free-trade advocates believe that that
many of the problems with “new shippers”
will disappear once Commerce starts using
actual prices and costs in China instead of
surrogate values. That scenario held true
in a case in which the ITA substituted
high prices for apple juice in India for
Chinese-made apple juice. After the Court
of International Trade ruled that Commerce
had to use a reasonable surrogate value,
the dumping margins went down to zero,
Perry said.
“It’s a joke. Part of the reason is a refusal by Commerce to use the real cost to
calculate accurately the cost. So China
plays the game because it sees Commerce
playing the game” to try and protect U.S.
companies, Perry said. “I just wish that
dumping margins were more accurately
calculated, because I think you’d have less
of these distortions in the trade area.”
U.S. and Chinese officials agreed during
high-level talks in April to set up a working group to identify steps China needs
to take to qualify as a market economy
under U.S. law.
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Sureties stung
by antidumping scams
Insurance market wary of issuing customs
bonds for Chinese agriculture shipments.
A
n epidemic of fraud by importers
of some agricultural goods from
China seeking to avoid high U.S.
antidumping duties is threatening the health
of the insurance industry, and increasing the
possibility that legitimate importers will find
it harder to get coverage and favorable rates
for customs bonds, according to insurance
industry officials.
Meanwhile, established exporters are losing business as a result of schemes designed
to take advantage of their preferred trading
status with the U.S. government.
“Surety companies are going from a
position of considering writing bonds under certain circumstances with appropriate
underwriting to feeling that the risk is so
great that they shouldn’t be written at all,”
said Scott Wollney, president of Avalon
Risk Management, Elk Grove Village, Ill.
“We’d rather forego the opportunity to collect a premium because you’d never collect
enough premium to offset the risk. Why
would a surety want to expose themselves
to a $300,000 penalty in exchange for a
$1,000 premium?”
Customs bonds are intended to guarantee
that an importer complies with customs laws
and pays duties, fees and taxes owed to the
U.S. government after the goods are released.
Importers prefer to use bonds rather than
plunk down cash deposits because it ties up
less of their capital, especially when huge
penalties are associated with goods targeted
for trade protection. Premiums are generally inexpensive — only 1 percent of the
import value for single transaction bonds
— because of the low-risk sureties normally
associate with customs bonds.
A customs broker working on behalf of
an importer buys a supply of bonds with
several different dollar limits from a surety
— an insurance company that also sells
performance bonds — and attaches them to
the import entries filed with Customs and
Border Protection. The surety essentially
acts as a guarantor in the same way a parent cosigning a car loan guarantees the loan
will be repaid. The customs broker usually
18
AMERICAN SHIPPER:
JULY
2004
has limited authority to write bonds up to
a certain level of risk, depending on the
type of entry.
Surety companies, which issue the bonds,
say they are threatened by enormous liabilities stemming from unpaid antidumping
duties run up by food importers who buy
bonds to temporarily cover their smuggling
activities and then close their doors when the
duty comes due, leaving the surety to foot
the bill. The most serious problems involve
imports of preserved mushrooms, crawfish
tail meat, honey and fresh garlic.
Standard China-wide
antidumping duty
Commodity
Fresh garlic
Crawfish
Mushrooms
Honey
Duty Rate
377%
223%
199%
184%
Source: U.S. Commerce Department.
Representatives for the insurance industry
and other sectors of the trade community
trace the source of the bond problem back
to a procedural rule in unfair trade investigations and a controversial trade law passed
by Congress in 2000 that requires the U.S.
government to turn over any duty collected
to the companies that initially filed the
unfair trade complaint instead of placing
the money in the U.S. Treasury.
The Continued Dumping and Subsidy
Offset Act, better known as the “Byrd
amendment” after Sen. Robert Byrd, DW.Va., who slipped the rule into the 2000
Agriculture Appropriations bill at the last
minute, permits the distribution of antidumping and countervailing (anti-subsidy)
duties to firms claiming foreign competitors
are unfairly lowering prices to gain market
share.
Dumping occurs when an overseas shipper sells goods at a price below market price
in a third country or at home, or below the
cost of production. If the U.S. government
determines that dumping has occurred it
adds a tax, or dumping margin, based on a
percentage of the export price to increase
the cost of the good sold in the U.S. market
and level the playing field.
The law marked a radical shift from the
traditional use of antidumping duties as a
form of trade policy to protect U.S. industries
from ultra low-cost foreign producers of
similar goods to one of providing aggrieved
companies direct cash benefits. Many U.S.
importers and manufacturers that rely on
imports of raw materials complain that the
law creates an incentive for companies to file
unfair trade complaints in hopes of gaining
a big cash payout, although actual figures
don’t bear out a rise in petitions so far.
The Commerce Department’s International Trade Administration (ITA) is responsible
for setting the antidumping margin, which
in some cases can be two or three times the
value of the good itself.
Critics argue that the dumping margins
for Chinese-made products are so hyper-inflated that they force people to seek a private
rate or cheat. Since communist China does
not have a true market economy Commerce
has determined that it can’t ascertain the
true cost of raw materials, labor, energy and
other production factors on which to base a
decision about fair pricing. Instead the ITA
selects a surrogate free market country, such
as India, as the model on which to base its
decision.
In the case of crawfish tail meat, the
ITA based its antidumping decision on
Portuguese exports of live crawfish to
Spain. Since then, the agency has used the
Australian crawfish industry as a Chinese
stand-in. But the methodology almost guarantees a dumping determination, the critics
say, because the production expenses are
likely to be much higher in another country
than in China, and the Chinese sales price
therefore will be lower by comparison to an
artificial benchmark.
Bogus Bonds. As the government initiates more antidumping cases, some exporters are taking advantage of the Commerce
Department’s own rules to avoid paying
large cash deposits and high tariffs associated with these goods.
For each antidumping complaint, the ITA
spends about one year gathering evidence on
how often a particular import from a specific
country of origin was sold below fair market
value. At the start of the process the ITA
sets provisional dumping rates on imports
from the origin country that tend to mirror
the penalty rate requested by the petitioners. The rates may or may not approximate
the final margin that Customs and Border
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LOGISTICS
Protection will be ordered to collect if ITA
determines that dumping is taking place.
ITA sets preliminary rates for individual
companies involved in the antidumping case
and a separate rate for all the other companies
in the country. Companies that import the
good undergoing a dumping investigation
must post cash deposits to cover the final
duty they will owe.
During the investigation, individual exporters who are independent from Chinese
government controls can petition for a lower
duty rate on the grounds that their prices are
equal or closer to fair, or normal, values.
The exporter and its producer must fill
out a lengthy series of questionnaires and
permit on-site verification by ITA staff of
its U.S. sales, foreign sales and production
costs in order to qualify for a rate below the
country-wide rate. Some garlic importers,
for example, have manageable antidumping
rates as low as 9 percent. One exporter has
even qualified for a zero rate.
A year after the investigation is completed
and a final antidumping order is issued, new
exporters that didn’t sell to the U.S. market
during the investigation period can apply as
a “new shipper” to have their export sales
price reviewed in hopes of getting more
favorable tariff rate.
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Importers are allowed by law to post
bonds in lieu of cash deposits while the ITA
reviews the application of their new suppliers for preferential duty treatment, based on
whether or not their inbound shipments are
underpriced relative to the Chinese producer’s calculated cost of production. The rules
are designed to encourage new businesses
to trade with China and other nations while
under scrutiny by Commerce.
The department never favored the “new
shipper” privilege, but implemented regulations to carry it out to comply with new
World Trade Organization commitments in
1998. Industry adoption was slow at first,
but companies taking advantage of the new
shipper review process have noticeably
increased in the last couple of years, as
awareness of the rule has grown within the
import/export industry.
“This was a part of law that the United
States didn’t particularly want to agree to.
Nobody was passing around leaflets, saying, ‘We’d like more shipper reviews.’ They
didn’t want anybody to discover it,” said
Jeff Grimson, a partner in the Washington
office of Grunfeld, Desiderio, Lebowitz,
Silverman & Klestadt.
Fraud Schemes. Now surety investigators have discovered that many Chinese
companies are setting up temporary export
operations (and in some cases import
operations in the United States as well) to
take advantage of this rule, ship low-priced
products to the United States during the nine
to 12 month-review period and then shut
down the dummy corporations when U.S.
authorities determine they must pay the high
duty rate for the previous transactions.
These companies ignore ITA verification
follow ups because they never intend to stay
in business and pay the assessed amount of
duty, surety industry officials and others
charge. By the time ITA’s deadlines for
responding to its inquiries expire a shipper
can harvest, pack and ship a whole season’s
worth of product.
“They’ll get everything that they produced
that season in, and then they can just disappear,” said Randy Ferguson, a trade lawyer
with Sandler, Travis & Rosenberg and Glad
& Ferguson.
Some legitimate importers have been
seduced by sales agents for Chinese growers
to buy goods on consignment, Ferguson said.
Lured by easy terms of sale, they imported
much more than if they had laid out their
own money in advance. They were burned
when the exporter didn’t cooperate with the
“new shipper” review process and Commerce assigned the China-wide rate for all
the previous entries.
One importer is on the hook for $3
LOGISTICS
receipts. Customs collected and disbursed
to qualified U.S. companies $9.7 million in
antidumping penalties for Chinese crawfish
and a mere $29,000 for Chinese honey.
Inadequate Customs internal controls for
keeping track of Byrd amendment disbursements contributed to the unpaid duty bills in
prior years and $25 million in overpayments
to domestic producers, according to a June
2003 audit of the program by the Treasury
Department’s inspector general. The audit
indicated that Customs had not collected
$97 million in assessed antidumping and
countervailing duties for fiscal years 2001
and 2002.
The inspector general faulted Customs for
failing to create separate accounts for each
antidumping case (instead of lumping more
than 600 of them all together in one big pot)
and for not making payments to U.S. companies on time. Tracking what was owed and
paid was more difficult because Customs’
computer system comingled outstanding
bills with ones that had been paid. Customs
programmers also did not create a module
in the Automated Commercial System to
handle the special account until nearly a
year after the Byrd amendment went into
effect, forcing staff to manually compute
how much to disburse to each domestic
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million unless the company can convince
Customs that it destroyed some of the
garlic because it was not good quality and
deserves a lower duty rate, said Matthew
Zehner, vice president
of surety at Roanoke
Trade Services.
Another fraud
scheme involves pirating the identity of
legitimate Chinese
exporters who have
received low or zero
Zellner
antidumping duty
rates. Companies that contest the duty
rate in the original investigation as well
as those applying for “new shipper” status
are listed in the Federal Register and the
documents they submit to Commerce are
publicly available.
“It didn’t take long for people to Xerox
those letterheads and make counterfeit invoices and use them to ship from sources
that did not have low antidumping rates in
order to take advantage of the right of the
legitimate shipper to post a (small) cash
deposit,” Ferguson said. Meanwhile, the
fraud is self-perpetuating as other shippers
forge the forged documents of companies
undergoing “new shipper” reviews in order
to piggyback on the original exporter’s
bonding privileges.
In an effort to close this loophole, Byrd
and Sen. Thad Cochran, R-Miss., introduced
a bill in mid-May requiring all importers to
post cash deposits, rather than rely on bonds
as security for payment of duties on goods
that are subject to antidumping investigations by Commerce.
The impetus for the bill came from honey
and crawfish producers, who are frustrated
by the small size of their duty receipts
compared to the amounts they assumed had
been collected on their behalf, according to
a Senate aide familiar with the legislation.
Under the Byrd amendment, Customs
disburses the antidumping and countervailing duties collected each year. As of March
1, Customs said it disbursed almost $190
million in fiscal 2003 duty collections, with
the disbursement of an additional $50 million pending the outcome of a court case.
U.S. companies received $330 million in
2002 and $231 million in 2001 through the
dumping reimbursement program.
But the agency also reported in March
that it was unable to collect $130 million in
duties in fiscal 2003, including more than
$100 million in uncollected duties relating
to imports from China. Of the later amount,
about $85 million is a result of uncollected
duties on Chinese crawfish tail meat and
$4.5 million for honey.
The uncollected amounts dwarfed actual
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LOGISTICS
Chinese garlic grower pressed
In one of the first cases of its kind,
Customs agents and import specialists
from the Port of Los Angeles teamed last
year to arrest an individual who presented
documents showing a shipment from a
producer who qualified for a low rate
when the goods in the container actually came from a producer with a high
PRC-wide rate.
The man was recently convicted of
conspiracy to smuggle goods into the
United States.
But Randy Ferguson, a trade lawyer
with Sandler, Travis & Rosenberg and
Glad & Ferguson, charged that the Commerce Department’s International Trade
Administration has handcuffed enforcement efforts by refusing to study how
Chinese garlic grower Huaiyang Hongda
was victimized by smugglers and develop
techniques to counter them. He claimed
bogus importers with addresses since
traced to mom-and-pop stores in the Los
Angeles area used phony documents with
Hongda’s name on them to obtain bonding
privileges and steal Hongda’s business.
Hongda was doubly damaged because
it also was perceived as a company that
was dumping when it really was trying
to cooperate with Commerce and trade
in the right way.
As a relatively unsophisticated shipper,
Hongda was able to verify costs and sales
for its own produce but didn’t understand
how to comply with a new rule at the time
to verify production for its other garlic
suppliers. ITA subsequently canceled
a review of Hongda’s 2002-2003 sales
and shipments and said the company had
to pay the 376 percent general duty for
Chinese garlic.
“We wanted Commerce to sort out the
good shipments from the bad shipments
producer. In addition, a programming error
caused some duties to be double-counted,
and no checks were in place to reconcile the
end-of-the-year balance with the amounts
to be disbursed.
The inspector general further found that
Customs had not drafted any written procedures for how to manage the program,
relying instead on the expertise of a single
program manager.
Correcting Problems. On June 2,
Customs announced several steps to correct
problems associated with managing the
dumping offset program. The agency said
it has centralized claims processing under
22
AMERICAN SHIPPER:
JULY
2004
and give relief on the good shipments and
then turn over the fraud investigations
to Customs to go after these importers,”
Ferguson said.
Trade law firm Grunfeld, Desiderio,
Lebowitz, Silverman & Klestadt advises
new shippers it represents to vertically integrate their operations to avoid the mistake
made by Hongda, said Richard Wortman,
an attorney in the Los Angeles office.
“We have to trace their costs from the
time they put the garlic in the ground to
the time it lands here. You can only do
that if you work with one or two large
farmers, rather than 57 people that bring
it to the market,” he said.
If the firm’s China office can’t figure
out the production costs and help the
Chinese exporter restructure their business up front, then it won’t initiate a new
shipper review.
Surety companies want the ITA to
give them standing to participate in antidumping cases along with the exporter,
importer and domestic petitioner so they
can challenge duty rates that they feel are
set too high. Lincoln General filed suit
in the Court of International Trade challenging ITA’s refusal to give them status
as interested third-party participants in
the Hongda case.
The sureties argue they should be able
to participate because they stand in the
shoes of the importer who has defaulted.
Companies have a short window of time in
which to challenge a final rate set by Commerce, so the sureties want to make sure
the rate is properly set at the outset.
“But as a surety, I wouldn’t want to
spend oodles of time monitoring every
dumping case,” said Matthew Zehner,
vice president of surety at Roanoke Trade
Services.
a single office at one location and moved
responsibility for the program to the Office
of Finance from the Office of Regulations
and Rulings. Customs also published the list
of qualified companies eligible for a payout,
and instructions for filing a claim, in June
instead of July to help meet the distribution
deadline at the end of November.
Some domestic producers and Byrd
complain that Customs compounded recent
problems by failing to require single entry
bonds for “new shipper” imports.
Regular importers typically prefile a continuous transaction bond with Customs that
provides umbrella coverage for all normal
customs entries during a given year. The
bond is set at 10 percent of the importer’s
annual estimated duties, taxes and fees. But
importers usually submit a separate, single
transaction bond for riskier entries, such
as those involving quotas, visas and most
antidumping shipments. A single transaction
bond must cover the value of the shipment
plus any protective tariff. Goods that require
review by other agencies, such as the Food
and Drug Administration, must be secured
by a bond at three times their value.
Customs has made technical corrections
to its automated trade data system so that
more than one bond entry can be recorded,
said Betsy Durant, head of trade compliance and facilitation. Limitations in the
Automated Commercial System led to the
incorrect perception that single antidumping bonds were not being collected, she
said. But last July, Customs headquarters
also had to remind port directors to follow
Commerce’s requirement for an additional
single entry bond whenever the amount of
the antidumping duty is 5 percent or more,
according to a copy of the administrative
message.
Now Commerce, at Customs’ request, is
setting deposit rates for all “new shippers” at
the full country-wide rate, rather than allowing some exporters a low rate, according to
a recent letter from Customs to Byrd.
Customs could experience a significant
revenue shortfall, for example, under a
scenario in which a company imported one
container of garlic each month for a year
under a $50,000 continuous bond and the
ITA subsequently ruled those entries must
be liquidated at a duty rate of 15 percent or
higher. In a worst-case scenario, Commerce
might slap imports from a particular producer with the full 376 percent all-country
dumping rate. A $50,000 continuous bond
on a $30,000 garlic shipment would cover
less than half the $113,000 of the importer’s obligation. When
an importer defaults
on its obligation the
surety gets hit with a
claim from Customs
for the bond value.
Since the surety is only
obligated to cover the
face value of the bond,
Bonner
Customs is out the
$63,000 difference, not including interest,
if the importer has gone out of business.
“I am greatly concerned that the continuation of these problems with duty collection
will enable Chinese imports to quickly destroy vulnerable sectors of the U.S. economy
that our anti-dumping laws are designed to
protect from unfair trade practices,” Byrd
said in a May 4 letter to Customs Commissioner Robert Bonner.
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LOGISTICS
The $130-million shortfall is not all necessarily due to antidumping fraud. Some of the
duties may be subject to ongoing protests by
importers or sureties that Customs made an
error in calculating a company’s duty rate,
improperly doubled the dumping penalty on
suspicion the importer was reimbursed by
his supplier, or used the wrong interest rate.
A portion of the shortfall could also be in
limbo due to difficulties collecting payment
from insolvent sureties or from defaults on
general customs entries.
Meanwhile, some Customs offices, such
as the one at the Port of Los Angeles/Long
Beach, have begun using their discretion to
set higher bonds levels for the regular consumption bond than the statutory minimum
higher to protect the agency from defaults,
according to industry officials. Some ports
had allowed the antidumping bond to cover
the triple-value bond requirement associated
with FDA and other agency reviews. In ports
with tighter policies it is possible for an importer of garlic to have a combined duty of
676 percent — 300 percent for FDA reviews
and 376 percent for Chinese garlic.
The decision follows similar steps to raise
minimum operating bond levels for Foreign
Trade Zones and vessel agents. Together the
moves indicate Customs is concerned that
the import/export industry lacks sufficient
bonding to allow the agency to collect all
the revenues it is due.
“We have experienced some additional
revenue exposure to antidumping,” Durant
said in an interview. “I’m trying to let the
trade know we have a big increase in dumping cases, and we see a bigger risk to the
revenue and we all have to do a better job of
making sure the revenue is protected.”
Others Harmed. Many parties besides
the surety are also harmed by the duty evasion
schemes. The scams are often not discovered
until the legitimate exporter realizes a loss
in sales to the United States and reports the
counterfeit transactions to U.S. authorities,
Ferguson said. The taxpayer also is a loser
because the bond or cash deposit may not
be sufficient to cover the final customs duty
liability, or an importer may have gone out
of business or lack the money to pay the
duty, forcing Customs to write off the excess
debt. And the U.S. industry that sought to be
protected from alleged unfair trade must still
compete with the low-cost foreign products
that enter U.S. commerce.
“This discovery forebodes crippling
losses for the U.S. surety industry, continued
unfair competition to the U.S. industries
(seeking protection under) the antidumping
laws, and the closure of markets to Chinese
agricultural industry vis-à-vis the refusal
of the U.S. surety industry to underwrite
24
AMERICAN SHIPPER:
JULY
2004
Betsy Durant
head of trade
compliance and
facilitation,
U.S. Customs and
Border Protection
“I’m trying to let the
trade know we have a big
increase in dumping cases,
and we see a bigger risk
to the revenue and we all
have to do a better job
of making sure the revenue
is protected.”
customs bonds for Chinese agricultural
products,” Ferguson said on behalf of sureties in written testimony to the House Ways
and Means Committee last October.
Another key group affected by the scams
is customs brokers, who ultimately pass any
cost increases to the importer. Surety officials
say rates are going up across the board for
Customs bonds because the risk from antidumping bonds has to be averaged across the
whole portfolio of products to boost capital.
Higher reinsurance costs, as well as property
and casualty losses are driving insurance rate
increases, but the antidumping exposure is
also a factor, they say.
Insurance Troubles. The proliferation
of “new shipper” reviews comes as a surprise
because it is not common for a lot of new
shippers to enter an industry during a short
period of time, said Zehner. The majority of
the problem, however, involves agriculture
because the barriers to entry for farming are
much less than in a capital-intensive business like a steel mill or manufacturing plant,
thereby enabling companies to quickly set up
and move food processing operations.
The insurance company is Customs’
backstop to make sure penalties are paid, but
if the insurance company itself is insolvent
recovering duties becomes a challenge.
Ferguson said an insurance client had no
idea its antidumping liability was growing
until it received a tip from Customs because
it hadn’t received any requests from brokers
to write antidumping bonds. But sureties
should have noticed that importers were
receiving an ever-increasing number of
these bonds and looked into the matter, said
William Perry, a trade attorney at Garvey,
Schubert & Barer.
In a May 28 letter to Byrd, Bonner outlined several corrective steps the agency is
taking, including tracking sureties that have
a lot of exposure to antidumping duties and
sharing that information with the Treasury
Department for use in its surety solvency
evaluation.
Taking Action. Surety industry officials
admit they were caught off-guard by the
spike in new shippers and bond defaults, but
are now taking action to police the situation
themselves and lobby the government for
extra protection.
Responsible bonding companies are
conducting more audits, going back to
the actual manufacturer or exporter who
is undergoing a “new shipper” review to
verify the type, quantity and consignee for
shipments listed on the bill of lading, said
Ferguson, who represents Lincoln General
Insurance Co. If the exporter cannot verify
the shipment is valid, sureties will notify
Customs, he said.
Major sureties are also tightening up
already high underwriting criteria, forcing
the broker to spend more time supplying
documentation to show the importer they
represent is a low credit risk. A common
industry requirement for importers is that
they must provide three years worth of financial records and have a 3-to-1 ratio of net
worth to aggregate antidumping exposure,
according to Ferguson.
“It is prudent underwriting to presume
entries will liquidate at the country-wide
rate, even if the preliminary determination
of a shipper’s rate is much less, including 0
percent,” Zehner said in a written reminder
to some broker clients.
In some cases sureties are seeking some
collateral, such as a letter of credit, to protect
themselves in advance.
Wollney estimated the surety industry
collectively faces hundreds of millions of
dollars per year in antidumping exposure.
“If (the new shipper scam) continues at
the rate it appears to be going, it’s going to
create an enormous amount of pressure on
the surety industry,” Wollney said. Customs
brokers may have fewer options if sureties
exit the customs bond business, he said.
“All of the sureties are simply refusing to write any antidumping bonds for
honey, garlic, crawfish and mushrooms
from China,” Ferguson said in an interview.
“This isn’t good for trade. This isn’t good
for the Chinese, legitimate importers or
U.S. consumers.”
Washington International and XL Specialty, the two largest suppliers of customs
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LOGISTICS
bonds, only have a small amount
of exposure to the antidumping
claims because they were careful about taking on risk, said
Roanoke’s Zehner. Roanoke
brokers insurance for Washington
and XL.
Ferguson said experienced
sureties with high underwriting
standards in place, like Washington, XL and Lincoln General,
didn’t get burned too badly by the
bad bonds, compared with newer
entrants to the surety business like
Frontier and Highlands.
Still, if even one of every 100
antidumping bonds goes bad, it
can wipe out the pool of reserves
from the rest of the bonds because
the dumping penalties can be so
enormous.
“These dumping liabilities could
be multiples of what surety
companies pay in normal losses
(for undervalued or misclassified merchandise). I don’t think
you could write a correct bond
premium for a 100 percent loss,”
Zehner told American Shipper.
because their import customers
will cease buying in the face of
crippling levels of liquid working
capital which they would unnecessarily be required to pledge to
A jury recently convicted a California businessman on one
continue importing,” he wrote.
count of conspiracy to defraud the U.S. government by using
In the letter, the group of surefake invoices and import documents to avoid paying at least
ties recommended that the United
$3 million in antidumping duties, Assistant U.S. Attorney
States pressure China to monitor
Lawrence Middleton told American Shipper.
export commodities subject to
The defendants, Minggang Shen, president of Sunline
U.S. antidumping duties, perhaps
Business Solution in City of Industry, Calif., and his logistics
through a visa program.
director Young Sen Lin, were charged last October with using
Insurance brokers also say it is
fraudulent documents to import crawfish tail meat from China
time for Customs to differentiate
under the name of a company eligible for a low duty rate.
the antidumping bond from the
Sunline, which sold crawfish to merchants in the Los Angegeneric bond used for general imles area, ordered crawfish from the Baolong Group in China.
ports. That would give the surety
In order to avoid having to pay an antidumping duty of 223
some control over its exposure
percent on the value of the crawfish tail meat, the defendants
and limit the errant issuance of
falsely stated on U.S. Customs entry documents that the tail
bonds. Wollney and Zehner said
meat was manufactured by Shanghai Taoen International, a
insurance agents would like the
company that is only subject to a 17 percent antidumping duty,
ability to exclude antidumping
according to a copy of the indictment.
exposure from the customs bond
Shen and Sen Lin attempted to persuade Shanghai Taoen
form itself by listing the types
International to falsely claim ownership of 15 containers of
of entries so they can line out
crawfish tail meat after U.S. Customs and Border Protection
antidumping as an option.
officials questioned their origin documents. When Shanghai
Customs could create a separate
Taoen refused, the defendants attempted to re-export the
activity code for antidumping
containers back to China, the indictment said.
bonds, similar to the check-off
Sunline used two customs brokers, East-West Associates
box now on Customs Form 301
and Parisi Services Inc., to clear the crawfish shipments into
‘Unprecedented.’ And the
for duty drawbacks (a type of
U.S. commerce.
problem for sureties could get
refund), they said. Carving out
Sentencing for Young Sen Lin is scheduled for Aug. 2 in
worse. At the end of the fiscal
dumping from the rest of the
the U.S. District Court for the Central District of California,
year Sept. 30, Customs said five
import category would require
Middleton said. The other defendant, Minggang Shen, fled
Chinese products (fresh garlic,
changes to customs regulations,
the country before he could be arrested and is believed to be
crawfish, preserved mushrooms,
the bond form and the Automated
in China, he said.
honey, and folding metal tables
Broker Interface through which
and chairs) accounted for $254.6
most brokers file their entries.
million (83.5 percent) of the
Zehner said he does not favor
$283.4 million in estimated antidumping probably forced many established shippers the Byrd-Cochran approach of doing away
duties secured by bonds. Cash deposits to turn to Europe or other markets, and new with the bond privilege for “new shippers”
accounted for a tiny fraction of Customs’ shippers keep recycling to take their place in antidumping situations.
estimated antidumping penalty. Of the under the temporary protection of the bond“I would rather see a different bond writ$131.6 million antidumping duty for fresh ing loophole, he speculated.
ten for this stuff. When the sureties really
Surety companies say Customs and ITA scrutinize this, they will tighten the supply
garlic, for example, only $5.4 million (4.1
have been slow to heed their warnings and of these bonds which will have the same efpercent) is in the form of cash deposits.
Zehner called the high ratio of bonds to crack down on the fraudulent duty evasion fect as having to put up cash,” he said. “For
cash deposits for agriculture goods “un- schemes. The insurance brokers say they the proper credit-worthy importers, why
are working with Customs to identify smug- shouldn’t they be able to use bonds?”
precedented.”
The rapid growth in these bonded anti- gling operations, but that more enforcement
A line item capability eventually will
dumping entries stands in sharp contrast is necessary.
be available when Customs completes
“If appropriate measures are not taken the rollout of its Automated Commercial
to the total import picture and Canadian
softwood lumber in particular. Bonds secure to curtail the schemes used to circumvent Environment, the modernized electronic
16.6 percent of estimated antidumping antidumping duties, surety companies will platform for processing trade data and comduties for imports as a whole. In the past face staggering losses and/or will be forced municating with the industry. Release 5 is
three to four years, nearly all of the $471 to severely restrict access to customs bonds scheduled to include a module for electronic
million in estimated antidumping duties for these commodities in this trade lane, and bonds. As part of that module, sureties will
for the wood product has been secured by domestic interests will continue to suffer be able to put specific limits on each type
unchecked unfair competition,” Ferguson of entry, Avalon’s Wollney said.
cash deposits.
Zehner attributed the disparity in cash said in written testimony to the House Ways
But relief is still a few years away while
deposits for estimated duties to the high and Means Committee last October.
the system is under development.
“This in turn, will severely impact United
turnover in Chinese agriculture shippers takAnother solution Customs should coning advantage of the “new shipper” bonding States/China trade relations as law-abid- sider, Zehner said, is limiting the concenprivileges. The high antidumping duties have ing Chinese exporters will exit the market tration of risk with each surety company,
26
AMERICAN SHIPPER:
JULY
2004
U.S. Customs cracks
crawfish caper
LOGISTICS
especially ones with low scores from credit
rating agencies.
Until then, the best line of defense remains
the customs broker. Sureties say they are
working hard to educate customs brokers
about the situation and are requiring brokers
to get approval for any bonds used to cover
antidumping entries.
Brokers who inadvertently or deliberately
ignore the underwriting guidelines continue
to put sureties at risk, Wollney said. If Avalon
suspects a broker of fraudulently writing a
bond it would cut off their supply of bonds,
he added.
“That won’t put a broker out of business,
but it will make it harder for him to compete
with those who can provide a bond service
to the importer,” Ferguson said.
Regulator runaround
Chinese food shipper’s shenanigans leads
U.S. Commerce to develop sanctions.
A
field report by a U.S. Commerce
Department team that visited a
Chinese company last year as
part of an antidumping review of its sales
practices highlights in detail the lengths to
which some exporters are willing to go to
evade U.S. duties.
The report caused a stir in Congress and
led Commerce in January to begin developing a set of sanctions for U.S. law firms that
assist foreign companies in submitting false
statements about their operations, customers, production costs and prices.
The International Trade Administration
(ITA) frequently reviews previous antidumping orders at the request of domestic
producers seeking to push duty rates higher
or foreign exporters seeking to prove that
their prices are closer to fair value and should
be adjusted downward.
Dumping occurs when goods are sold
below the normal market price in the country
of consumption or below the cost of production. To remedy the inequity, countries
can impose punitive tariffs to address the
imbalance in price and help domestic producers compete.
An ITA verification team reported that
the Chinese firm, Weishan Fukang Foodstuffs Co. Ltd., first tried to undermine the
August investigation into exports of freshwater crawfish tail meat and then withdrew
from the review process rather than expose
itself to further scrutiny. The report did not
categorically state that Weishan Fukang
Foodstuffs was a front company for other
Chinese exporters, but the effort to avoid
full disclosure left the impression with
many that the company provided cover
by pretending to be a legitimate importer
entitled to lower duty and thus avoid the
country-wide rate imposed on most Chinese
crawfish producers.
Every step of the way, the U.S. investigators encountered an almost comical
level of delays and deception, according
to the report.
28
AMERICAN SHIPPER:
JULY
2004
The ordeal began when investigators
agreed to Weishan Fukang’s request to
conduct the records examination at a local
hotel because they claimed their factory did
not have a suitable conference room. During
a quick tour of the factory, which was not
in production, the U.S. team unsuccessfully
tried to print an incoming/outgoing log of
calls from the fax machine, with company
officials claiming they did not know how
to operate the machine.
Weishan Fukang officials and attorneys
tried to control the flow of documents at the
hotel by storing records in another room in the
hotel and then bringing them to the conference room as requested. Under questioning,
an official said the company did not have
any computerized records. He stated that the
company had virtually no dealings with other
crawfish producers, exporters or importers
and was only aware of the existence of a
half-dozen such outfits. An examination of
his personal phone directory, however, found
entries for several other entities known to be
involved in the crawfish business.
Suspicious of being spoon-fed documents, the verification team asked to be
taken directly to the records room, and
discovered four staff members with a copy
machine, computer and printer. As the verification team entered, a staff member shut
off the computer and then tried to remove a
floppy disk. The team checked the computer
and quickly found a file containing a letter
of negotiation for crawfish tail meat to its
U.S. importer.
As the verification team began to examine
the letter on the computer screen, the power
went off. The U.S. team ignored suggestions
to repair back to the conference room until
the power could be restored.
The power failure was curious because
there was power in the hotel lobby and all
the floors in an adjacent wing of the hotel
that included the conference room. After the
verification suggested that the computers be
moved to the conference room it discovered
that the power had subsequently been lost
there as well.
About an hour into the chaos with the
computer, a hotel employee arrived and
stated that the hotel wanted Weishan Fukang
to return the computer it had borrowed.
During the wait, the verification team
discovered that one of the employees who
had been in the records room was actually
the accountant for another crawfish tail
meat producer/exporter whom the team’s
interpreter recognized from an earlier antidumping review. Whenever the team tried
to approach the accountant in the hotel for
further questioning, she scurried away. Later,
during an arranged meeting she said she
was unable to provide her driver’s license
to verify her identity because she said she
was getting a new one and did not have her
national ID card because she had left with
motor vehicle authorities instead of giving
them a photocopy. She then gave a series of
vague answers about her home address.
After the verification team noticed that
power had been restored to all parts of the
hotel, except for the one floor of the hotel
where the conference and records rooms
were located, a decision was made to move
the computer to the room of one of the team
members. As a team member copied the
Weishan Fukang files from the floppy and
hard drive onto a blank disk (and noticed
they had been modified during August of
that year just prior to the visit), Weishan
Fukang’s counsel notified the U.S. team
that the company wanted to withdraw from
the verification. The counsel argued that
since Weishan Fukang had withdrawn from
the investigation, the ITA had to return all
evidence, including the copied files. When
U.S. officials balked, the company made
an apparent veiled threat about possible
Chinese government intervention. Unable
to consult with officials in Washington due
to lack of phone service at the hotel, the
verification team acquiesced and returned
the disks to Weishan Fukang. Company officials insisted that the U.S. investigators sign
a statement testifying that were not taking
any of the company’s computer files.
In the wake of the Weishan Fukang case
and other instances of trying to hinder
investigations, Commerce is considering
levying sanctions against trade lawyers
who abet the submission of false statements during antidumping or countervailing duty investigations. Possible penalties
under consideration, apart from the current
practice of referring potential fraud to the
Commerce Department inspector general
or U.S. Customs and Border Protection,
include banishment from practicing before
the ITA, according to a notice in the Federal
Register.
■
6/2/04
11:17 AM
Page 1
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LOGISTICS
‘Deliberate’ deliberations
UNCITRAL’s pace on carriage of goods disappoints U.S.,
but is understandable, given complexity of issues
BY ROBERT MOTTLEY
T
he recently concluded spring round
of discussions about an international
cargo convention by Working Group
III of the United Nations Commission on
International Trade Law (UNCITRAL) at
U.N. headquarters in New York gave new
meaning to the term “deliberations” — being so slow and drawn out as to make the
word “deliberate” seem precipitate.
Yet the case can be made that the nature
of the “draft instrument’s” text, with all its
complexities, required such a gestation
period to become globally palatable.
While some of the delegates participating
in the Working Group May 3-14 expressed
frustration at its molasses-flowing-uphill
tempo, very few seemed greatly put out by
it. Only the U.S. delegation appeared to be
genuinely troubled.
Representatives of the National Industrial Transportation League and the World
Shipping Council, present at the UN as
advisers to the U.S. delegation, were not
happy with the lethargic proceedings of
the Working Group. The NIT League,
comprising shippers, and the council, made
up of ocean carriers, have jointly supported the evolving draft instrument with
the understanding that a certain timeline
would be met.
That timeline called for the draft instrument to be in its final stages by the end of
2004, a goal that is now hopelessly unrealistic. Another full year of discussions will
be necessary, with a lap-over into a second
year, 2006, almost certainly assured — and
that is assuming the Working Group’s pace
picks up slightly. If not, it could be mid2007 before the convention is finished.
Power Blocs. To understand why matters went so slowly in New York, one has
to know more about the constituencies that
have evolved in Working Group III, and its
operating methods.
The “movers and drivers” among the approximately 50 delegates — not counting 11
non-governmental observers — who could
be found in attendance on any one day of the
NewYork sessions could be divided into two
power blocs. One bloc comprised the United
30
AMERICAN SHIPPER:
JULY
2004
“We operate on the basis
of a consensus, not
a majority — a nuance
frequently misunderstood.”
Renaud Sorieul
senior legal officer
for transport law,
U.N. Commission on
International Trade Law
States, Denmark, Italy, the Netherlands,
and the United Kingdom. The second bloc
principally comprised Germany, Sweden,
Norway, Finland and Canada.
These blocs were seldom in agreement,
and reflected different views of treating the
text of the draft instrument, which included
89 articles at the beginning of the session
and had been pruned by at least 20 percent
at the end — the final text won’t be available until September.
Maneuvering between these power blocs
were delegates from France, Switzerland,
Austria, Japan, Spain and India, acting
more as individual agents than at past
sessions.
To this observer, the delegates from
Germany, Sweden and Norway appeared
to make an orchestrated effort to push the
boundaries of the draft instrument deeper
into commerce than in its original intent.
“We must think of the ‘small merchant’ or
shipper who should not be at a disadvantage
because of size,” said Beate Czerwenka, the
representative from Germany, when interviewed in the UN Trustees’ Chamber.
It also seemed that certain delegates in
both power blocs seemed intent on taking
the draft instrument apart sentence by
sentence, even re-examining previously
agreed-upon phrasings. In that, they had
at least the grudging acquiescence of the
Working Group’s chairman, Rafael Illescas, from Spain, who astonished the U.S.
delegation by rarely nipping at anyone to
move faster.
Visa Runaround. To offset the obvious
wealthier nations, UNCITRAL included
developing countries in the Working Group,
both as “states members” and “observer
states.”
A number of those developing nations,
professing not to understand terms of seagoing commerce, had attended a special
UNCITRAL seminar in London earlier
in 2004. It was assumed, with their new
knowledge in hand, they would be an especially motivated group during the New
York sessions.
However, few of the developing nations
— Nigeria being a notable exception — attended the May U.S. meeting.
More shocking was the absence of private-sector delegates from China. A source
in the U.S. State Department explained
that the United States had raised its fees
for visas for Chinese citizens, and that the
Chinese government had taken umbrage,
calling the increase exorbitant. The Chinese UNCITRAL delegates were caught
in the middle, and were ultimately unable
to obtain visas to travel to New York for
the May session.
China then asked that the important issue of freedom of contract be deferred to
the Working Group’s next meeting, Nov.
29-Dec. 10 in Vienna. “Presumably, the
Chinese delegates will have less trouble
obtaining Austrian visas,” said one bitter
member of the U.S. delegation. “We needed
their input in New York. It was not helpful
for us that their visas were blocked. That’s
one ‘force majeure’ thing that could push
all of this back yet another year.”
The State Department reiterated that
visas were available in China at the higher
fees.
A Third Ear. UNCITRAL’s method
of overseeing how the Working Group
functions is somewhat peculiar to anyone
familiar with a democratic parliament. The
group’s basic procedure is for the chairman, Illescas, to announce that a particular
article is next up for consideration. Copies
of the current text of the draft instrument
are on every desk. A delegate who wants
to speak turns his or her country’s name
bar from horizontal to vertical, and waits
until called by the chairman.
The point of speaking is to suggest a different phrasing, a new wording, or the excision of a particular passage from the draft
instrument. Delegates may also comment
on concepts in the text, as understood (or
not) in their countries. After several rounds
of scrutiny, the delegates say whether or
not they support a particular article, or part
of an article, in the draft.
At that point, the chairman keeps a
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rough tally of his own, but never asks for
a roll call vote or even a show of hands.
“That would be too intrusive,” said Renaud
Sorieul, UNCITRAL’s senior legal officer
for transport law. “We operate on the basis
of a consensus, not a majority – a nuance
frequently misunderstood.”
The chairman’s role, Sorieul said, is to
be a “third ear” to the Working Group. “He
must do more than count heads. He must
listen closely, to understand what delegates
are really saying.” When a decision has to
be made on words either inserted or struck
out, the chairman will say, for example,
“it appears a majority wants ‘port of loading’ excised and replaced with ‘place of
delivery.’ ” If his decision is challenged,
an object can be filed, which will go into
the footnotes of the draft instrument, and
means another discussion at the next Working Group reading of the instrument.
There is also a middle ground that Illescas extensively used in New York. Passages
or even single words in the draft instrument
over which there has been extensive debate
can be put into brackets. All bracketed material must be discussed at a future reading
of the text. Enough of the draft instrument
went into brackets in May for an entire year
of further discussion.
Delay In Delivery. To give an idea of
length of time given to some of the issues
at the New York sessions, here’s a summary
by the Working Group’s secretariat — the
chairman and advisers from UNCITRAL’s
legal staff — of a subject that took more
than half a day to work through:
“Doubts were expressed as to whether
the issue of delay in delivery should be
addressed at all in the draft instrument. In
support of deletion (of the relevant article),
the view was expressed that the issue was
purely commercial in nature and should
thus be left for interested parties to deal
with in the context of their contractual
arrangements … examples were given
of situations where a regulation placing
too much emphasis on delay in delivery
might disregard certain established usages
and contractual practices, or even result
in compromising the safety of maritime
transport. The prevailing view, however,
was that the issue of delay in delivery required regulatory treatment … and could
appropriately be dealt with in the draft
instrument.”
The tone above is once-removed, respectful of all parties, and firm when needed,
which is UNCITRAL’s preferred style for
such summations. As it happens, it suits
Illescas personally. He is a professor of
law and a practicing attorney in Madrid.
His duties with Working Group III require
32
AMERICAN SHIPPER:
JULY
2004
more than a month of his professional life
each year.
At the sessions in New York, it seemed
to one observer that Illescas did misstate
the views of delegates on several occasions. Only once was he corrected from
the floor.
He also was pushed, after one heated
round of debate, to remind the delegates
that “not everyone can have their way
— there are going to be losers as well as
winners.” Illescas seemed to regret his
words as soon as he had spoken them, and
called for a long break.
Common Vs. Civil Law. Another issue
discussed during the first week of the May
sessions was the liability of performing
parties. Here’s part of the official summary
of the debate that followed:
Peter Gatti
vice president
of international
relations,
National Industrial
Transportation
League
“We need to bring closure
to these issues. From
an industry standpoint,
we cannot stay with this
indefinitely.”
“The view was expressed that the common law concept of ‘joint and several liability’ might not be interpreted as strictly
equivalent to such civil law concepts as
‘responsabilite solidaire’ or ‘responsabilidad solidaria’ which, in turn, differed from
such notions as ‘responsabilite conjointe’
or ‘responsabilidad mancomunada.’ It was
widely felt that further elaboration might
be necessary to make it clear in all languages that, whether several parties were
held liable … each party was individually
responsible for compensating the total loss,
subject to any statutory limit applicable
and also subject to the recourse action
that party might exercise against other
liable parties.”
Another key component of the draft instrument, also excerpted from an overview
by the UNCITRAL Secretariat, concerned
the liability of non-maritime performing
parties:
“The issue of the set-off of damages
amongst defendants to a claim was discussed, and several possible scenarios
envisaged. Concerns were raised as to how
the principle of aggregate liability would
operate in cases of interplay between various liability regimes, which might result in
the combination of one claim of defendants
who could claim the aggregate limitation on
liability and defendants who could not.
“For example, where both maritime and
non-maritime performing parties were
liable and the non-maritime parties were
subject to higher limits of liability under
applicable law, the effect (of the relevant
article) should not be to create a lower limit
of liability for such non-maritime parties.
Another example was envisaged where the
limit of liability was broken in respect of
one of the defendants for reasons of willful
misconduct, but that limit should still be
available to other defendants.
“With a view to alleviating some of these
concerns, the Working Group generally
agreed that (the relevant article) should
apply to both the contracting carrier and
maritime performing parties, but that it
should clarify that it was not intended to apply to non-maritime performing parties.”
Drafting Cadres. Critics of the Working Group’s slow pace might find it hard
to solve how to speed up discussions on
bedrock issues. One way to reduce floor
debates is to have the “mover and driver”
delegates meet in groups of less than dozen
to discuss the scope of the instrument. This
observer sat in on one such meeting called
by a single delegate to talk about how the
draft instrument might deal with the CMR
convention in Europe.
The opinions expressed in that smaller
group were subtly different from the way
they had been aired in the larger assembly
hall. Ego was not as much of a factor. There
was more give-and-take on view, and a collegial empathy. In that setting, the formal
politeness prevalent on the main floor was
even more attenuated. One did not hear
much plain speaking, but then again, these
were diplomats. It was especially evident,
in that smaller-sized group, how few of the
delegates had commercial experience, as
opposed to academic training or time served
in the legal departments of their nations’
foreign ministries.
While the UNCITRAL secretariat encourages the formation of smaller groups
to discuss the draft instrument’s scope, and
even to facilitate phrasing of its text, the
secretariat does not allow them to edit in
any way the text of the draft instrument.
“They’ve asked us to let them do that, and
of course, we said no,” said an UNCITRAL
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LOGISTICS
official. “Small groups are welcome to
submit a clearer way of expressing a point,
but it would be crossing a line to let them do
anything more.” Selected members of the
secretariat’s trade law staff, working with
the Working Group’s chairman, update the
text of the draft instrument, incorporating
the various changes that come from the
delegates.
another whack at anything not gotten to
in Vienna, plus transport documents and
electronic commerce, right of control, and
delivery of goods.
Much of that is likely to spill over to the
fall of 2005 in Vienna, where the Swedes
noted that freight and general average
remain pending, among other articles, for
a second reading.
Contractual Confusions. In the second week of the May session, substantial
time was spent in discussions of syntax,
such as what the word “accept” really
meant in contractual terms. In one article,
“accept” was actually put in brackets by
chairman Illescas for further discussion.
While that might be considered nitpicking,
in a larger context, many Europeans don’t
profess to understand contractual language
— let alone its basic verbs — used in the
United States.
In debating the roles of consignors and
agents, one delegate noted wryly that
“theory and commercial practice do not
lie happily together” — a very pointed
comment on an eventual instrument that
must straddle both to be acceptable.
And later, while still on that subject,
a delegate said very plaintively, “does it
happen often that no shipper is mentioned
in a contract? I have never been aware of
a document without a shipper.”
He wasn’t being sarcastic — he really
wanted to know. Hearing how business was
done so differently in many countries was
daunting, when one thinks of the ground
that an eventual international convention
will have to cover. As one delegate put it
succinctly, “you can’t take a speedboat
through these issues.”
Commercial Impatience. The U.S.
delegation had its own internal concerns
regarding the pace of deliberations — not
least being when the patience of its foremost
commercial patrons will run out.
Work To Be Done. Michael Sturley,
professor of law at the University of Texas
and an adviser to the U.S. representative
to Working Group III, recently wrote in
Benedict’s Maritime Bulletin: “in many
ways, the obstacles to success today seem
far greater than they were at the beginning
of this process.”
The Working Group itself, in a preface to the most recent revised text of the
draft instrument, said it “had reached a
particularly difficult phase of its work …
a considerable number of controversial
issues (remain) open for discussion.”
The Swedish delegation, led by Johan
Schelin, enumerated May 11 the ground
that lies ahead in order complete a second
reading of the instrument. In Vienna the
Working Group will have to take on carrier
liability, freedom of contract and the scope
of legal jurisdiction and arbitration.
Next spring, in New York, there will be
34
AMERICAN SHIPPER:
JULY
2004
Donald L. O’Hare
vice president,
World Shipping
“The next Vienna session
will be crucial.”
The NIT League and the World Shipping
Council are ready to throw their joint weight
behind a revision of the U.S. Carriage of
Goods by Sea Act (COGSA) for Congress
to pass if, in their view, Working Group III
moves too slowly toward an international
convention.
“The next Vienna session will be crucial,” said Donald L. O’Hare, vice president
of the World Shipping Council, based in
Washington, D.C.
“We will have to see what happens
there,” said Peter Gatti, executive vice
president of international relations for the
NIT League, based in Arlington, Va. “We
need to bring closure to these issues. From
an industry standpoint, we cannot stay with
this indefinitely.”
Both O’Hare and Gatti said they were
“extremely disappointed” by the slow session in New York.
Mary Helen Carlson, the U.S. representative to the Working Group who is also
a State Department attorney and adviser,
said she “expected more momentum” at
the upcoming Vienna session. “I hope
there will be enough progress for our commercial supporters not to pursue any other
alternative,” she said.
“In my view, it would be exceedingly
counterproductive for the U.S. to enact a
revision of COGSA before our work on the
international convention can be finished,”
Carlson said.
The NIT League and the World Shipping Council are not expected to push for
a domestic COGSA revision if the draft
instrument can be largely finished in 2005.
If that is not the case — if 2007 instead
of 2006 looms as the likely completion
date — both groups will seek a domestic
alternative, probably after the Working
Group’s 2005 spring meeting in New York.
Even the perennially optimistic Carlson
admitted that “we’ll lose our commercial
support if this goes into 2007.”
On balance, the time taken thus far by
Working Group III over three years and
more does not seem excessive, given the
fact that prior international conventions
have required a decade or longer to prepare
and pass.
One delegate from a Scandinavian nation said, “the reason for going slow is not
to make the convention so that only one
country (United States) is likely to ratify
it. My instructions are to make sure that
my country can ratify it. If our commercial
community feels threatened by anything
in the convention, or is confused because
time wasn’t taken to clarify issues, then
our government won’t endorse it.”
“And, we do need the Chinese here next
spring,” she added pointedly.
■
G8 seeks global trade framework by July
SEA ISLAND, Ga.
Leaders of the Group of Eight nations,
who met in early June in coastal Georgia,
said they want to finalize the global trade
frameworks by July in order to the put the
World Trade Organization’s stalled Doha
Development Agenda back on track.
The G8 leaders will seek substantial reductions in trade-distorting agricultural subsidies
and barriers to access to markets; open markets more widely to trade in goods; expand
opportunities for trade in services; overhaul
and improve customs rules.
“Cotton, a matter of primary concern to
our African partners, can best be addressed
ambitiously as part of the agricultural negotiations, while at the same time working
on development-related issues with the
international financial institutions,” said the
White House in a June 9 statement.
The G8 also called for considerable focus
to be placed on integrating the poorest countries into the global trading system.
G8 membership includes the United
States, United Kingdom, Canada, France,
Germany, Italy, Japan, and Russia.
■
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LOGISTICS
Spirited debate
U.S. Supreme Court will look at cases that could
uncork direct wine shipments nationwide.
BY ROBERT MOTTLEY
A
divisive U.S. domestic trade dispute
will be settled in the next session
of the U.S. Supreme Court, which
has agreed to hear three cases challenging
restraints on interstate orders of wine.
The core issue is whether individual states
can prohibit out-of-state wineries from shipping directly to consumers.
There are also broader ramifications
beyond buying wine, because the high
court’s decision will generally affect Internet
commerce.
The cases for which the Supreme Court
granted certiorari are among about two
dozen lawsuits that are making their way
through U.S. courts.
Wine is big business in the United States,
totaling $18 billion in 2003. There are about
3,000 U.S. wineries, and 25 of them produce more than 80 percent of all wine sold
nationally. The largest wineries command
that market share because they are able to
sell their products in enough volume to
interest wholesalers.
Although the products of only about 50
wineries are available in a typical retail
store, smaller vintners still managed to earn
$200 million last year through direct sales.
That figure could increase significantly for
smaller wineries if they were free to ship
directly anywhere in the United States. But
liquor wholesalers have lobbied aggressively against direct sales.
Although the number of alcohol wholesalers has declined from 5,000 in 1950 to 600
in 2004, business remains extremely lucrative, in part because of protectionist rules in
various states. The largest U.S. wholesaler,
Miami-based Southern Wine and Spirits,
has annual revenues of $2.3 billion.
The Internet has become a ripe field for
matching wine producers and consumers.
Numerous retailers, vintners and auction
houses sell wine on the Internet. Yet individual state restrictions on interstate shipments to consumers have forced Internet
retailers to either make arrangements with
wholesalers, or decline direct wine orders
from people living in prohibitionist states.
If any of this has a familiar ring, particularly the term “prohibitionist,” it is because
both wineries and wholesalers have found
36
AMERICAN SHIPPER:
JULY
2004
The Internet has become
a ripe field for matching
wine producers
and consumers ... Yet
individual state restrictions
on interstate shipments
to consumers have forced
Internet retailers to either
make arrangements
with wholesalers
or decline direct wine orders
from people living
in prohibitionist states.
comfort in two separate articles of the U.S.
Constitution.
The older text, Article I, section, 8,
states specifically, “all Duties, Imposts and
Excises shall be uniform throughout the
United States.” Fundamentally, the article’s
“Commerce Clause” stipulation forbids
individual states from erecting protectionist
trade barriers to the detriment of their own
citizen-consumers and producers in other
states. The overall idea embodied in the
Constitution is that the United States should
have a free national market.
Potent Prohibition. There is one major
exception to that concept: alcohol. The 18th
Amendment to the Constitution, which
became effective Jan. 16, 1920, prohibited
the sale, transportation, importation and
exportation of intoxicating beverages. The
initiating law was the Prohibition Enforcement Act, also known as the Volstead Act,
which had been passed by Congress the
previous year, despite a veto by President
Woodrow Wilson.
Under the Volstead Act, a beverage with
more than a 0.5 percent level of alcohol
was considered intoxicating. There were
only a few exceptions, such as wine for
sacramental purposes.
On Dec. 5, 1933, the 21st Amendment
to the Constitution repealed the 18th
Amendment. Although widely regarded as
having ended that peculiar social and legal
phenomenon known as Prohibition, the 21st
Amendment contained the following caveat:
“The transportation or importation into any
state, territory, or possession of the U.S.
for delivery or use therein of intoxicating
liquors, in violation of the laws, thereof, is
hereby prohibited.”
That gave broad power to individual
states to regulate interstate shipments of
alcoholic beverages. However, such leeway
has limits, which the Supreme Court made
clear in subsequent case law, notably Bacchus Imports vs. Dias. In that case dating
to the mid-1980s, the high court invalidated
a Hawaii exemption from excise taxes for
certain alcoholic beverages produced instate. The Supreme Court determined that
“the central purpose of the (21st Amendment) was not to empower states to favor
local liquor industries by erecting barriers
to competition.”
In 2004, the constitutional contradiction
over shipping wine directly to consumers
boils down to a very blatant disconnect:
the 21st Amendment empowers states to
forbid such shipments, or not; while Article
I, section 8, holds back the states from essentially putting up economic roadblocks
at their borders.
Mix Of Rules. The result has been an
extraordinary patchwork of conflicting
permissions. As of May 19, according to
Wendell Lee, counsel for the Wine Institute
in San Francisco, 13 states permit direct
wine sales to out-of-state consumers so long
as the consumers’ own states reciprocate.
Those “reciprocity” states are California,
Colorado, Idaho, Illinois, Iowa, Minnesota,
Missouri, Mississippi, New Mexico, Oregon,
Washington, Wisconsin, and West Virginia.
Even in that lot, there are variances.
Colorado requires an on-site visit to a winery
before a direct shipment is permitted, while
Hawaii, Oregon and Wisconsin require, respectively, registration, permits, and reports
on the part of wineries. Minnesota prohibits
all Interstate sales of wine.
Legislation in reciprocal shipment states
commonly requires that shipping containers be labeled to indicate they cannot be
delivered to minors or intoxicated persons,
and that a case can contain no more than
nine liters of wine.
Currently, there are 13 states, plus the District of Columbia, that allow limited direct
shipments and permit sales, meaning that
the wineries that do the shipping must file
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LOGISTICS
for state permits and licenses. “The paperwork is generally not regarded as onerous,”
said Steve Gross, a spokesman for the Wine
Institute. The “permit” states include Alaska,
Arizona, Georgia, Louisiana, Nebraska,
Nevada, New Hampshire, North Carolina,
North Dakota, Rhode Island, South Carolina, Virginia and Wyoming.
At this time, 24 states prohibit all directto-consumer wine shipments. They are
Alabama, Arkansas, Connecticut, Delaware,
Florida, Indiana, Kansas, Kentucky, Maine,
Maryland, Massachusetts, Michigan, Mississippi, Montana, New Jersey, NewYork, Ohio,
Oklahoma, Pennsylvania, South Dakota,
Tennessee, Texas, Utah, and Vermont.
In these states (and some of the others), a
traditional “three-tier” system of distributing
alcohol prevails. Under that regime, producers may lawfully sell only to wholesalers, who
sell to retailers, who sell to consumers.
Four of the prohibitionist states — Florida, Kentucky, Tennessee and Utah — make
it a felony for an out-of-state winery to ship
wine directly to consumers in those states.
Maryland imposes a $35,000 fine on any
business illegally shipping wine.
Most of the states that prohibit direct
shipments allow wineries in their own states
to sell directly to consumers.
For example, New York, the secondlargest U.S. wine market after California,
allows direct intrastate wine shipments from
in-state wineries. So do Indiana, Maine,
Michigan, New Jersey, New York, Florida
(the third-largest U.S. wine market), Rhode
Island and Ohio.
Some states have internal peculiarities.
For example, Arkansas allows local wineries to sell their products in grocery stores,
while out-of-state wines are available only
in package stores.
Two additional federal laws add to the
confusion. The Department of Justice Appropriations Authorization Act, signed in
November 2002 by President Bush, allows
wine purchased while visiting a winery to
be shipped to another state.
The 2lst Amendment Enforcement Act,
signed into law in October 2000, noted that
state authority for alcohol distribution laws
is not absolute, and must be balanced with
other rights under the Constitution.
Narrowly Construed. The Supreme
Court’s ultimate decision in the three cases
at hand will not affect the states that, in one
way or another, allow direct shipments in
some form.
The high court is not likely to issue a
super-broad ruling that would forbid reciprocal arrangements or permit regimes
already set by individual states. Nor will the
Supreme Court’s decision affect intrastate
38
AMERICAN SHIPPER:
JULY
2004
direct wine shipments — meaning those
from wineries within a particular state to
consumers in that state.
“I would be shocked if the Supreme Court
were to say that all direct shipping is illegal,”
said James M. Goldberg, an attorney with the
law firm of Goldberg & Associates PLLC,
in Washington, D.C.
The Supreme Court rarely goes beyond
a question at hand, he noted. “The justices
usually don’t answer a question that hasn’t
been asked,” Goldberg explained.
On this issue, the question is can a state
allow direct shipping from an in-state
winery and prohibit it from an out-of-state
winery?
Goldberg and his firm have filed a “friend
of the court” brief at the Supreme Court on
behalf of the National Alcohol Beverage
Control Association, which wants the high
court to allow states to forbid direct interstate
wine shipments.
“We don’t think states can
engage in protectionism
while exercising their 21st
Amendment powers.”
Steve Simpson
senior attorney,
Institute for Justice
“The court would not stop the states that
currently allow direct shipping. The court
couldn’t ban anything. It could rule that
bans are constitutional in some measure,”
said Steve Simpson, a senior attorney with
the Institute for Justice, a public-interest law
firm in Washington, D.C., that is supporting
wineries who want direct shipments.
“If the court ruled for our client, the
decision wouldn’t go much beyond ‘in this
unique case involving alcohol, states — not
the federal government — have the authority to set the rules on direct imports. Those
states that allow it can go on allowing it,
those that prohibit it, can go on prohibiting
it,’ ” Goldberg said.
“We don’t think that states can engage
in protectionism while exercising their 21st
Amendment powers. That’s our position,”
Simpson countered.
‘Reasonable Alternative.’ The two
linked cases from Michigan for which the
Supreme Court granted certiorari on May
24 were Michigan Beer & Wine Wholesalers
Association vs. Eleanor Heald, et al, and
Jennifer M. Granholm, Governor of Michigan, et al.; v. Eleanor Heald, et al.
Both of these cases came from the U.S.
Court of Appeals for the Sixth Circuit.
Eleanor Heald, a wine critic in Troy,
Mich., and her husband, Roy, originally
sued the state of Michigan in a federal
district court, claiming that regulations of
the Michigan Liquor Control Commission
prevented them from ordering wine samples
from vineyards outside of Michigan.
In addition, “this differential treatment of
in-state and out-of-state wineries … gives
in-state wineries a competitive advantage
over out-of-state wineries,” the Healds’
suit said.
The district court ruled in favor of Michigan, saying, “Michigan’s direct shipment
law is a permitted exercise of state power
under Section 2 of the 21st Amendment”
and was not “mere economic protectionism.” Subsequently, the Healds appealed
that decision to the Sixth Circuit.
The appellate panel said in its ruling that
“Michigan wineries enjoy both greater access to consumers who wish to have wine
delivered to their homes, and greater profit
through their exemption from the three-tier
system. Out-of-state wineries, on the other
hand, must participate in the costly threetier system, to their economic detriment
… (They) may be shut out of the Michigan
market altogether if unable to obtain a
wholesaler.”
Having determined that the Michigan
provision was discriminatory, the appeals
court then discussed whether “the regulatory scheme is nevertheless constitutional.”
Toward that end, the appellate panel was
put off in the extreme by the district court’s
observation that “the Michigan Legislature
has chosen this path to ensure the collection
of taxes from out-of-state wine manufacturers and to reduce the risk of alcohol falling
into the hands of minors.” Finding that a
facile smokescreen, the appeals court said,
“the proper inquiry is whether (the state’s
prohibitive rule) advances a legitimate local
purpose that cannot be adequately served by
reasonable nondiscriminatory alternatives.
We find no evidence … that it does.”
The appeals court reversed the ruling
of the district court on Aug. 28, 2003.
Michigan then appealed that decision to
the Supreme Court.
State Offices. The third case that the
Supreme Court agreed to hear was Juanita
Swedenburg, et al., v. Edward Kelly, Chairman, New York Division of Alcoholic Beverage Control, State Liquor Authority, et
al. This was came from the U.S. Court of
Appeals for the Second Circuit.
Juanita Swedenburg, a vintner from Virginia; David Lucas, proprietor of a winery
in California; and Patrick Fitzgerald, Cortes
LOGISTICS
DeRussy and Robin Brooks — named in
court papers as “New York wine consumers,” sued New York State in a federal district court, claiming that regulations in the
state’s Alcoholic Beverage Control (ABC)
law violated Article 1, Section 8, of the U.S.
Constitution.
Swedenburg said in court papers she had
New York sales in the range of 120 to 180
bottles of wine a year, which meant that “direct sales to consumers through a Web site or
the mail are (her) only possible access to the
New York market.” When the district court
ruled for the plaintiffs against the state, New
York appealed to the Second Circuit.
The appeals court said in its ruling that “the
protective doctrine of (Article I, Section 8)
should not be allowed to subordinate the plain
language of the 21st Amendment.” Instead,
the focus should be on “the manner in which
these two constitutional forces interact.”
One result of that interaction, the appellate
court said, is that “New York’s prohibition of
the sale and shipment of wine by unlicensed
wineries directly to New York consumers
serves valid regulatory interests.”
The appeals court on Feb. 12 reversed the
district court decision. The appellate panel
upheld the New York law, saying the state’s
ABC rule did not discriminate because it
permitted any winery “with a physical pres-
“If this were any other
product, such as firearms,
tobacco, polo shirts,
computers or books, states
could not burden interstate
commerce.”
James M. Goldberg
attorney,
Goldberg & Associates
ence” in the state to ship directly to consumers. The “presence” could be an office, not
a vineyard.
Clint Bolick, a strategic litigation counsel
for the Institute for Justice law firm, said
after the ruling by the Second Circuit appeals court that it was “ludicrous” to infer
that Swedenburg had the means to open
an office in New York or any other state.
Swedenburg and the other plaintiffs then
appealed to the Supreme Court.
Split Circuits. The Supreme Court
decided to consolidate all three of these
cases, specifying “a total of one hour for oral
argument,” a customary procedure.
The court will hear the combined cases
on a date to be determined in November or
December, with a decision expected by April
2005. For more information, including all
relevant court papers, see www.sumpremecourtus.gov/docket/03-1274.htm.
Asked why the Supreme Court took up
the issue of direct interstate wine shipments,
Goldberg told American Shipper “it was
probably because there are 10 or 11 cases of
this type in various circuit courts of appeal
around the country.
“Also, U.S. appellate panels are split on
this issue, which is probably the more important and compelling reason for the Supreme
Court’s granting of certiorari,” he said.
“It’s tough to predict what the court will
do, particularly in this case, because issues
like this tend to pit the states-right conservative justices against other members of the
court,” Simpson said.
“You have to remember that this issue
involving alcohol is unique,” Goldberg said.
“Whenever you’re talking about alcohol —
beer, wine or spirits — the 21st Amendment
puts it in a different perspective,” he said.
“If this were any other product, such as
firearms, tobacco, polo shirts, computers,
or books, states could not burden interstate
commerce,” Goldberg said.
■
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39
LOGISTICS
Squeezing out logistics costs
U.S. logistics costs held in check during 2003, study says.
BY ERIC KULISCH
U
.S. companies spent $936 billion
for their transportation and logistics
needs in 2003, an increase of $26
billion from 2002.
But in relative terms the industry continues to do a good job squeezing logistics
costs out of distribution operations, according to an annual study of macroeconomic
logistics trends.
Shippers will likely spend even more in
2004 on government-mandated security measures, building up depleted inventories and
transportation, said author Rosalyn Wilson.
Even as total logistics spending rose
2.9 percent, logistics costs as a percentage
of gross domestic product declined to 8.5
percent, the lowest level ever recorded in the
15 years of the study. With deregulation of
airlines, trucking and rail in the early 1980s,
logistics costs compared to national productivity have plummeted from 16.2 percent to
about 10 percent in the 1990s, with improvements in technology, and then 9.5 percent
in 2001 and 8.7 percent in 2002.
For the first time, the “State of Logistics”
report was not authored by founder Robert
Delaney, who died April 2. Wilson, an independent transportation consultant with
ties to the Eno Transportation Foundation
and Delaney’s partner for the project for
several years, compiled the report on short
notice and without access to historical data
in Delaney’s files, which apparently were
discarded by his family before they could be
preserved. The Council of Logistics Management is the new sponsor of the report.
The report attributes $16 billion of the total
increase in logistics costs to transportation
and $10 billion to inventory management.
Transportation costs account for 63 percent
of total logistics costs, up from 56 percent
in 1989. U.S. companies have nearly wrung
out most savings from inventory controls.
The inventory to sales ratio declined from
1.38 to 1.32 months, “the best inventory
management performance in the history” of
the study, the report said. Inventory carrying
costs, which account for 32 percent of total
logistics costs, continued to be held in check
by record-low interest rates, which averaged
1.1 percent for short-term commercial paper
in 2003. Total inventory carrying costs were
up $2 billion to $300 billion.
Low rates and the quickening economy
prompted companies to invest $49 billion
more in inventory during 2003 than in 2002.
U.S. business logistics system costs — 2003
Total costs was the equivalent of 8.5% of GDP in 2003
$billions
Carrying costs — $1.493 trillion, all business inventory
Interest
Taxes, obsolescence, depreciation, insurance
Warehousing
Subtotal
$17
$205
$78
$300
Subtotal
$315
$167
$482
Transportation costs
Motor carriers:
Truck – intercity
Truck – Local
Other carriers:
Railroads
Water (International $21, Domestic $5)
Oil pipelines
Air (International $8, Domestic $20)
Forwarders
Subtotal
Shipper related costs
Logistics administration
TOTAL LOGISTICS COST
$38
$26
$9
$28
$10
$111
$7
$36
$936
Source: State of Logistics report, sponsored by Council of Logistics Management.
40
AMERICAN SHIPPER:
JULY
2004
“Inventory levels need
to be rethought to account
for increased and even
variable lead times, and
this could drive an increase
in both cycle and safety
stocks. Some sectors of the
economy were operating on
razor thin inventory levels
in 2003 and ‘stock outs’
were not uncommon.”
Rosalyn Wilson
State of Logistics report
Inventory levels have continued to rise in
2004, but the Institute for Supply Management recently reported that wholesalers
and retailers still do not have sufficient
inventories on hand to meet demand.
As recently as May, the ISM reported that
suppliers were falling behind in meeting
delivery schedules for their manufacturing
customers. Many industries are experiencing production backlogs as supplies tighten
and orders flood in from businesses that
previously held lean inventories.
“Inventory levels need to be rethought to
account for increased and even variable lead
times, and this could drive an increase in both
cycle and safety stocks. Some sectors of the
economy were operating on razor thin inventory levels in 2003 and ‘stock outs’ were not
uncommon,” the Wilson report said.
The low interest rate environment that
sustained warehouse investment and kept
inventory carrying costs in check is apparently over, as the U.S. economy continues to
grow and the Federal Reserve ponders a likely
increase in the benchmark interest rate to
keep inflation in check. Markets have already
priced in a quarter to a half-point increase in
rates in anticipation of a Fed move.
“There is only one way for interest rates
to go and that will clearly affect inventory carrying costs,” Wilson said at a press
conference.
Tight freight transportation capacity, rising
costs for borrowing money, insurance, fuel
and new security requirements are going
to put a lot of pressure on transportation
and warehousing expenditures this year,
she said.
The cost of warehousing — a component of inventory costs along with interest,
depreciation, obsolescence, insurance and
LOGISTICS
taxes — has been flat for the past four years.
In 2003, companies spent $78 billion on
warehousing, according to the Wilson’s estimate based on U.S. Census Bureau figures
of public warehousing expenditures. There
already have been reports that warehousing
spending began to increase at the tail end
of last year. The rise in interest rates means
warehousing costs will rise faster than those
for transportation, she added.
Trucking accounts for more than 50 percent of total logistics costs. Trucking costs
increased $20 billion in 2003 to $482 billion,
after declining $10 billion in 2002, because
carriers were able to charge higher rates as
the pick up in the economy created more
shipper demand for their services. Trucking
companies have also been “fairly successful
in recouping their fuel costs (through fuel
surcharges on shippers) because capacity is
so tight,” Wilson said. For the first time in
four years, the number of trucking companies that went out of business went down.
The report did not cite the number of failures or the percentage of GDP attributed to
trucking costs, as did previous versions. In
2002, trucking costs were measured at 4.4
percent of GDP.
Spending on railroad service increased $1
billion to $38 billion in 2003. Major railroads
saw profits drop more than 15 percent despite
a 3.8-percent increase in revenues.
In addition to fuel, railroads are experiencing significant cost increases in labor,
materials and supplies, especially steel used
for track replacement and rail cars, Wilson
said. In some instances, railroads are even
forced to pay steel surcharges.
Meanwhile, railroads have been less successful in getting their own fuel surcharges
to stick, she said, citing information from
the American Association of Railroads,
but some rail shippers say they are feeling
the full effect of fuel surcharges because of
tight capacity.
Air freight revenues were up $1 billion
to $28 billion, although the study included
one more carrier than the 27 used in last
year’s sample. Maritime spending decreased
$1 billion, primarily due to declines in domestic waterborne traffic. Domestic freight
forwarder revenues increased slightly to $10
billion. Shipper’s costs to operate traffic
departments and loading docks increased
to $7 billion from $6 billion.
Shippers increasingly are relying on
logistics outsourcing as international trade
grows. Gross revenues for third party
logistics providers was $76.9 billion, up
from $71.1 billion in 2002, the report said,
referring to data compiled by logistics
consultant Armstrong & Associates. The
industry is expected to main growth in the
6 to 8 percent range during 2004.
■
42
AMERICAN SHIPPER:
JULY
2004
Carol Vipperman, president of the Foundation for Russian American Economic
Cooperation, and Leonid Lozbenko, first deputy chairman of the Russian State
Customs Committee, sign the agreement expanding Clear Pac’s use.
Russian Customs,
Clear-Pac strengthen ties
Agency signs agreement to expand cargo pre-clearance
program to all of Russia’s seaports.
BY CHRIS GILLIS
A
n eight-year, U.S. governmentbacked effort to improve the flow
of American cargoes to Russia
through automated data exchanges is starting to pay off for its developers.
Russian Customs signed an agreement
May 17 with the Seattle-based Foundation
for Russian American Economic Cooperation to expand the use of its electronic import
pre-clearance system, known as Clear-Pac,
for ocean cargoes nationwide.
“This recognition of the Clear-Pac customs system is the result of eight years of
cooperation with the Russian government
and extensive testing of the system in the
Russian Far East,” said Carol Vipperman,
founder and president of the foundation.
According to the agreement, a joint working group of representatives from Russia’s
State Customs Committee in Moscow
and the Seattle-based foundation will be
established. This group will control the
overall development and implementation
of this customs clearance system to all of
Russia’s seaports.
The foundation launched the Clear-Pac
program in 1996 with funding from the U.S.
Commerce Department. Early stages of
the system’s development centered around
U.S. West Coast trade with several ports in
the Russian Far East, such as Vladivostok,
Vostochny and Sakhalin.
The premise of Clear-Pac, according to the
foundation, is to allow customs-required shipping documents to be electronically transferred to Russian Customs and processed
prior to cargo arrival. The result is at least a
90-percent reduction in customs clearance
times for Russian-bound cargoes.
Today, Vostochny receives between
3,000 and 4,000 containers a month that
are processed through Clear-Pac, eliminating the port’s once infamous bottlenecks,
said Goran Latkovic, Clear-Pac’s program
manager, in an interview.
Russian Customs has committed itself
to systems development since the agency’s
inception in 1991, shortly after the collapse of the Soviet Union. The agency has
received increased motivation to automate
with Russia’s pending admission to the
World Trade Organization. As part of the
WTO, Russia will be required to bring its
customs systems in line with the provisions
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LOGISTICS
Clear-Pac process
1
Goran Latkovic
program manager,
Clear-Pac
“The success of Clear-Pac
has forced the federal level
of Russian Customs to pay
attention to this program.”
of the World Customs Organization’s International Convention on the Simplification
and Harmonization of Customs Procedures,
or Kyoto Convention.
The Single Automated Information
System, a central database that manages
Russian Customs’ internal operations, was
set up in the early 1990s. Under the leadership of Leonid Lozbenko, first deputy head
of the Russian State Customs Committee
and former WCO deputy secretary general,
the agency has intensified its efforts to
automate. Russia’s expansive operations
includes about 63,000 officers spread across
offices and outposts in seven regional departments. The agency recently received a
$140-million credit from the World Bank
for customs systems developments.
A problem with Russian Customs’ current
system is that it lacks an efficient link to
the country’s emerging customs broker and
shipping industry. Latkovic described ClearPac as an “integrating system” because it
establishes an Internet-based connection
between the agency and broker systems.
Prior to the new agreement, Clear-Pac’s
reach was limited to the rough-and-tumble
Russian Far East market because of the foundation’s strong relationship with that Russian
Customs region. The Russian Far East market
is mostly dominated by oil production equipment shippers involved in the development
of new oil fields in the region.
“We employ (Clear-Pac) for large bulk shipments and find it to be a tremendous asset,”
said Larry Belew, director of business development for freight forwarder ERA Logistics at
Sakhalin. “We wish it had wider distribution
among customs and brokers. It cuts clearance
time down to one to two days as opposed to
three to seven days historically.”
“It could certainly be a boon for our
customers,” said Jeff Holt, international
manager for Lynden International, a Seattlebased forwarder that regularly operates in
44
AMERICAN SHIPPER:
JULY
2004
7
Worldwide
Russia
5
Exporter/ 1. The exporter or freight forwarder
accesses its account at CLEAR-PAC’s
Freight
Web site and enters in or downloads the
shipment data and creates an electronic
packet of documents. This packet includes the commercial invoice, packing
2
list and bill of lading.
2. When the packet is completed, the
system checks to ensure all required
information is included. The packet is
Clear-Pac
then submitted to the appropriate customs broker in Russia.
3. The customs broker automatically receives the electronic packet in the broker
component (PC application installed at
the broker’s office) and electronically
3
prepares other required documents,
i.e., Customs Declaration, Certificate of
Origin, Certificate of Conformity, Import
Passport, and a payment document.
4. The broker submits these ducuments with the packet to the customs
component (PC application installed at
Customs).
4 5. Customs reviews the electronic documents and communicates with the broker
Clear-Pac
via the system requesting additional
information or clarifications, if needed.
The broker can use the system to monitor the status during each processing
stage. Customs decides if inspection
is needed.
6. Cargo arrives to the Russian port of
Clear-Pac
destination. Customs inspects and/or
releases the cargo and informs the broker
electronically of the release. The importer
receives the cargo.
6
7. The exporter receives real-time notiImporter/
fication on cargo release.
Customs
Source: Clear-Pac
the Russian Far East market. “Anything to
cut down the clearance times by half or more
is a benefit to everyone.”
Many companies operating in the Russian
Far East rely on U.S. suppliers to initiate the
Clear-Pac process. However, the system’s
use by American shippers is limited.
“We import a relatively small percentage
of our equipment and parts from the U.S.,”
said Paul Iremonger of Sakhalin Machinery.
“Although we are an American-owned company, CAT has us sourcing machines and parts
from other areas of the world.”
Foundation officials believe Clear-Pac’s
use should take off with its state-sponsored
expansion across all Russian seaports. “The
success of Clear-Pac has forced the federal
level of Russian Customs to pay attention
to this program,” Latkovic said.
Under the new agreement with Russian
Customs, the foundation must make some
programming changes to Clear-Pac, such as
including an electronic signature application. The foundation plans to finish these
programming within a year.
For Russian Customs, Clear-Pac should
generate more accurate import information,
enhance duty collections, and reduce physical inspections of cargo.
Ultimately, the foundation must position
Clear-Pac to operate without funding from
the Commerce Department. “We’re developing our future business plan to make this
system self-sustainable,” Latkovic said. ■
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LOGISTICS
Boiling down food-aid transport
USAID authorizes shipping industry’s
use of streamlined booking notes.
BY CHRIS GILLIS
T
ransportation contracts for U.S.
food-aid shipments that once spread
across 10 to 20 pages have now been
reduced to four pages.
A group of carriers, shipbrokers, freight
forwarders and government agencies specialized in packaged food-aid shipping
spent the past three years trimming the
format of the traditional transportation
contracts, known as “booking notes,” into
more streamlined documents.
“We think it’s a good document, and
once people get used to it they will want to
adopt it,” said H. Keith Powell, partner in
Alexandria, Va.-based shipbroker Potomac
Marine International, and chairman of the
Ocean Transportation Contracting Committee. “There’s a lot of protections in it for
the shippers.”
The committee started its work on the
simplification of the booking note after
the 2001 food-aid export conference. The
U.S. Agency for International Development,
along with the Department of Agriculture
and Maritime Administration, endorsed the
committee’s actions.
“Since the booking note was last updated
in 1996, the agency considered it worthwhile
to update and revise it as necessary,” said
Renata Cameron, acting division chief for
USAID’s Transportation Division.
The committee had hoped to institute
the new booking note format in early 2003,
but the legal departments of USAID and
USDA wanted further clarification of the
third-party liability language. The agencies
46
AMERICAN SHIPPER:
JULY
2004
approved the new booking note May 1 for
the P.L. 480 Title II food-aid program. The
first food-aid exports to use the booking
note will begin in August, USAID said (The
booking note is obtainable online at www.
usaid.gov/business/ocean/notices).
Prior to the overhaul, booking notes issued
by the forwarders had become a complexity
of repetitive and outdated language designed
to protect the liability of their clients, in this
case the donor groups or private voluntary
organizations (PVOs), such as Catholic Relief
Services, CARE, and World Vision.
The committee said it did not change the
terms and conditions of the booking note, but
attempted to standardize them. For example,
the committee found many commonalities
in the booking notes’ discharge terms.
The new booking note’s use remains voluntary for PVOs and their forwarders.
“It cannot be forced on anyone,” said Ravi
Singh, president of Arlington, Va.-based
Trans Global Services, and a member of
the committee. “But we expect that most of
them will take advantage of it because many
organizations were involved in producing
the new document.”
The booking note is also not rigid. “We
have the flexibility in it to establish our own
terms and conditions or special requirements, but these add-ons should stand at a
minimum,” Singh said.
While carriers and shipbrokers involved
in food-aid transport praised the efforts
of the committee to simplify the booking
notes, they are concerned about the failure
to hold shippers more accountable for delays
at discharge ports.
In the new booking note, charterers and
PVOs are excluded from paying demurrage,
dispatch and detention costs for delayed
shipments. Carriers operating under “fullberth” commercial contract terms are generally paid for the risk and responsibility of
activities such as stevedoring, weather and
port congestion. Shippers and consignees
under these terms would also cover the cost
to clear and warehouse cargoes.
Clause 13 in Part II of the new booking
note states: “Any expense which the carrier
may incur in connection with delivery of this
shipment at destination as a result of delay
to the vessel and/or carrier’s equipment due
to the consignee negligence shall be for the
account of the consignee and the carrier
shall have no recourse against the shipper
on that account.”
During the drafting of the new booking
note, the word “fault” in clause 13 was
replaced with “negligence.”
“Of course standardization is nice, but the
new booking note from the vessel operator’s
perspective is worse than what it replaces,”
said Floyd L. Cox, a shipbroker with Bethesda, Md.-based International Navigation
Corp., and a committee participant. “Just
try to prove negligence in court.”
Powell acknowledged that proving consignee negligence “raises the bar a bit” for
the carriers. He said the new booking note
is “not perfect, but it’s better than what we
had before.”
Powell said the committee would continue
to monitor the booking note’s use and make
changes to its structure when new regulations and market conditions occur.
“Changing the booking note format is
an evolutionary process,” said Thomas W.
Harrelson, director of MarAd’s Office of
Cargo Preference. “We will continue to stay
engaged in this process.”
USAID, USDA and MarAd similarly
endorsed work by the Freight Payment
Committee to create more concise clauses
in the booking notes for freight payment and
dispute resolution. The committee has gone
dormant, but the agencies hope to correct
these matters through the implementation
of an automated transportation payment
program developed by U.S. Bank Corporate
Payment Systems, known as PowerTrack.
The Ocean Transportation Contracting
Committee plans to take up other areas of
food-aid transport documentation that need
simplifying, such as the freight tenders.
“Freight tenders contain many of the same
clauses in the booking notes,” Powell said.
“There’s no need to get into this repetitive
listing of clauses in the freight tenders
too.”
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LOGISTICS
Wet containers
make shippers sweat
Packaging experts develop ways
to keep boxes dry in transit.
BY CHRIS GILLIS
O
cean containers are supposed to
protect cargo from the weather, but
that’s not always the case.
It’s not uncommon for rain-like conditions to develop inside containers while
en route to overseas destinations, resulting in costly cargo damage and upset
customers.
“If a pallet is wet, the container must
have gotten a hole during transit, because
we inspect the containers before we load
them,” said Jerri Letner, export shipping
planner for Iams Co. in Lewisburg, Ohio.
“If wetness is found over a bunch of pallets, then it’s probably a moisture problem
in the container.”
Iams ships only its high-end dog and
cat foods abroad. Last year, the company
moved about 2,400 containers of these
products to overseas markets.
Animal feed is particularly vulnerable to
moisture damage, and with 40-foot containers of bagged dog food valued upwards of
$24,000, Iams takes all measures to avoid
these types of losses, Letner said.
Iams isn’t alone in its pursuit of dry
containers. Other shippers, including the
U.S. government, struggle with container
moisture. The U.S. Agency for International Development in August 2003 had
to bury about 6,000 tons of bagged corn
in Angola because of container moisturerelated spoilage.
Without the necessary precautions, any
containerized cargo is susceptible to moisture damage. Container moisture may contribute to corrosion, mold, clumping and
swelling of products, even though they left
the factory floor in pristine condition.
Patrick E. Brecht, president of P.E.B.
Commodities, a Petaluma, Calif.-based
packaging consulting firm, said there are
generally two types of moisture problems
associated with containerized freight:
“container sweat” and “cargo sweat.”
Container sweat occurs when the in48
AMERICAN SHIPPER:
JULY
2004
Patrick E. Brecht
president,
P.E.B. Commodities
“It is impractical
to assume that prevention
of moisture damage during
transit can be solved
by one participant or one
technological advance
in the chain. Prevention
requires the involvement
of all the stakeholders in
the distribution proceess.”
terior skin of the container is cooled to a
temperature below that of the dewpoint
of the air enclosed within the container.
This results in water droplets forming on
the interior roof and side panels of the
container. The water then drips on to the
cargo, potentially causing mold and water
damage, Brecht explained.
Cargo sweat happens when the cargo is
cooled to a temperature below that of the
dew point of the air inside the container.
This results in water droplets forming on the
freight. “Cargo sweat can be encountered
when cargo is loaded in cold winter conditions and transported to tropical climates,”
Brecht said. “The container will gradually
heat up during transit to warmer moist cli-
mates. However, the cargo temperature will
lag behind and slowly heat up. This cargo
is more prone to sweat damage.”
Some shippers have done a better job
over the years in controlling container
moisture. The U.S. military has been
tackling container moisture since the early
1960s. Companies involved with shipping
onions, garlic, beans, packaged and leaf
tobacco, coffee, cocoa and sugar have also
taken significant steps against container
moisture.
The International Cocoa Organization,
for example, recommends ventilated containers for cocoa bean shippers. “Containers should not have to wait for more than
a day or so for the arrival of and loading
on board the vessel,” the organization
said. “If the container is carried on deck,
it should be protected from sea spray and
rain; if carried below deck there should be
sufficient air flow in the hold to maintain
ventilation.”
Coffee and cocoa bean shippers also line
container walls with Kraft paper to keep
moisture from dripping onto the cargo.
Some packaging companies have developed bagged desiccants specifically to help
control moisture inside ocean containers
during transit. Desiccants absorb enclosed
moisture from the air.
Sud-Chemie Performance Packaging’s
Container Dri II product provides shippers
desiccant bags which adhere to the walls of
the container. Traditionally, desiccant bags
are pitched under and along the sides of
pallets, risking rupture when the cargo is
unloaded at destination.
According to Justin Mueller, a Container
Dri II specialist for Sud-Chemie in St.
Louis, the shipper may use up to 72 bags
of the desiccant per
40-foot container, at
a cost under $100, to
completely control
moisture.
Packaging companies emphasize that
desiccant treatment
costs are a small price
Morelli
to pay compared with
the potential costly damage to shipments.
“The question is can shippers afford not
to use them?” said Mike Morelli, inside
sales representative for Buffalo, N.Y.-based
Multisorb Technologies.
For both Sud-Chemie and Multisorb, the
shipper market for their desiccants remains
largely untapped. “We have to educate the
industry on what these products can do
to improve cargo protection and enhance
quality,” Morelli said.
But anti-moisture protections remain
piecemeal at best. “There is no one easy
LOGISTICS
fix or cost effective technologi• Limiting the exposure of
cal advance or process improvecontainers to radiant heat from
ment that universally protects
the sun.
condensation prone cargoes from
• Selecting improved packmoisture damage,” Brecht said.
aging.
“Over the past several decades,
P.E.B. Commodities recently
there have been numerous studhelped a shipper end millions of
ies and research efforts directed
dollars in moisture-related cargo
at preventing the accumulation
damages. A team of stakeholders
of moisture inside the container
was put together and through
and on the cargo.”
extensive dialogue and research
Brecht has been involved with
it was determined that the wood
containerized cargo preservation
pallets and corrugated cartons
for more than 25 years. He headed
were the biggest contributors to
perishable cargo initiatives at both
container moisture. The wood
Sea-Land Service and APL, and
pallets in hot humid environUnited Brands (now Chiquita
ments contributed about 60
Brands). Before starting P.E.B.
percent of the moisture during
Commodities five years ago, he
transit, and the corrugated carwas cofounder of Unifresh, an Inton material added another 20
ternet-based global inspection and
percent to the moisture content.
surveying company specializing
It was decided that the shipper
in perishable products. He recentshould use plastic slip sheets
ly coauthored the book Marine
instead of wooden pallets and
Container Transport of Chilled
to store the carton materials in
Perishable Produce, Refrigerated
dry storage environments inTrailer Transport of Perishable
stead of high humidity holding
Products and Air Transport of
facilities.
A container is treated with Container Dri II desiccant bags,
Perishable Products.
“Although these two changes
Cargo-packaging experts, such which are designed to protect cargo against moisture. solved the problem, the true
A shipper may use up to 72 bags per 40-foot container,
as Brecht, believe shippers should
at a cost of $100, to completely control moisture, a formula to success was the conconsider container moisture pre- spokesman for manufacturer Sud-Chemie said.
certed and relentless efforts of
vention across the entire supply
the service and product suppliers
chain for the most effective control.
to condensation related problems, but also to who worked in harmony to identify and
“It is impractical to assume that preven- a markedly shorter market life and greater agree on a viable solution,” Brecht said.
tion of moisture damage during transit quality deterioration during transport or
To help solve its container moisture
can be solved by one participant or one storage.”
problems, USAID set up the Container Aid
technological advance in the chain,” Brecht
The second step is to identify ways to Product Improvement Team (CAPIT) in Desaid. “Prevention requires the involvement stop the container moisture.
cember to review the processes of shipping
of all the stakeholders in the distribution
“Pinpointing a solution boils down to certain bagged food commodities, namely
process.”
answering a simple but very challenging corn and beans, in containers. The agency
Brecht said the first step to ensuring question — can suppliers, service providers, invited 10 representatives from private
dry containers is to identify the sources of insurers, shippers, carriers and receivers voluntary organizations, U.S.-flag ocean
water. “In our forensics examinations of cost justify the capital and operating costs carriers and shippers to participate.
condensation related problems, we always associated with a fix?” Brecht said.
The agency found that damage claims
start with the identification of the sources
According to Brecht, potential options in general for food aid shipments vary, but
of water and the realization that temperature for keeping containers dry include:
appear consistent with those normally seen
gradients favor condensation,” he said.
• Desiccants.
for shipments originating in the United
Perishable cargoes are water sources in
• Designing and using self-venting States with a southern hemisphere final
themselves. Shippers must consider pre- containers.
destination, such as Central America and
shipment moisture content and control.
• Selecting containers with less void Southern Africa.
A University of Illinois study found that volumes when fully loaded (20-foot vs.
CAPIT studied types of lining that could
all grains should be dried to at least 13 to 40-foot containers).
be used in food aid containers, such as
14 percent moisture within 48 hours after
• Using corrugated paper and/or poly- cardboard instead of paper, and the need
harvest.
urethane foam on the top and sides of cargo for ventilators. CAPIT also considered
“These results demonstrate the impor- inside the containers.
non-container aspects of corn and bean
tance of pre-shipment moisture and storage
• Applying moisture absorbent paints shipments, such as types of bags used, food
temperature in maintaining quality,” Brecht on interior walls of containers.
aid destinations, shipping seasons, routing,
said. “For instance, the storage life of corn
• Instituting logistics practices that condition of the product at harvest and time
held at room temperature (70 degrees Fahr- promote faster transit times, minimal delays delays at the discharge ports.
enheit) was 26 months with a 13 percent and fewer handling steps.
CAPIT produced a report of recommenmoisture content and only one month with
• Instituting quality control standards dations for USAID. The agency is reviewing
18 percent moisture content. Clearly, high for cargo and containers at origin, transload the recommendations, an agency spokesman
percent moisture levels not only contribute points and destination.
said.
■
50
AMERICAN SHIPPER:
JULY
2004
LOGISTICS
Know your supply chain variables
Managing the Supply Chain analyzes trade-offs,
interactions of logistics variables.
BY PHILIP DAMAS
I
n most cases, companies analyze their
supply chains “based on experience
and intuition,” rather than by using
analytical models and planning tools, the
writers of Managing the Supply Chain say
in their introduction.
Authors David Simchi-Levi, professor of
engineering systems at the Massachusetts
Institute of Technology; Philip Kaminsky,
associate professor of industrial engineering
at the University of California at Berkeley; and Edith Simchi-Levi, consultant at
LogicTools Inc., then proceed to explain the
concepts, variables and methods that can be
used to make supply chains work faster, or
with more flexibility, or at lower costs.
Managing the Supply Chain, a 308-page
reference book written for business people,
covers many facets of supply chain management and provides numerous business case
studies and examples, notably those of WalMart, Dell, Ikea and Amazon. References
are made to logistics industry surveys, other
logistics management books, academic
papers and industry periodicals.
While avoiding industry jargon and the
hyperbole often used by logistics consultants, this book guides the reader with
clarity and purpose through many supply
chain aspects, from order fulfillment to
logistics network optimization, through
order forecasts and product design.
A common theme in this book is the need
for global optimization across all corporate
functions, all warehouses or locations, and
across companies that share the same supply chains.
“The emphasis is not on simply minimizing transportation cost or reducing
inventory, but rather on taking a systems
approach to supply chain management,”
the authors point out.
The book starts with a discussion of
the need to share information on product
orders through the supply chain, and on the
potential damage of the “bullwhip effect”
— meaning that variability in orders placed
by the retailer with wholesalers or distributors is significantly higher than variability
in final customer demand.
The chapter on supply chain integration develops concepts such as push, pull
and push-pull logistics systems and their
objectives.
The book then addresses network planning issues, such as inventory positioning
and the optimal location of warehouses.
Objectives of network planning, the authors
say, are “find the right balance among inventory, transportation and manufacturing
costs … match supply and demand under
uncertainty by positioning and managing
inventory effectively… (and) use resources
effectively.”
The book also covers supply chain alliances, outsourcing, supply contracts, product
design and the measurement of “customer
value.” Understanding customer value requires knowing whether customers prefer
low prices to superior customer service or
next-day delivery. For example, by building computers to specific orders, Dell can
provide low prices and cut its supply chain
costs, but without the immediate product
availability of a computer store.
Usefully, the book dedicates a chapter to
international supply chains, including their
flexibility and potential dangers, and a separate chapter on information technology.
The book defines many of the terms used
in supply chain management.
Supply chain management itself is “a set
of approaches used to efficiently integrate
suppliers, manufacturers, warehouses and
stores so that merchandise is produced and
distributed at the right quantities, to the right
locations and at the right time in order to
minimize system-wide costs while satisfying service-level requirements.”
The book also gives some advice on
alternative distribution practices such as
cross-docking, centralized warehousing
and direct delivery to stores. It notes that
the recent logistics mantra that “information
replaces inventory” is vague, although the
book acknowledges that information can
change the way supply chains are managed.
And there is a case for holding buffer inventory in some cases, the book argues.
“The premise on which many of the Internet companies were built, that in the new
economy there is no need for either physical
infrastructure or inventory, has in many
cases been disastrous,” the book observes.
By contrast, the push-pull strategy of supply chain — a compromise between pure
demand-led pull practices and old-styles
push operations — “advocates holding
inventory, although it pushes the inventory
upstream in the supply chain.”
On supply chain alliances, the book
looks briefly at third-party logistics contracts, retailer-supplier partnerships and
distribution integration. “Surprisingly, the
use of 3PL is most prevalent among large
companies,” it says.
A particularly interesting part of this reference book is an explanation of the “design for
logistics” concepts introduced by Hau Lee,
a professor at Stanford University. “These
concepts suggest product and process design
approaches that help to control logistics
costs and increase customer service levels,”
the book explains. Economic packaging
and transport practices of Ikea, the Swedish
furniture retailer, and the postponement of
the dyeing of garments until after assembly
by Benetton, the Italian knitwear company,
are cited as examples.
Commenting on supply chain management practices of different regions and
countries, the book said that operating
standards “are generally uniform and high”
in first-world countries. For example,
overnight carriers are expected to make
deliveries overnight and contracts are legally binding.
“In the third world, traditional performance measures have no meaning,” the
authors said. “Shortages are common, and
customer service measures that are used in
the West (for example, stock availability,
speed of service, and service consistency)
are irrelevant,” they add.
Managing the Supply Chain is published
by McGraw-Hill.
■
51
Data miners drill for high-grade information
“Number crunchers,” “bean counters,” or in modern
vernacular “data miners.” Call them what you will, but
these individuals are vital to any organization that wants
to build toward a successful future.
These individuals also have concerns that cut across
the shipping industry and that’s why the recent renewal of
the International Trade Data Users (ITDU) group should
be a positive development.
The ITDU started in 1995 as a move by shipping industry statisticians and market analysts to improve the
collection and dissemination of international trade data
by the U.S. Census Bureau’s Foreign Trade Division and
Customs Service. The group met twice a year. While
there was early enthusiasm for the group, the ITDU
slipped into dormancy in 1999 when the Internet and
emerging government systems, such as the Automated
Export System (AES), promised to pave over many of
the ITDU’s remaining concerns.
On May 4, the revived ITDU held its first meeting in
Washington. Many original members attended.Alvis Pauga,
a New Jersey-based international trade and transportation
consultant and founder of the ITDU, said the group’s purpose is more important today with data accuracy issues
persisting and new matters, such as government confidentiality of business information, bubbling to the surface.
“Data is the building block for what you do in business,”
Pauga said. “Millions or billions of dollars in investments
may be riding on it.”
“Statistical information is the life blood of any federal
agency,” added Eugene A. Rosengarden, director of the
International Trade Commission’s Office of Tariff Affairs
and Trade Agreements and chairman of the government’s
International Trade Data System reporting endeavor. “I
don’t think there’s an exception to that.”
The government uses information collected from the
shipping industry to set trade policy. Companies rely on
information compiled by the government to measure
their performance against the rest of the industry, target
their investments and deploy transportation assets, such
as planes and ships.
Data reporting services, such as the Commonwealth
Business and Media’s PIERS, survive on their ability to
provide companies with accurate trade information. But
Jeffrey W. Campbell, director of operations for PIERS,
admitted at the ITDU meeting that problems persist with
the “quality control” associated with inbound manifest
data it obtains from U.S. Customs.
PIERS gained access to this data by winning a court
case against U.S. Customs in 1984. The agency was
forced to amend its regulations under the 1930 Tariff
Act to give reporting services broader access to manifest
information. PIERS and other reporting services have
the right to copy and publish all information on bills of
lading contained in inbound manifests unless an importer
requests confidential treatment of its name.
But PIERS reports are expensive and the data needs to
be reliable for companies to justify the cost to buy them.
For example, in the mid-1990s, American Shipper annually
published the PIERS inbound and outbound TEU statistics
for non-vessel-operating common carriers engaged in
the international U.S. liner trades. While PIERS was the
best source for this type of information, NVO readers
became upset when the data did not accurately reflect
their internal TEU counts. After first printing the NVO
TEU numbers in 1995, American Shipper published dis52
AMERICAN SHIPPER:
JULY
2004
claimers in each subsequent NVO report, until it stopped
running the numbers altogether in 2001. Reasons for the
inaccuracies varied from different names for individual
NVOs scattered throughout the data, and the questionable
manifesting of co-loaded cargoes.
Since the Sept. 11, 2001 terrorist attacks in the United
States, Customs has heightened its compliance and automated filing demands for manifest data from the shipping
industry. Starting Dec. 2, 2002, NVOs were permitted to
file manifest information through the agency’s Automated
Manifest System, a program previously reserved for vessel
operators. There are about 1,200 NVOs filing their manifests
through AMS today. PIERS has since experienced a 40-percent increase in bills of ladings collected since the NVOs
have been on board AMS. Campbell described the change
should allow PIERS to provide “truly richer data.”
In 2003, Customs had considered increasing the
confidentiality of manifest data by allowing NVOs and
liner carriers to request confidentiality on behalf of their
import customers. The agency backed off on the proposed
rulemaking because of “clear lack of consensus” from
the industry and the possible “administrative burden”
for itself. Industry opponents of the rulemaking said
this move “wrongly upset the ‘freedom of information
— confidentiality balance.’ ”
Attention has recently turned to the accuracy of cargo
weight data provided by Census. FedEx, for example,
uses this information to monitor export and import trends.
Rakesh Puri, senior market analyst for FedEx, said the company must use a “variety of techniques to sharpen the data.”
In some markets, such as Latin America and Canada, the
Census data can be off by more than 30 percent compared
with what FedEx actually flies out, Puri said.
The Maritime Administration and Army Corps of
Engineers also complained they’re constantly correcting ship arrival and departure information by port in the
Census data. Both agencies track waterborne trade data
to carry out their missions.
But industry and government officials praised Census for
recent efforts to improve the integrity of collected export
data, including a redesign of AES completed June 8.
“The system is nearly 10 years old already,” said Gerard
Horner, chief of the AES Branch at Census. “The way of
processing the data is outdated. It’s time for a change.”
Instead of “warning” messages for AES filing errors,
Census will step up its use of “fatal error” messages in the
system to ensure that filers immediately correct mistakes.
AES cut error rates for shipper’s export declarations
from 50 percent in the former paper filings to 0.7 percent
in the automated system. Horner said 92 percent of export
declarations, or 1.3 million transactions, a month are now
filed through AES, or its Internet-based counterpart, AESDirect. Regulations are underway that would require all
export declarations to be electronically processed.
In addition, Census tightened its definition for U.S.
principal party in interest, requiring companies to show
the address of where the cargo actually originated and
not just the corporate address.
ITDU members also support reducing the export-reporting threshold from $2,500 per shipment. Transportation
analysts, such as Pauga, believe undeclared shipments
skew the knowledge of emerging export markets and
small shipments handled mostly by air couriers. “It’s on
our radar screen but we don’t have the resources to deal
with it right now,” said C. Harvey Monk Jr., chief of the
Census Foreign Trade Division.
FORWARDING / NVOs
NCBFAA weighs in on bioterror rules
WASHINGTON
The Food and Drug Administration should
modify its system for monitoring the safety
of food imports to reduce the administrative
burden on brokers and importers that is causing shipments to be delayed, the National
Customs Brokers and Freight Forwarders
Association of America said.
The trade association expressed its view
as part of the public comment period for
the prior notice and food facility registration rule. FDA is seeking to improve the
bioterrorism security rules, which went into
effect in December, and recently extended
LET US
SHRINK YOUR
WORLD!
the comment period until July 13.
NCBFAA asked the agency to eliminate
redundant information requirements, adjust
import procedures to be consistent with
those of U.S. Customs and Border Protection and make technological fixes to its
Web-based notification system.
NCBFAA made 10 recommendations,
including:
• Eliminate the duplicative requirement
to file separate prior notices for each article
of food, so that all the goods from the same
manufacturer listed on the bill of lading
can be filed at one time. Customs brokers
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are faced with filing multiple prior notices
for the same food type if it is packaged in
different-sized containers. The rules have
caused the number of food entry lines to
quadruple from the more than 4.7 million
entry lines submitted during the 2001 fiscal
year, NCBFAA noted.
• Reduce the time frames for submitting
prior notice to mirror those of U.S. Customs’
advance manifest reporting system. Under
the current system, FDA notices must be
filed four hours prior to arrival for air and rail
shipments and two hours prior to arrival for
truck shipments. Customs allows a shorter
notification window for air shipments from
destinations with shorter flying times, two
hours for rail and as little as 30 minutes for
some types of truck shipments.
“This current ‘dual filing’ system has
spawned confusion as well as clerical errors in the submission of CBP and FDA
data from transmitters struggling to keep
a matrix of rules and timeframes straight,”
NCBFAA said.
Expedited procedures are particularly important for perishable foods. Produce picked
in Mexico, for example, is often quickly
trucked to the border before the U.S. broker
has even received detailed information on
the quantity or variety of the food.
FDA is taking too long to achieve its
53
FORWARDING / NVOs
stated goal of harmonizing the two agencies’
timeframes, the group added.
• Reduce the amount of duplicative basic
information required for each entry filed
through the Prior Notice System Interface to
prevent system crashes and slow processing
speeds due to limited capacity.
• The filer, not just the carrier, should
be notified when an entry is refused due to
inadequate prior notice. “FDA has a duty to
report to these people directly, rather than
rely on a middleman who has zero interest in
the goods, to act timely,” NCBFAA said.
• Change requirements for redundant submission of contact information for registered
food facilities already on file with FDA.
• Allow using the Automated Broker Interface to resubmit or correct a rejected prior
notice entry rather than just requiring such
corrections through the FDA’s system.
• FDA should allow prior notice amendments within the allowable time frames to
correct submissions for product identity,
quantity and arrival information without
having to cancel the entry and resubmit the
prior notice under a new entry.
• Prior notice should be considered adequate when a buyer using a middleman doesn’t
know the food facility registration number and
submitted a factory name instead.
■
UPS Trade Direct
Ocean service expands
ATLANTA
UPS Trade Direct Ocean will now serve
more than 70 ports in Asia, Europe, Latin
America, Africa and the Middle East, in
addition to opening Miami as a third U.S.
inbound port.
UPS introduced its Trade Direct Ocean
service less than two years ago between four
ports in China and Brazil and New York
and Los Angeles. The company expanded
to 40 ports in 2003 and has recently added
another 30 origin ports.
The new origin ports are located in Japan,
Indonesia, India, Argentina, Chile, Colombia, Costa Rica, Dominican Republic, El
Salvador, Guatemala, Honduras, Mexico,
Nicaragua, Panama, Peru, Puerto Rico, Uruguay and Venezuela. Miami joins New York
and Los Angeles as U.S. receiving ports.
According to UPS, manufacturers in Asia,
Europe and Latin America say the service
has reduced their cargo transit times by as
much as 20 days.
This is how the UPS Trade Direct Ocean
service works:
• U.S.-bound goods are individually
packaged, gathered at the origin port and
labeled for U.S. delivery by UPS — either
before being placed into ocean containers or
soon after entering the United States.
• The packages are shipped in ocean vessel space booked by UPS and after arrival,
UPS clears them through customs quickly
as one consolidated unit.
• The shipments are then separated and
delivered using UPS’s small package or
freight network.
■
Kuehne + Nagel acquires
Dutch forwarder
SCHINDELLEGI, Switzerland
Kuehne + Nagel, the Swiss forwarding and
logistics group previously known as Kuehne
& Nagel, has taken over Dutch freight forwarder Nether Cargo Services B.V. Terms of
the acquisition were not disclosed.
The Swiss group said the acquisition enables Kuehne + Nagel to extend its services
in the perishables business and strengthen
its position in the local air freight market.
Nether Cargo Services B.V. is based at Amsterdam’s Schiphol Airport and has branch
offices in Rotterdam and Aalsmeer.
Established in 1990, the company had
revenues of more than 30 million euros
($36 million) in 2003 and a staff of 55. It
handled around 37,500 tons of air freight,
its core business, and is specialized in the
shipment of perishables.
■
54
AMERICAN SHIPPER:
JULY
2004
TRANSPORT / INTEGRATORS
House committee passes postal reform bill
WASHINGTON
The U.S. House Government Reform
Committee in May unanimously approved a
major piece of legislation to reform the U.S.
Postal Service and give it the flexibility to
operate like a modern business rather than
a heavily regulated bureaucracy that is slow
to react to market forces.
H.R. 4341, the Postal Accountability
and Enhancement Act of 2004, is the first
significant piece of legislation in 30 years
to address how the USPS is organized. The
USPS is nearing a crisis by some accounts
as its delivery network expands along with
population growth and sprawl, while volumes for First Class mail continue to trend
downward.
The U.S. Postal Service and many large
commercial customers argue the agency
needs the flexibility to make quick operational changes and set rates within
reasonable limits rather than having to
regularly seek permission from the Postal
Rate Commission.
The bill would overhaul the rate-setting process to give the USPS authority to set rates as
long as they don’t exceed the rate of inflation.
It would also offer more rate flexibility
for express and second-day mail offerings,
areas in which the USPS competes with
the likes of FedEx and UPS, but would
eliminate preferential treatment the agency
receives in the form of tax breaks, special
IT’S EASY.
loan rates, and exemptions from many types
of regulations with which private companies
must comply.
The bill also attempts to reduce the ability
of the agency to regulate its competitors and
issue regulations that give it an advantage.
Another reform item involves international mail, which would make it subject
to Customs laws for the first time, and give
the USPS the authority to contract with
airlines for the transport of international
mail as it currently does for domestic mail
shipments.
UPS, which is a competitor as well as
a large consumer of postal service, issued
a statement supporting the bill. Chairman
Michael Eskew testified before a special
postal reform panel earlier this year.
“The last time the USPS was reformed,
the cicadas were invading D.C. Two cicada
life cycles and 34 years later, we are once
again bracing for the cicada invasion, and
it is once again high time to rewrite the
out-of-date laws that govern the U.S. Postal
Service, Committee Chairman Tom Davis,
R-Va., said in a statement.
■
Maritime
Security
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55
Airlines, forwarders are still a step slow
In Guenther Rohrmann’s air freight dream, world airlines would achieve sustainable profits, costs would be
systematically taken out of the air freight system, airlines
and freight forwarders would adopt uniform cargo booking systems, both groups follow the Cargo 2000 quality
management standards and industry
would speak to government regulators with one voice.
Rohrmann, the outspoken chief
operating officer of global customer
solutions for DHL, is frustrated. He
sees the possibilities within grasp, but
can’t convince enough carriers and
forwarders that taking the initiative
Rohrmann
on many issues will put them in the
driver’s seat, instead of being at the mercy of market and
governmental forces.
Airlines tend to be very deliberate when it comes to
changing accepted business practices. The problems tend
to be associated with combination airlines. All-cargo
airlines and integrators often are more innovative.
Ten years ago U.S. Customs created the Automated Air
Manifest System to speed up processing, and allow cargo
to be cleared when the planes wheels left the ground in
a foreign country. Some airlines adapted their computer
systems to feed information to AMS, but the voluntary
nature of the program left many freight forwarders skittish about investing any money in upgrades during tight
financial times to automatically transmit their customer
data to the airlines. They continued to resort to paper
entries upon arrival. Forwarders felt it wasn’t worth
spending money to upgrade their systems when Customs’
regional inspection approach meant not every airport was
implementing AMS. So AMS atrophied.
Last year, Customs and Border Protection made it
mandatory for airlines to electronically file their shipping
documents several hours prior to arrival as part of a new
package of antiterrorism rules designed to use cargo data
to target high-risk shipments. The transition to the new
security environment would have been easier this year if
the industry had wholly embraced Air AMS.
“We haven’t accepted the necessary change in our
industry,” Rohrmann said at the recent Cargo Network
Services conference in Las Vegas. Airlines continue to
buy planes, but during the last 20 years have not taken the
same investment approach towards technology, he said.
By waiting until the last minute to make changes,
airlines and forwarders have less input in designing new
security and tracking systems. Shippers, just like the
government, are increasingly dictating to their vendors
what kind of security to provide. Rohrmann, who is also
chairman of CNS, worries airlines and forwarders will
make the same mistake with radio frequency identification
(RFID) and have to be pushed by shippers to adopt the
technology in order to get their business. That would be a
mistake, because companies that can show they understand
shipper needs stand to gain comparative advantage while
those that lag may lose business.
RFID will take three or four years to refine for domestic
air cargo applications, and longer for international flights,
he predicted. He hopes the major integrated carriers lead the
way in developing a common system so that all participants
in the supply chain can access the data, unlike the multiple
barcoding systems in use throughout the industry.
“It’s to the advantage of the shipper when everyone
56
2004
uses the same technology,” he said.
The air cargo industry is so fragmented that even when
airlines decide to try new technology, like electronic booking, nobody can agree on a common approach and everybody goes off to build their own proprietary software.
“There is not enough critical mass to support e-booking,” Rohrmann said. Freight forwarders can tender cargo
through as many as four portals, including Global Freight
Exchange and Cargo Portal Services, as well as Web sites
for individual airlines. Even airlines within air cargo alliances do not adhere to a uniform booking system.
“Portals cost a lot of money to develop. If we have
more than two portals, nobody will make any money,”
Rohrmann said.
The International Air Transport Association adopted a
policy that requires passenger airlines to do away with paper
tickets and book all flights via the Internet by 2007.
“I wish we would take the same (approach) in the
air freight business,” Rohrmann said in a recent phone
interview, “and do away with the paper airway bill.”
Freight forwarders have also been slow to participate
in the IATA-sponsored Cargo 2000 program. The number
of shipments subject to performance measurements under
the system has quadrupled in the last year, but there are
only eight freight forwarders (down from 10 last year) who
are members of Cargo 2000. Customers are demanding
on-time performance, safe handling and in-transit tracking
now, when the air cargo industry should have cemented
shipper loyalty by addressing those service issues ahead
of the complaint curve.
The air cargo industry also is at a disadvantage because
“it has no authority, no association that can speak up as
one voice to the government” and shippers, Rohrmann,
said in opening remarks at CNS. The industry needs to
find a common approach to security, too, instead of each
company going off on their own to try and meet government requirements.
FedEx forwarder expands Hong Kong capacity
FedEx Trade Networks in June added a second dedicated air charter from Hong Kong with weekly service
to Chicago and New York.
The “China Connect” product is made possible because the freight forwarding division of FedEx Corp.
has chartered MD-11 cargo planes from sister company
FedEx Express.
Trade Networks had not issued any press releases about
the new service as of mid-June, but was quietly marketing the service to customers on its Web site and at its
exhibit at the recent American Association of Exporters
and Importers conference.
FedEx Trade Networks first launched a weekly Saturday flight on a FedEx aircraft from Hong Kong to the
United States in June 2003, and decided to supplement
its original charter with a Thursday frequency to meet
importer demand. Other U.S. and Canadian cities are
served via ground service.
The one-way service is designed to handle freight for
Trade Networks commercial customers, and is not being
marketed to other forwarders.
One of the benefits for shippers is that the service is
year round compared to many forwarders that charter
planes to handle increased volumes during seasonal
shipping surges. Shippers should like that the service is
consistent and not subject to be bumped, as sometimes
happens on passenger flights that get too full.
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Research to enhance the 2004 ‘Who’s Who in
E-logistics Survey’.
The e-commerce industry is rapidly changing.
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of American Shipper.
“Software delivered
as a service over the web
at a fraction of the cost
and no risk has enabled
companies to control logistics
and as a result compete
more effectively.”
Greg Johnsen
TRANSPORT / AIR
BA World Cargo
tackles lower yields
British Airways’ cargo division comes to grips
with falling yields, reliability problems.
BY PHILIP DAMAS
B
ritish Airways World Cargo is cutting costs while improving service
levels, as it reports the third year in
a row of declining cargo yields.
British Airways said its average yield of
its cargo division, measured in revenue per
cargo ton-kilometer, dropped 9.7 percent
to 10.4 pence (18 cents) in the fiscal year
ending March 31. The bulk of the decrease
was due to the depreciation of the U.S. dollar against the pound, a spokesman for the
company said.
“This year has been tough for the industry
with issues such as the war in Iraq, SARS and
the continuing softening of the U.S. dollar,”
said Gareth Kirkwood, managing director
of British Airways World Cargo.
Kirkwood told a press conference in
London May 18 that his company and other
airlines are facing continued pressure on
yields for cargo shipments. “Yield remains
an issue for us and remains an issue for the
whole industry,” he noted.
British Airways’ difficulty with declining
yields is exacerbated by the depreciation of
the dollar against the pound. By contrast,
major U.S. airlines have started to report
58
AMERICAN SHIPPER:
JULY
2004
increases in their average yields expressed
in dollars (see table, next page).
Kirkwood said yields in the export trades
from both the United States and the United
Kingdom remain weak due to surplus capacity. Export air cargo shipments from America
are “a very weak market” and Europe has “a
difficult yield environment,” he added.
From Europe to the United States, yields
have been maintained because of stronger
demand, Kirkwood said.
The cargo operator has introduced a new
revenue management computer system that
identifies the shipments with the best returns.
With improved load factors, British Airways
said it must optimize its available capacity.
“Our flights are now significantly fuller,”
Kirkwood said.
British Airways World Cargo raised its
tons handled per man-hour 22 percent in the
financial year to March 31, largely through
automation. The company also reduced its
workforce from the equivalent of 3,000 fulltime staff in March 2003 2,200 in March of
this year, taking into account overtime hours.
Kirkwood did not quantify how many jobs
the company has eliminated.
Kirkwood claimed that British Airways
World Cargo has completed a turnaround in
the last two years and taken out “significant
costs,” but did not disclose specific figures
on profits and costs. He said the British
Airways group publishes consolidated
financial results without breaking down
results by division.
After years of problems and uncertainty affecting the British Airways group as a whole,
its cargo division believes that customers have
recognized improved service levels and the
results of a restructuring program.
“In the 1990s, we did not have the confidence of our customers,” Kirkwood said.
“Now we do.”
Mark Wardman, air freight director of
DHL Danzas in the United Kingdom, is one
major forwarder who has seen real change in
British Airways World Cargo’s services.
“They have considerably improved,”
Wardman said. The percentage of shipments
flown as booked has increased, and performance for loose cargo has now particularly
improved, he said. DHL Danzas already
experienced a good performance for unitized cargo, Wardman said.
Lower cargo yields have eaten into British
Airways World Cargo revenue for its financial year, despite an increase in traffic.
Cargo revenue at the airline decreased
4.3 percent in local currency during the year
to £463 million ($820 million) from £484
million in the year ended March 31, 2003.
But excluding the effect of exchange rates
such as the weak dollar, flown revenue was
up 1.9 percent in the latest financial year,
the company said.
British Airways handled 4.5 million cargo
ton-kilometers in the latest financial year,
an increase of 6 percent.
“As a result of the introduction of the
third freighter in August 2003 and the
short-haul European freighters in October
2003, capacity increased by 4 percent during
2003-2004,” the company added.
British Airways World Cargo is discussing
a potential renewal of its joint short-haul
European freighter service with DHL. The
current contract, effective since last October,
covers 40 flights a week across Europe and
is due expire in July. The company said the
contract has been profitable.
The airline said it has expanded the proportion of cargoes it ships on freighters from
about 15 percent to 20 percent because of the
replacement of former wide-body aircraft
by narrow-body airplanes that provide less
belly capacity.
Following the new air service agreement
between the United Kingdom and China on
freighter services, British Airways World
Cargo said it is “interested” in operating a
freighter service on the route, and is working
TRANSPORT / AIR
Cargo yield trends at four major airlines
Airline
Definition of yield used
2003
BA World Cargo
pence per cargo
ton-kilometer
euro centimes per cargo
ton-kilometer
U.S. cents per cargo
ton-mile
U.S. cents per cargo
ton-mile
Air France
American Airlines
Delta Airlines
2002
10.4
% chg
’03/’02
(10%)
2001
11.5
% chg
’02/’01
(4%)
23.3
(3%)
24.1
(2%)
24.5
27.9
1%
27.7
(10%)
30.8
33.1
8%
30.6
(4%)
32.0
FRANKFURT
12.0
Note: BA’s and Air France’ 2003 financial years ended March 31.
on a related business plan.
The cargo division is also working on
reducing costs related to handling bookings
made by forwarders.
Kirkwood reported that the passenger side
of British Airways gets 80 percent on its bookings online. “That’s where British Airways
World Cargo has got to be,” he said.
The British operator is one of the founding
members of Global Freight Exchange, the
London-based air cargo portal. However,
less than 5 percent of British Airway’s cargo
bookings are made through GF-X.
“The good news is that it’s doubled in the
past year or so,” Kirkwood said.
But in the air cargo industry, every airline
Lufthansa to manage
Hapag-Lloyd air cargo
and forwarder continues to run customer
service call service, where personal interactions are possible, he noted. “The industry
is rooted in old-fashioned practices,” Kirkwood added.
GF-X is now developing a computer-tocomputer application that will eliminate the
need for forwarders to re-enter data into its
system, Kirkwood reported. He believes this
will make the portal more popular among
forwarders.
British Airways said it is now allocating
a higher percentage of its cargo capacity
to block-space agreements, whereby forwarders commit to use space on certain
flights.
■
Hapag-Lloyd Flug GmbH, a large German tourist charter operator, will outsource
this summer its entire cargo management
business to Lufthansa Cargo subsidiary
cargo counts GmbH.
Lufthansa spun off its cargo management business in December 2003 as a way
to generate revenue from a business that
began in-house to help a couple of small
and mid-sized passenger airline affiliates
manage their cargo operations. HapagLloyd Flug is the first new customer for
cargo counts since it began operating as
an independent company, according to a
Lufthansa statement.
Hapag-Lloyd Flug has a fleet of 34 aircraft, which are used to carry cargo. The
company once operated its own Airbus
A300 freighter.
Cargo counts provides third-party cargo
management services such as sales, marketing, ground handling, delivery, accounting,
tracking, yield and capacity management.
Hapag-Lloyd said it expects the new arrangement to produce double-digit growth
rates in tonnage and earnings.
■
59
New technology at U.S. West Coast ports?
When the Pacific Maritime Association of U.S. West
Coast port employers and the International Longshore
and Warehouse Union ended a damaging labor dispute
in 2002 and signed a six-year agreement, the employers
said their deal finally allowed the introduction of muchneeded “new technology.”
And in his final annual report as head of the PMA,
issued in April, Joseph Miniace reported that “already
some terminals are bringing modern-day technology to
our ports” such as optical character recognition and global
positioning systems (These technologies have been in use
for years in Europe and Asia).
All this looks good on paper. But the positive impact
of the 2002 PMA/ILWU agreement on productivity is
still unproven.
In 2003, total labor hours paid to longshoremen, clerks
and foremen at all U.S. West Coast ports rose 9 percent
to 26.5 million hours, whereas total weighted tonnage
increased only 8 percent to 283 million tons, and container traffic increased 10 percent to 11.9 million TEUs,
according to the PMA.
This shows no gain in productivity per ton, although
perhaps some gain per TEU. Longer term, West Coast ports
still had the same labor productivity in 2003 as in 1994,
when measured in weighted tons of cargo per hour paid.
As a result of increased volume, PMA said more than
800 new longshore workers were registered in Southern
California last year — a 16 percent increase.
Most people outside the port industry will regard these
productivity figures as disappointing, as they show no
progress in efficiency.
The other issue to be watched is whether West Coast
ports will be able to raise the productivity of their container
terminal infrastructures to accommodate the expected
growth in volumes and relieve gate congestion. One option under consideration is the introduction of a daytime
gate user fee at South Californian ports.
“We now feel we’re making significant headway to move
trucks off peak hours to non-peak hours,” said Doug Tilden,
president of Maritime Terminals Corp., and a member of
the new West Coast Marine Terminals Operators Discussion Agreement, at a meeting of the Agriculture Ocean
Transportation Coalition in San Francisco in June. Thirteen
marine terminals in the ports of Los Angeles and Long
Beach have proposed the daytime gate user fee. The West
Coast Marine Terminals Operators Discussion Agreement
was filed with the Federal Maritime Commission June 3,
but has not specified the amount of the fee.
“Congestion is already a problem at many ports and in
particular here in Los Angeles and Long Beach,” Steven
Blust, chairman of the FMC, told a conference in Long
Beach May 19.
“The Ports of Los Angeles and Long Beach have set up a
framework for discussion and agreement on means to reduce
congestion,” he said. “State legislators are also chiming in
to encourage the industry to address the problem.”
The FMC will review the daytime user fee agreement
between terminals.
“We at the FMC will do our part to ensure fairness is
achieved in those areas within our oversight,” Blust said.
Meanwhile, a longshoreman working more than 2,000
hours made an average of about $116,000 in 2003, up
from $108,000 in 2002, PMA reported. Presumably, the
ILWU does not need FMC immunity to guarantee such
wages to its members.
60
2004
Gaps in security
Nobody expected security measures in the transport
industry to be 100-percent proof on their own against
potential terrorist attacks. But there is an increasing
awareness there are still many security gaps.
Initially, it looked as if U.S. Customs and Border Protection
was concentrating only on the largest, more secure ports of
Europe and Asia within the Container Security Initiative,
rather than on ports in the Middle East, and that it was relying
on large companies to assess their own security within the
Customs-Trade Partnership Against Terrorism program.
There were also doubts about reliability of information
third parties provide the U.S. government via ocean carriers, under the “24-hour rule,” as shown by ABC News.
U.S. senators have recently called a General Audit Office review of the performance of technologies used to
screen containers shipped to U.S. ports (June American
Shipper, page 18).
The Organization for Economic Cooperation and Development has urged governments to go beyond existing
international agreements on maritime security and secure
the remaining parts of the supply chains in container
transport, particularly its inland elements.
In a report on container transport security across all
modes, the Paris-based OECD said addressing the security
of the container transport chain requires a comprehensive
intermodal framework integrating measures across the
entire container transport chain.
“Whereas such a framework may exist at the center
of the chain covering ports and maritime transport, as
codified in SOLAS (Safety of Life at Sea convention of
the International Maritime Organization) and the International Ship and Port Facility Security code, there is not
yet an analogous framework for inland transport on the
outer edges of the chain,” the OECD said.
The OECD described the inland operators as the least
secure under current regulations. “Many of the security
concerns in the container transport chain are related to
inland carriers and freight integrators operating in the
first few and last few links of the chain,” it said.
“These actors are numerous, disparate in nature and
activity, operate on tight margins, and, as a result, represent more of a security risk than their larger counterparts
further down the chain (i.e., large land, port and maritime
transport operators),” the OECD added.
Helping customers, Japanese style
Japan’s closely knit industrial groups, the “keiretsus,”
have a unique sense of long-term cooperation between
suppliers and customers. The long-established Mitsubishi
group includes Japanese carmaker Mitsubishi Motors
Corp., Mitsubishi banks and NYK.
On May 21 money-losing Mitsubishi Motors announced
a plan to raise Yen450 billion ($4.1 billion), mainly from
other companies and banks of the Mitsubishi group, to
repay debts and invest in a medium-term plan. NYK answered the call, and said in June it would help Mitsubishi
Motors by injecting 2.5 billion yen ($23 million) into the
Japanese carmaker’s share issue plan.
NYK said its share purchase will be an investment, and
that it already owned less than 0.5 percent of the shares
of Mitsubishi Motors.
“They are one of our close customers,” said N. Nagai, spokesman for NYK in Tokyo. He said Mitsubishi
Motors represents less than 10 percent of the volume
shipped by the NYK group.
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Cargo boom, higher rates, administration costs
cuts trigger record profits for carriers.
BY PHILIP DAMAS
Main findings of annual survey
•
Major container carriers made record profits in 2003, a year described
as “exceptional” by industry insiders.
•
Poor performing shipping companies swung back into profit, but
carriers in the South American trades did not enjoy the boom.
•
2003 was as good a year for carrier profits as 2000, and 2004 should
be even better.
•
•
Higher rates contributed heavily to increased profits.
A portion of higher freight rates in 2003 was used to absorb higher
bunker and vessel charter costs.
•
The operating margins of China Shipping Container Lines, Wan Hai,
Hapag-Lloyd, OOCL and Matson exceeded 10 percent of revenues
in 2003.
M
ere double-digit increases in
profits have become boring. For
containership operators, financial results improved in triple or quadruple
digits or swung heavily into the black in
2003, reaching all-time high earnings in
many cases.
Consider the following five examples:
• Hanjin Shipping made a net profit of
Won295.2 billion ($246 million) last year, an
improvement over 2002 of 1,487 percent.
• A.P. Moller-Maersk’s container shipping, terminal and logistics activities, which
include Maersk Sealand, netted DKr3.9
billion ($648 million) in profits last year,
824 percent more than in 2002.
• Zim Israel Navigation swung from a
2002 loss of 44 million shekel ($9 million) to
a profit of 204 million shekel ($47 million)
last year, a 564 percent improvement.
• Orient Overseas (International) Ltd.
(OOIL), parent company of OOCL, earned
$329 million in net profit in 2003, 533 percent more than in the previous year.
• Yang Ming Marine Transport raised its
net income 485 percent in 2003 to NT$6.6
billion ($195 million).
True, these were the most spectacular
percentage increases among carriers. But,
with the exception of the South American
trades, all container carriers enjoyed buoyant cargo growth, higher freight rates and
a tight market that favored suppliers of
shipping services.
While many container carriers were
forced into losses in 2002, Neptune Orient
Lines, Zim, P&O Nedlloyd, China Shipping
Container Lines, Senator Lines and the
Japanese liner carriers made it back into
profit in 2003. Among the more profitable
shipping groups, several rewarded their
shareholders for their patience with large
dividends. A.P. Moller-Maersk increased
its dividend 50 percent for 2003.
Exceptional Year. Last year was a
turnaround year for several carriers and a
record year for most of the others.
“2003 was an outstanding year for the
liner business,” said Neptune Orient Lines,
the parent company of APL.
“2003 has turned out to have been one of
if not the best year to
date for the container
liner industry,” said
C.C. Tung, chairman
and chief executive officer of OOIL. “To the
surprise of most, and
from very uncertain
beginnings, the market
Tung
gathered strength at
an unprecedented pace during the course
of the year.”
The 2003 net income is more than twice
the level of profit recorded by OOIL in any
of the last 10 years.
“This is an all-time record for OOIL, and it
is good quality revenue coming mainly from
the shipping sector with no extraordinary
items,” Stanley Shen, general manager of
corporate marketing, told American Shipper,
commenting on the company’s $329 million
in net profit in 2003.
After experiencing “significant increases” in both container liftings and average
freight revenues during the first half of
2003, OOIL saw the growth in volumes
and the increase in rates accelerate during
the second half of the year.
“K” Line, which does not disclose specific financial figures on the profit of its
container arm, said the recovery of its operating income from container shipping during
the fiscal year was “greater than earlier
targeted” despite higher fuel prices and the
adverse impact of the strong yen. The New
York-based multipurpose operator International Shipholding Corp., parent company
of Forest Lines and Waterman Steamship,
also returned to profit in 2003.
Senator said its net profit was $40 million
last year, compared to losses in most of the
preceding years.
“We have reached
the turnaround,” said
Hans-Hermann Mohr,
managing director
of the company, announcing the result.
P & O N e d l l oy d
earned $15 million in
Shen
net profit in 2003, as
compared to a record loss of $304 million
in 2002.
“During 2003 the P&O Nedlloyd team
succeeded in turning a prior year operating
loss of $206 million into an operating profit
63
TRANSPORT / OCEAN
of $96 million — a positive swing of $302
million in our financial performance,” Philip
Green, CEO of P&O Nedlloyd said recently.
“This is a significant achievement, but we
need to do more.”
Therefore, contrary
to previous years, the
current answer to the
question “who’s making money in liner
shipping?” is: every
single carrier. Even
Trailer Bridge, the
Green
U.S. mainland/Puerto
Rico shipping line, narrowed its losses in
2003 and has since announced a first-quarter
2004 profit, its first quarterly net income
for more than three years.
High Margins. Table 2 (page 65) confirms that many carriers enjoyed high operating profit margins last year, compared
with the usual industry profit of 4-6 percent
of revenues.
Wan Hai Lines, the highly profitable
intra-Asia and east/west Taiwanese carrier, had an operating margin of revenue
of 12 percent in 2003, while Hapag-Lloyd
Container Line had an estimated operating margin before interest costs of 11.9
percent.
Jason Lee, CEO of Wan Hai, said average
intra-Asia freight rates were 9 to 10 percent
higher in 2003 than in the previous year.
“We expanded our capacity on the
transpacific; this also contributed to the net
income,” he told American Shipper.
TUI AG, the German tourism-to-logistics conglomerate that owns Hapag-Lloyd,
reported record earnings of 314 million
euros ($391 million) from its logistics division, up 57 percent, largely due to bigger
profits at Hapag-Lloyd Container Line.
TUI said the dollar/euro exchange rate
fell nearly 20 percent last year, but HapagLloyd increased its container volume more
than 13 percent to 2.1 million TEUs last
year and its average freight rates in dollars
by 15 percent.
Other container shipping lines enjoyed
high operating margins in 2003. CMA
CGM increased its net profit 333 percent
to 202 million euros ($253 million). Operating income soared 146 percent to 260
million euros ($325 million).
A boom year, 2003 can be compared to
2000, the peak year of the previous shipping
cycle. As in 2000, the median operating
margin for 2003 was about 7 percent of
revenues, research by American Shipper
shows. Average revenue per TEU has also
broadly returned to 2000 levels, after two
years of decline.
It also appears that container shipping
lines are now leaner and more automated
than in previous years, with a lower breakeven point.
APL made an operating income of $406
million last year, compared to a loss of $72
million in 2002 — a profitability swing of
$488 million.
In 2002 NOL, P&O Nedlloyd, CP Ships,
CMA CGM, Evergreen Marine Corp. (Taiwan) and OOIL had made combined net
losses of $450 million. But in 2003 the same
six shipping companies earned combined
net profits of $1.2 billion — a difference
of nearly $1.7 billion in one year.
To say the least, carriers have experienced variations in profits over the period
2000-2003, with results in one year often
paying for losses in another (see Table 3,
page 66).
Japanese Records. Diversified shipping groups like Mitsui O.S.K. Lines,
NYK Line and “K” Line also reported
record results for the financial year ended
in March 2003.
MOL raised its operating income 103
percent to Yen92.1 billion ($872 million).
The group’s net income soared 277 percent
to Yen55.4 billion ($524 million).
Hidenori Onuki, spokesman for the
Mitsui O.S.K. Lines in Tokyo, said the
main reason for the record profit was “the
dramatic improvement of the container
shipping business.” He also cited a better
performance from MOL’s bulk-shipping
activities.
In container shipping, the restoration of
freight rates resulted in “a great increase
in earnings” from the previous fiscal year,
MOL said.
MOL’s container shipping arm increased
its revenue 16 percent in the latest fiscal
year to Yen 323 billion ($3 billion), and
made an operating profit of Yen 20 billion
(about $200 million) as compared to a loss
of Yen9 billion (about $100 million) in the
year ended March 2003.
NYK Line also posted record revenue
and profit for its fiscal year ended March
31, citing a significant improvement in the
liner-shipping trade and the result of cost
cuts. NYK’s net income soared 144 percent
to Yen34.8 billion ($329 million) and its
operating income went up 33 percent, to
Yen91.9 billion ($870 million).
The net income of the A.P. Moller-Maersk
A/S group, a diversified conglomerate focused on shipping, soared 43 percent last
year to DKK17.3 billion ($2.9 billion), as
its container shipping and related activities
increased their profits eight-fold in 2003
to DKK3.9 billion ($648 million). Revenue from container shipping and related
activities increased 9 percent in 2003 to
DKK90.2 billion ($15.1 billion).
The recovery of the group’s container
shipping and related activities, which
include Maersk Sealand, Safmarine, APM
Terminals and Maersk Logistics, more than
reversed the 67-percent drop in net profit
of this unit in 2002, when Maersk Sealand
was believed to have made a loss.
A.P. Moller-Maersk did not disclose the
earnings of Maersk Sealand in 2003, but
said they had a “positive” development,
being “considerably above the 2002 level,
despite the weakened U.S. dollar.”
“We do not break down the results of
Maersk Sealand,” Per Moller, executive
vice president, accounting, recently told
Table 1
Container shipping trends 2000-2003
(Container volumes, rates, carrier profits)
2000
World container traffic (in million TEUs carried)
Average revenue per TEU (in $/TEU)
Estimated container revenue of carriers in $millions)
Carriers’ estimated container operating income
(in $millions)
Average operating margin of carriers (as % of revenue)
Average operating margin per TEU in $/TEU)
Sources: ComPairData and research by American Shipper.
64
AMERICAN SHIPPER:
JULY
2004
57
$1,330
$75,800
$5,300
7.0%
$93
% chg
’00/’01
2%
(5%)
(4%)
(38%)
2001
58
$1,260
$73,100
$3,300
4.5%
$57
% chg
’01/’02
5%
(8%)
(3%)
(24%)
2002
61
$1,160
$70,800
$2,500
3.5%
$41
% chg
’02/’03
8%
12%
21%
140%
2003
66
$1,300
$85,800
$6,000
% chg
’00/’03
16%
(2%)
13%
13%
7.0%
$91
(2%)
TRANSPORT / OCEAN
Table 2
Shipping lines ranked by 2003 operating profit margin
(All figures are in $millions / million local currency when specified)
Rank / Carrier
TOTAL
REVENUES
1. China Shipping Container Lines
RMB
2. Wan Hai
NT$
3. Hapag-Lloyd Container Line (1)
euro
4.
5.
6.
7.
OOIL (parent of OOCL)
Matson Navigation (2)
APL’s container arm (3)
“K” Line group (4)
Yen
8. Mitsui O.S.K. Lines group (4)
Yen
9. CMA CGM
euro
10. Tropical Shipping
11. Neptune Orient Lines/APL (3)
12. Hanjin Shipping group
Won
13. International Shipholding/Waterman/Forest Lines (5)
14. Hyundai Merchant Marine group
Won
15. Sinotrans’ shipping arm (6)
RMB
16. Yang Ming Marine Transport
NT$
17. United Arab Shipping Co. (7)
18. NYK group (4)
Yen
19. Mitsui O.S.K. Lines’ container arm
Yen
20. A.P. Moller/Maersk Sealand (8)
DKr
21. Atlantic Container Line
euro
22. Horizon Lines
23. Zim Israel Navigation
Shekel
24. Evergreen Marine Corp. (9)
NT$
25. CP Ships
26. Crowley Liner Services
27. Cia. Sud Americana de Vapores
28. Seaboard Marine
29. P&O Nedlloyd group (10)
30. Eimskip
ISK
31. Trailer Bridge
$1,845
15,276
$1,120
38,081
$2,811
2,249
$3,241
$776
$4,165
$6,856
724,667
$9,435
997,260
$3,779
3,023
$272.2
$5,523
$4,640
5,567,900
$257.8
$3,316
3,978,831
$311
2,576
$1,849
62,898
$820
$13,229
1,398,320
$3,060
323,000
$15,089
90,233
$356
285
$762.4
$2,037
8,903
$3,144
106,941
$3,136
$578.6
$2,136
$409
$5,551
$419
30,178
$86.4
OPERATING PROFIT
Amount
as %
revenues
$225
12.2%
1,859
$134
12.0%
4,553
$335
11.9%
268
$359
11.1%
$85
11.0%
$406
9.7%
$667
9.7%
70,534
$872
9.2%
92,126
$325
8.6%
260
$22.7
8.3%
$455
8.2%
$360
7.8%
432,000
$19.6
7.6%
$251
7.6%
301,278
$22
7.1%
183
$131
7.1%
4,463
$56
6.8%
$870
6.6%
91,933
$190
6.2%
20,000
$930
6.2%
5,564
$20
5.6%
16
$38.2
5.0%
$99
4.9%
434
$147
4.7%
5,015
$131
4.2%
$20.9
3.6%
$67
3.1%
$5.8
1.4%
$77
1.4%
$0.3
0.1%
21
($2.6)
(3.0%)
NET PROFIT/LOSS
2002
Amount
as %
rank
revenues
$168
9.1%
—
1,383
$130
11.6%
1
4,430
n.a.
n.a.
4
$329
n.a.
n.a.
$314
33,196
$524
55,390
$253
202
n.a.
$429
$246
295,200
$5.5
($18)
(21,100)
n.a.
10.2%
n.a.
n.a.
4.6%
14
6
—
9
5.6%
8
6.7%
12
n.a.
7.8%
5.3%
2
25
21
2.1%
(0.5%)
3
24
$195
6,644
$70
$329
34,810
n.a.
n.a.
$648
3,873
$13
10
n.a.
$47
204
$106
3,605
$82
n.a.
$72
n.a.
$15
$31
2,204
($5.5)
10.5%
20
8.5%
2.5%
22
5
n.a.
—
4.3%
13
3.7%
10
n.a.
2.3%
7*
19
3.4%
15
2.6%
n.a.
3.4%
n.a.
0.3%
7.4%
16
(6.4%)
27
18
17
11
26
23
Notes: Operating profit is defined as profit from normal activities before finance (earnings before interest and tax).
(1) Hapag Lloyd Container Line’s operating profit before interest is estimated. Operating result after interest for 2003 was 253 million euros.
(2) Matson’s operating income was adjusted to exclude a one-time pension profit.
(3) Neptune Orient Lines is the parent company of APL (container shipping) and APL Logistics.
(4) “K” Line, MOL and NYK results are for their financial year ended March 31, 2004.
(5) International Shipholding Corp. is the parent company of Forest Lines and Waterman.
(6) Results for the shipping segment of the Sinotrans forwarding and shipping group.
(7) UASC figures are subject to approval by its board.
(8) Combined results for A.P. Moller group’s container-shipping, agencies, terminals and logistics activities.
(9) Evergreen Marine Corp. (Taiwan) is the listed arm of the Evergreen group.
(10) Including the logistics and land transport activities of P&O Nedlloyd.
* 2002 ranking is for CSX Lines, which was acquired by Carlyle Group in March 2003 and subsequently renamed Horizon Lines.
Source: Research by American Shipper, ComPair Data, the global liner-shipping database at www.compairdata.com, and carriers.
65
TRANSPORT / OCEAN
Table 3
Changes in carriers’ operating profits 2000-2003
Operating result (million $)
(in million dollars)
Note: the results for 2000 and 2001 of Maersk are those of the “Tankers and lIners in Partnership” arm of the A.P. Moller group; the
results for 2002 and 2003 are those of the container shipping, agencies, terminals and logistics activities of the A.P. Moller group.
American Shipper. “But it is important to
say that it is an integrated business.”
Analyzing the profit trends of container
shipping lines has always been difficult,
given the limited number of carriers that
release detailed figures on their container
shipping operations.
Nowadays, the consolidated results
of companies such as Evergreen Marine
Corp. (Taiwan) and Chile’s Compania Sud
Americana de Vapores are also getting hard
to interpret, because they include the results
of affiliated carriers. These subsidiaries
are not reflected in the parent company’s
consolidated revenues, costs and operating
results, as their profits or losses are shown
only as non-operating investment gains or
losses.
For example, Evergreen Marine Corp. reported that it doubled its operating income to
NT$5 billion ($147 million) last year. But an
additional improvement in its results came
from the near doubling of its “investment
income,” to NT$2 billion ($59 million). The
Taiwanese company confirmed that the rise
in its investment income came mainly from
the profits of Evergreen subsidiaries Lloyd
Triestino and other affiliates.
The rate of container traffic growth slowed
in the transpacific trade last year to about 9
66
AMERICAN SHIPPER:
JULY
2004
percent. Cargo volumes still increased an
estimated 8 percent globally to about 66
million TEUs, according to Global Insight.
Other sources put worldwide growth last year
at above 10 percent.
“As before, global container transport
grew faster than world trade in 2003,” TUI
said. “Besides the increase in world trade,
growth was spurred by the global division
of labor and new types of goods which had
not previously been shipped in containers,”
the German group said.
Rapid growth in volume absorbed the
additional ship capacity deployed by carriers in 2003.
“The perennial fears that the growth in
the volume of containers moved would be
insufficient to absorb the effect of the introduction of a significant level of newbuilding
tonnage were ... groundless,” OOCL noted
in its 2003 annual report.
Neptune Orient Lines reported that APL
has an average load factor of 94 percent in
the eastbound transpacific trade last year
up from 92 percent in 2002. In the Asiato-Europe trade its average ship utilization
improved to 101 percent from 98 percent
in 2002. In the transatlantic trade, APL’s
load factors increased both westbound and
eastbound in 2003.
However, APL reported a decline in load
factors in its Latin American services, to
an average of 66 percent in 2003 from 78
percent in the previous year.
Liner shipping at NYK generated revenues of Yen379.2 billion ($3.6 billion)
in the fiscal year ended March 31, up 17
percent from the previous fiscal year. NYK
reported “soaring demand on all routes” in
liner shipping, and said a tighter supply/demand situation “allowed us to restore freight
rates on trips on each route.”
The well-documented boom of Chinese
exports and imports has been cited as the
main factor behind the strength of worldwide
international container volumes in the last
few years.
“Business circumstances surrounding the
shipping industry, such as the remarkable
expansion of Chinese exports and imports
and stabilized economies of Europe/USA
contributed to tonnage moving in a brisk way,”
a spokesman for “K” Line said. “Against
this backdrop of circumstances, freight rates
improved in all business sectors.”
Sinotrans, the Chinese forwarding-toshipping group, reported its marine transportation arm increased revenue 43 percent
in 2003 to RMB2.8 billion ($336 million).
Containers shipped by Sinotrans rose 32
TRANSPORT / OCEAN
Table 4
Revenues, rates, traffic of major carriers 2001-2003
Carrier
2001
OOCL
Zim
APL
P&O Nedlloyd
CP Ships
Total 5 carriers
$1,972
$1,677
$3,584
$4,132
$2,646
$14,011
Revenues
(in $millions)
% chng 2002 % chng
’01/’02
’02/’03
2%
$2,017 37%
(2%) $1,639 24%
(4%) $3,425 22%
(1%) $4,075 18%
2%
$2,687 17%
(1%) $13,843 22%
2003
2001
$2,755
$2,038
$4,180
$4,818
$3,136
$16,927
$984
$1,255
$1,271
$1,298
$1,436
$1,252
Avg revenue
per TEU (in $)
% chng 2002 % chng
’01/’02
’02/’03
(9%)
$891
15%
(13%) $1,093
4%
(10%) $1,142 21%
(12%) $1,145 12%
(7%) $1,338
7%
(10%) $1,122 12%
2003
2001
$1,025
$1,132
$1,379
$1,287
$1,429
$1,258
2.005
1.336
2.820
3.184
1.842
11.19
Traffic
(in million TEUs)
% chng 2002 % chng 2003
’01/’02
’02/’03
13% 2.265 19% 2.688
12% 1.500 20% 1.800
6% 3.000
1% 3.032
12% 3.560
5% 3.743
9% 2.008
9% 2.195
10% 12.330 9% 13.460
percent in 2003 to 1 million TEUs from
about 769,000 TEUs in 2002.
“Once again, China has been a central
focus,” APL said. “Fueled by the continued
shift of sourcing from the Americas and
Europe, China’s phenomenal export trade
growth has been a real boost for the liner
shipping industry in general.”
Revenue, Rates. The most graphic evidence of shipping lines’ financial recovery
is higher freight rates.
OOCL made a profit again on its transpacific trade last year after a small, undisclosed
loss in the previous year, when it faced “unviably low rates.” But the Hong Kong-based
carrier reported its average transpacific
revenue per TEU increased 22 percent in
2003. Transpacific volume rose 12 percent,
resulting in a 37-percent jump in transpacific
revenue for the company to $1.3 billion.
A.P. Moller-Maersk said its group result
last year was affected in particular by “better markets and rates in U.S. dollars for
container services and for the large crude
carriers” and other factors.
In most container trades, freight rates
increased compared with the “low level”
in 2002, especially from second quarter of
2003, it added.
Based on figures from five major carriers,
higher revenues had a more pronounced effect in lifting their revenues in 2003 than increased cargo volumes (see Table 4, above).
And revenue from higher prices generally
has an immediate impact on shipping lines’
profits (see related story, page 68).
“The rate recovery during the year was
most pronounced in the head-haul trades
and, helped by improved use of our available capacity and equipment, the profit
contribution increased markedly from the
Asia-Europe, intra-Asia and transpacific
trades,” a spokesman for APL said.
South America. The SouthAmerican and
Latin American trades did not experience the
same recovery and increased freight rates as
the other container trades last year. In particular, the economies of Venezuela, Brazil
and Argentina languished, creating a negative
environment for traders and carriers.
Miami-based Seaboard Marine has seen
its operating income decline for a second
year in a row last year, to $5.8 million from
$16.6 million in 2002. The north/south carrier blamed Venezuela’s unstable political
and economic situation for its lower results.
The carrier’s average operating profit margin
declined to 1.4 percent of revenue in 2003
from 4.3 percent in 2002.
Seaboard Marine experienced a decrease
in average cargo rates and “a significant
decline” in volumes in the Venezuelan and
related markets, the company said.
However, Seaboard Marine increased its
operating income in the fourth quarter of
2003, a change that prompted the company
to say this may be “potentially indicating
better future operating results.”
Commercial activity in Venezuela has
not yet recovered from the general strike
that began in December 2002 and ended in
February 2003, Seaboard reported earlier
this year.
Hamburg Sud, the German liner and bulkshipping group, said its results from liner
shipping fell below expectations last year.
Brazil, an important country for the group,
struggled with stagnation last year. This led
to a continuing imbalance between weak
containerized cargo volumes to Brazil and
stronger exports from that country, Hamburg Sud said. It also cited start-up losses
following the acquisition of the Asia/South
America liner services of Kien Hung and
of the North Europe/Mediterranean liner
services of Ellerman.
Although Hamburg Sud increased its
container carryings 44 percent last year to
1.1 million TEUs, group revenue in euros
climbed only 13 percent to 1.9 billion euros
($2.4 billion). The German group said the
dollar was weaker last year, and freight rates
were under “strong competitive pressure.”
Attempts by competitors to gain market share
in the trade from South America to North
America made it “difficult to push through
rate increases,” the German company said.
Crowley Liner Services increased its
operating income 15 percent last year to
$20.9 million, from $18.2 million in 2002.
However, Crowley reported a 0.2 percent decrease in average revenue per TEU last year.
“The average revenue decrease was a result
of competitive pressures in Latin America,
which was partially offset by rate increases
from the Puerto Rico and Caribbean islands
Service,” the company said.
More For 2004. Most containership
operators and diversified shipping groups,
including CP Ships, Neptune Orient Lines/
APL, Hanjin, NYK and MOL, expect to increase their profits again this year — despite
the increasing cost of bunkers and vessel
charter-hire.
Having increased its operating profit
36-fold in 2003 to 432 billion Korean Won
($370 million), Hanjin Shipping expects to
boost its operating result 13 percent this year
to Won 600 billion ($520 million).
“We have set our target revenue for 2004
to Won6 trillion (approximately $5.2 billion)
and operating profit to Won600 billion (approximately $520 million),” Won-pyo Choi,
president of Hanjin Shipping, told a recent
meeting of shareholders.
“This year will continue to be better, although there will be a shortage of container
(equipment) supply,” said Lee, at Wan Hai.
“That will nurture rate increases in intraAsia and the transpacific.”
A.P. Moller-Maersk predicted that the
overall result for its container shipping
activities will be above 2003.
CMA CGM expects the boom in the container shipping market to continue this year.
“The markets were buoyant in 2003 and we
can expect them to remain so in 2004,” said
Jacques Saade, chairman of the company.
MOL predicts it will raise its container
shipping revenue another 15 percent to
Yen370 billion (about $3.5 billion) during
67
TRANSPORT / OCEAN
the current fiscal year ending in March
2005, and will lift its operating profit from
these activities 50 percent to Yen30 billion
(about $300 million).
CP Ships said continued strong volume
and further freight rate improvements will
outweigh the negative effect of a weaker
dollar and higher charter renewals this year.
Earnings in 2004 will exceed those of 2003,
the company said.
In a climate of strong optimism in the
shipping business, five concurrent signals
suggest the container shipping market will
continue to favor carriers and lift their profits
this year:
• First-quarter profits of companies
like APL, CP Ships, P&O Nedlloyd and
Evergreen Marine Corp. are well ahead of
last year’s quarterly results.
• Latest cargo volumes statistics in the
transpacific and Asia-Europe trades have
shown relatively sustained growth, particularly between Asia and Europe, rather than the
sharp slowdown that some had predicted.
• Shippers have accepted increases in
freight rates in the last few months, notably
in the eastbound transpacific trade.
• The stock market listing of P&O Nedlloyd has been well received by investors,
and the initial public offerings of China
Shipping Container Lines and Hapag-Lloyd
have been announced.
• A record amount of new ships has
been ordered from shipyards until the end
of 2006, which suggests optimism among
ship operators and owners.
Although the consensus view in the
industry is that the delivery of new ships
will not destabilize the market this year,
Hamburg Sud recently asked questions
about the eventual impact of all the new
container vessels due to be built.
“Certain question marks hang over the
assessment of developments beyond 2005
in view of the considerable newbuilding
orders for containerships already in the
pipeline up to 2007,” the group said. “The
yards’ order books indicate a marked increase can be expected — especially in large
post-Panamax tonnage above 5,500 TEUs
— and this will find its way into the major
Far East trades,” it added.
Yet, equity analysts Dresdner Kleinwort
Wasserstein Securities said in a May 12
investment note that vessel capacity growth
will undershoot demand growth this year.
“Industry demand growth remains in the
9-10 percent range,” it said. By contrast,
ship supply growth is expected to be 7.5
percent in 2004 and 8-9 percent in 2005,
the analyst said. “This implies that load
factors should continue to rise for the next
two years at least.”
Dresdner Kleinwort Wasserstein Securi68
AMERICAN SHIPPER:
JULY
2004
ties predicts freight rate will continue to
increase, though a slower pace. The price
increases “are likely to more than absorb
adverse currency, fuel and charter costs,
driving profitability,” it added.
Despite a bad profitability track record
and years of cyclical instability, it now looks
as if container shipping could be a sound
investment, after all — as well as more
expensive service for its customers.
Cost pressures on carriers
C
ontainer shipping lines have
increased their productivity for
administrative tasks, but they have
little control over rising bunker costs, more
expensive vessel charter-hires and the depreciation of the U.S. dollar on the foreign
exchange.
Albert A. Pierce, managing director of the
Westbound Transpacific Stabilization Agreement, told the Agriculture Ocean Transportation Coalition meeting June 4 that carriers’
costs associated with equipment and cargo
imbalances have risen, as well as the cost of
buying marine fuel, chartering containerships
and purchasing new containers in China.
“Charter rates have soared, more than
doubling in the past two years,” Pierce
said. “Daily rates for a 2,900-TEU ship
have risen from $11,400 in early 2003 to
$31,500 today. One Pacific carrier recently
made headlines with a record-setting charter
of $43,000 a day for a containership in the
4,000-TEU range.”
On average, carriers now charter 48
percent of their transpacific vessel capacity,
according to Pierce. “Some major carriers
charter as much as 75 percent, and some
smaller operators charter all,” he said.
“In part this reflects changing strategies
following the airline model, in which a set
lease term offers greater service flexibility
and reduced financial risk down the road for
ships now costing at least $90-100 million
each to build,” Pierce said. “But the shift to
charters also reflects a scramble for vessel
capacity of any kind.”
Pierce reported that buying a new container today costs 40 percent more than
some six months ago, because of a shortage
of steel. “An average 20-foot unit increased
during that time from $1,400 to $1,950,” he
said. “An average 40-foot unit was up from
around $2,200 to $3,000.”
Pierce related that a member carrier of
the Westbound Transpacific Stabilization
Agreement “was recently informed by its
Chinese container supplier that only half
of its latest order could be filled due to the
steel situation,” he said. “Container leasing
rates have also been rising.”
Compania Sud Americana de Vapores,
the parent company of Norasia, Libra and
Montemar, said its operating costs in 2003
grew faster than its volume due to increasing
bunker and vessel charter-hire expenses.
OOCL said its vessel costs increased 22
percent in 2003 overall, “with a notable rise
in charter-hire expenses as charter-hire rates
inflated significantly during the year.”
OOCL reported that its bunker costs
soared more than 40 percent in 2003, with
the average bunker price per ton rising 16
percent to an average of $167 last year
from $143 in 2002. The unstable political
environment in the Middle East will also
increase carriers’ fuel bills this year.
A large container shipping line burns
more than one million tons of bunker fuel
every year.
CP Ships said it bought 1.6 million tons
of bunker fuel in 2003, at an average price
of $162 per ton. This was 17 percent more
expensive per ton than the $138 price paid
in 2002.
NYK forecasts that its average bunker price
for the financial year ending in March 2005
will be $174.37 per ton, up from $163.78 in
the fiscal year ended March 31, 2004. NYK
calculated that a $1 change per metric ton in
the price of bunker oil alters its annual profit
by Yen300 million ($3 million).
Several carriers continued to try to reduce
their costs last year, but they appear to have
found it harder to yield results from their
latest programs.
CP Ships reported cost pressures from
higher vessel charter rates and the adverse
effect on costs of the weaker U.S. dollar in
2003. After years of cutting its unit costs,
CP Ships saw its cost per TEU rise again
by 6 percent in 2003.
P&O Nedlloyd made annualized cost
cuts of $301 million over 2002-2003 before
restructuring costs of $28 million in 2002
and $19 million in 2003. These fell short
of P&O Nedlloyd’s target of $350 million,
mainly due to increases in ship charter rates
and a growth in trade imbalances at the end
of 2003, the company reported.
OOCL’s vessel and voyage cost per TEU
— including bunker costs — averaged $234
per TEU in 2003, 11 percent more than in
2002. The carrier’s average equipment and
repositioning cost per TEU rose 2 percent
last year to $166. Its average cargo cost per
TEU — including terminal charges, inland
transportation costs, commission and brokerage, cargo assessment and freight taxes
— increased 4 percent to $467. By contrast,
OOCL’s business and administrative cost per
TRANSPORT / OCEAN
TEU dropped 3 percent to $121.
Other carriers are also believed to have
reduced their administrative costs through
the centralization of customer service centers and greater automation of documentation tasks.
The positive effect of the increase in
freight rates in 2003 was “dampened by
continued higher rates for chartered tonnage, high fuel prices and increased imbalance in global trade,” a spokesman for A.P.
Moller-Maersk said when it published its
2003 results.
“Maersk Sealand continued its endeavors to reduce operational unit costs and
vessel operating expenses and to increase
productivity, including the amalgamation
of a number of administrative functions,”
the group added.
As all but a few containership operators
are now based outside the United States, the
depreciation of the U.S. dollar last year has
also affected their results.
Atlantic Container Line boosted its operating income 23 percent in 2003 to 16 million
euros ($20 million) from 13 million euros
a year earlier, despite a fall in revenues in
euro due to the weak U.S. dollar.
“Revenue in U.S. dollar terms improved
by 15 percent but because of the currency impact, our revenue in euros actually dropped,”
said Andrew J. Abbott, president and chief
executive officer of ACL.
NYK reported that the appreciation of
the Yen against the U.S. dollar during the
latest fiscal year had a negative impact of
Yen10.8 billion (about $100 million) on its
group profit for the year.
Hyundai Merchant Marine reported a net
deficit of 21.1 billion Korean Won ($18 million) in 2003, despite an improvement in its
operating income for 2003. “The main reason
why we had such a big loss ... is first, based
on the exchange rate,” a spokesman for the
Korean shipping company said. “In addition,
as a process of company restructuring, Hyundai Merchant Marine disposed of tangible
assets, so we had a temporary loss.”
For carriers, charter costs have continued
to increase this year.
In the first quarter of this year, increases
in charter rates on renewals and new charters
added about $5 million to charter costs to
APL’s costs. The company estimates that
the annual impact of higher vessel charter
rates is about $22 million.
CP Ships’ operating costs jumped 16
percent in the first quarter to $799 million,
from $689 million in the same quarter of
2003. The Canadian-registered container
shipping group said the adverse impact of
higher ship charter costs was about $10 million in the latest quarter. Other operational
costs, mainly inland transport and terminal
U.S. ag shippers decry Pacific rates
SAN FRANCISCO
U.S. shippers of agricultural goods to
Asia attending the Agriculture Ocean
Transportation Coalition annual meeting
June 4 in San Francisco told carriers that
large freight rate increases and declines
in service levels make it more difficult
for them to find markets in Asia.
Regarding liner carrier rate increases,
Hayden Swafford, executive director of
the Pacific Northwest Asia Shippers Association, told carriers to “temper” their
actions. “As you increase your rates, you
diminish our ability to compete in the
global market.”
“If lumber prices are too high from
the U.S. to Japan, (Japanese buyers) will
go somewhere else,” Swafford warned.
“Shippers will switch markets if price
becomes too high.”
Diane Eicher, a manager for produce
exports at freight forwarder Coppersmith,
told carriers, “it’s great you can divide up
(rate increases) by pennies per orange, but
it’s a big shock when your customer gets
a $600 charge on their container.”
“Rates are already all over the place,” she
added. “It’s total chaos in the market.”
Sheila Bracken, manager of transportation and export operations for Allenberg
Cotton Co., based in Cordova, Tenn., cited
the problems with diminishing carrier customer service levels. “Our reputation as an
on-time supplier is diminishing quickly.”
“There’s nothing produced in the United
States that can’t be produced in multiple
countries around the world,” Bracken
said. “What we’re trying to do is keep
transportation costs competitive for ag
shippers.”
Transpacific carriers of the Westbound
Transpacific StabilizationAgreement have
already raised westbound rate this year on
some commodities, and are seeking to
increase prices in June and July on other
commodities such as citrus, apples and
pears. They have postponed westbound
rate hikes on beef and poultry for the time
handling, were also higher. Fuel costs were
down $5 million in the quarter mainly due
to lower prices.
“Charter renewals for 24 ships at more
expensive rates during 2004 are estimated
to have a $35-million adverse impact on
full year 2004 operating income,” CP Ships
warned. “This is in addition to the estimated
incremental cost of $17 million in 2004 for
26 charter renewals last year.”
CP Ships said it reduced its fleet from 80
being, as U.S. exporters continue to face the
impact of import bans on American beef
and poultry by Asian governments.
Albert A. Pierce, managing director of
the Westbound Transpacific Stabilization
Agreement, told the Agriculture Ocean
Transportation Coalition meeting that carriers faced increasing costs associated with
equipment and cargo imbalances, as well
as the cost of chartering containerships and
purchasing new containers in China.
Pierce suggested that container carriers
may no longer accept non-compensatory
rates on westbound Pacific shipments.
“Not long ago, carriers and shippers
viewed the westbound dry cargo segment
as a backhaul market, in terms of pure
supply and demand,” he admitted. “With
vessel utilization at 50 to 60 percent, any
contribution to round trip cost that filled
your ship at the expense of your competitor was considered good business.”
But in today’s market, carriers seek to
turn the containers fast, and “must be very
careful what they load westbound” taking
into account factors such as the additional
equipment time, handling and cleaning
costs. “If the overarching concern is
repositioning for the eastbound load, it
may well be more attractive to keep the
container empty (westbound),” he said.
“No added drayage, minimal cleaning,
maintenance and repair, and the box
moves directly from the pier in Asia to
where it has been promised.”
Pierce said transpacific carriers have
revised westbound rates on a commodityspecific basis, coinciding with seasonality
and changing market conditions. “Most
dry cargo has taken increases of $100 to
$200 per forty-foot-equivalent unit, while
most refrigerated commodities have seen
increases in the order of $300.”
“In certain cases where minimum rates
have been established, the new rates after
contracts expire may see larger increases,
to offset earlier mitigations and postponements,” he added.
ships on Dec. 31 to 76 ships on March 31
“due mainly to the restructuring of services
to offset the adverse impact of higher ship
charter costs.”
The company aims to lower costs by $35
million on an annualized basis this year,
most of which is expected to contribute to
the 2004 result.
Carriers have cited rising vessel charter
costs as the reasons for further increases in
freight rates.
■
69
Lines sink on service
C
arriers’ cost-cutting programs and full ships are
resulting in a deterioration of the level of service
that shippers are receiving, according to major
exporters and importers.
“Customer service is disappearing,” said Geoffrey Giovanetti, managing director of the Wine and Spirits Shippers’
Association, based in Reston, Va.
He believes this trend has been in the making for several
70
AMERICAN SHIPPER:
JULY
2004
years, as carriers reduced their cost of
handling routine tasks by moving them to
centralized, offshore service centers located
in India, China or Central America.
“When you talk to a customer service
center, you don’t know in which part of the
world the other person is located,” he told
American Shipper.
Giovanetti also sees a causal link between
the likelihood of short shipments and the
load factors of vessels.
“Carriers may think: ‘Should I take this
box of tires or should I take somebody else’s
cargo paying a higher freight?” he said.
It is now generally accepted that, using
yield management computer tools, carriers
Several shippers note
decline in the ocean
carriers’ customer
service, reliability.
BY PHILIP DAMAS
select the most profitable cargoes and turn
down other shipments when their assets
are fully used, unless there are prior space
guarantees for specific shipments.
Jean-Louis Cambon, head of the ocean
management committee of Michelin at
the company’s headquarters in Paris, told
the recent Containerization International
conference in London that his company
suffered serious, repeated service failures on
the part of several Europe/Australia ocean
carriers in the past few months.
For example, a 40-foot shipment from
Fos, France, to Newcastle, Australia, missed
two connecting ships at a transshipment hub
in the Mediterranean. The cargo arrived 55
days after loading, instead of 36 days later asked. “The higher the vessel utilization, the
as planned, Cambon said.
poorer the quality of service. And inversely,
This was not an isolated case, but one the lower the utilization, the more careful
example to illustrate the problem, said carriers are.”
Cambon, the executive responsible for
“The customer service levels of steamship
shipping at Michelin and a former carrier lines have never been their strong point,”
executive with OOCL.
said Hudson R. Warren Jr., senior director
“We have had countless incidents of of global transportation and customs complicargo being accepted at load port, then kept ance at Herbalife, based in Carson, Calif.
idling in some Southeast Asian or European
Ocean carriers have traditionally invested
transshipment hub, with estimated times of in ships and terminals. “But they don’t
arrivals delayed by two to four weeks,” he seem to have the same focus on computer
complained.
systems that interface with customers,”
“All of this with, most of the time, no in- Warren said.
formation from the concerned carriers as to
He reported problems obtaining accurate,
the whereabouts of the boxes ... consignees timely bills of lading from carriers. He noted
up in arms, commercial staff at the product that it is common for carriers to require
line in high temper,” he added.
shippers to “check their (the carriers’) work”
Cambon noted that ship capacity problems before issuing the B/Ls. But even then, B/Ls
have been “very serious” since November on may be erroneous, he said.
the Europe/Australia
“Part of this is the
route.
worldwide consolida“In these circumtion of customer serstances, it looks like
vice centers in places
carriers are quicker at
that have no tradition
withdrawing capacity
of transportation,”
when there is a slack in Geoffrey Giovanetti
Warren said, referring
managing director,
demand — post-Chito centralized customWine and Spirits
nese New Year on the
er service centers in
Shippers’
transpacific, for inChina, India and other
Association
stance — than adding
offshore locations.
capacity when there
Documentation
“Carriers may think:
us a cargo surge,”
and billing have also
he said.
become harder for
‘Should I take this box
But the recent
carriers because of
of tires or should I take differing charges indecision of several
carriers to add capaccluded in shippers’
somebody else’s cargo
ity between Asia and
contracts. “In the old
Australia may help paying a higher freight?’ ” days, everybody paid
relieve congestion
the same thing,” Warfor cargoes shipped
ren said. “Today’s serfrom Europe to Australia via Asia, Cam- vice contracts are more complex than ever.”
bon said.
Herbalife has also experienced problems
In tight capacity situations, ocean carriers with the shipment arrival notices produced
look inwards, and seek to capitalize on the by carriers, and the accuracy of the invoices
problem, Cambon suggested.
and rates that they charge.
“No one will dispute that revenue increase
— not customer service — is the only goal Possible Reasons. A major American
in the game,” he said. “We find ourselves chemical shipper, who asked not to be
in a very frustrating scenario where we end named, said blaming offshore carrier service
up paying more for freight than before for centers for the decline in customer service
a poorer service.”
“is an oversimplification.”
This led Cambon to propose that there
“We saw some problems at the beginexist a reverse relationship between quality ning, which is natural,” he told American
of service and the load factors of vessels.
Shipper. “After a period of time, they seem
“Is service quality becoming inversely to get better.”
proportional to vessel utilization?” he
The chemical shipper believes the main
71
LOGISTICS
factor may be the “zeal” carriers have
shown in reducing staff numbers in their
organizations.
“They have cut their resources so far that
they don’t have enough people,” he said. For
example, sales executives no longer have
“inside sales” assistants to take phone calls
or enter dates into spreadsheets to produce
reports, he said.
Warren related a recent bad experience
caused by the inability of the Canadian
office of a carrier to follow an international
agreement made between the carrier and
Herbalife. Carriers have a problem communicating information pertaining to customers to their offices worldwide, he said.
“A lot of it comes back to systems,” he
said.
“We also deal with other transportation
companies, like the integrators,” he noted.
“They can make an agreement and their
offices in Singapore, Amsterdam and elsewhere understand it and implement it.”
Warren believes carriers’ IT systems
evolved from accounting systems that were
later extended to include documentation
and other tasks. This approach did not put
enough emphasis on the needs of shippers,
he said.
Herbalife itself “had to build a global
non-conformance system” to monitor carrier services, Warren said. The company’s
internal system ensures that, if a carrier’s
service fails to match the expected standard
of service, the incident is detected and
monitored by the transportation department
at its head office.
“This allows us to notify the carrier almost
immediately,” Warren said.
Is it the job of shippers to alert carriers of
their service failures? Warren replied that
this feedback by a customer helps carriers
look for the root causes of their performance
failures.
“Some are appreciative of that,” he said.
“Some have improved. If we can play a role
in helping carriers in a way that is not too
onerous, we’re happy to do that.”
By definition, short shipments and space
shortages are more widespread when ships
are full, Giovanetti said. But he questioned a
direct link between full ships and the overall
quality of service.
“If ships are full, you clearly see that
cargoes are left behind,” said Alain Morin,
sea liner manager at the European chemical
group Atofina. “It was the same thing last
year in the transatlantic.”
Morin believes there is a link between
quality of service, including the avoidance
of short shipments, and the level of freight
rates.
Shippers should pay “correct rates,” he
said, meaning rates that are sufficient to
72
AMERICAN SHIPPER:
JULY
2004
commercial repercussions,” Morin added.
However, a U.S.-based chemical shipper said transshipment, in his experience,
“is not a major issue. Transshipment was
there before.”
“I would hope that carriers
do realize that they have
customers in bad times
as well as good times. We
are looking for a sustained
quality of service which
cannot be a function
of where we are in the roller
coaster shipping cycle.”
Jean-Louis Cambon
head of ocean
management committee,
Michelin
allow the carriers to maintain services at a
profit. On occasions, Morin has even asked
carriers, on his own initiative, to increase the
rates they were billing his company, because
he feared that they would eventually lead to
poor service levels.
“There are choices to be made,” he said,
stressing the importance of maintaining
a reliable supply of transport services for
basic chemicals.
Some shippers believe the greater use
of transshipment among cargoes makes
container shipping more prone to missed
feeder connections and late arrivals.
“The practice of transshipment does not
work,” Morin said. “In the last month, we
had 10 failed connections.” He recognized
that missed feeder connections account for
a minute percentage of total shipments, but
pointed out that they can result in delays
running into several weeks.
“You lose your customer ... It has major
Conditions By Trade. “Short shipments,”
“cargo shutouts,” “rollovers” and “bumping
cargo” — different terms used when containers miss the intended vessel — occur at times
of very tight market capacity or capacity
shortages in a specific trade route and only
in the headhaul direction. This happened in
the eastbound transpacific trade in the peak
season of 2002 and, to some extent, in the
westbound transatlantic trade in 2003.
Cambon told American Shipper the severe service problems his company faced
with carriers in the Europe/Australia trade
were not common on other trade routes at
present. From Europe to Asia, ships are not
full and Michelin has no problem finding
space, he said.
In the westbound transatlantic trade, the
tire manufacturer has faced cases of insufficient capacity, but it has held discussions
with carriers to resolve the situation by
securing capacity, he added.
Referring to the Europe/Australia capacity problems, Cambon believes that such
patterns of inconsistent service should be
addressed.
“I would hope that carriers do realize that
they have customers in bad times as well as
in good times,” he said. “We are looking for
a sustained quality of service which cannot
be a function of where we are in the roller
coaster shipping cycle.”
Warren, at Herbalife, said carriers produce brochures on their services that promise certain transit times and performance
levels. “Sometimes they overpromise and
underdeliver,” he said.
Asked about short shipment and capacity
problems, Warren said: “For us, it’s not a
consistent issue.”
On transshipment delays, Warren said:
“In the South American trades, it’s been a
recurrent issue, with missed transshipment
and port bypasses.”
Warren sees no logic in the argument that
the customer service of carriers may be low
because rates are too low. “Perhaps their
costs are to high,” he suggested.
Defining Service. “Service is a fugitive
thing,” Cambon acknowledged. “It leaves
no tangible trace behind it.”
But service level is crucial, and leaves
the user in a state of mind that ranges from
“yahoo!” to “never again” or plain indifference, he said.
“Service quality is highly important to
shippers because, at the end of the day, it is
LOGISTICS
for a good part of what determines our ability
to retain, win or lose customers,” he said.
Michelin’s policy is to try and sell under
Incoterms CIP (Carriage and Insurance Paid
to a place of destination) or CFR (Cost and
Freight to a port of destination) whenever
possible.
“We want to extend the concept of ‘quality
product’ into ‘quality delivery’,” Cambon
explained.
“If one does not match the other, we have
no other solution (but to) suspend the carrier
concerned, until it is able to perform correctly
again,” he noted. “And we have exercized this
option a few times recently.”
Competition in the international tire
business is “very severe” and requires a
constant attention to costs, including major
costs such as transportation and logistics,
the company stressed.
With more than 70 production sites worldwide, Michelin produces 180 million tires
and 22 million maps and guides a year. The
French group features among the 10 largest
exporters in Europe. It ships about 145,000
TEUs a year of finished and semi-finished
products, raw materials, synthetic and natural
rubber. These are shipped on east/west as well
as on north/south routes, using 65 shipping
companies and 120 ports worldwide.
Shippers are paying attention to pricing
and capacity changes in the cyclical container shipping market.
“Boom-and-bust” phases in container
shipping mean a mismatch between supply
and demand, “which incites carriers, with
the help of conferences, to try and recover
at the top of the cycle what they have lost at
the bottom of the cycle,” Cambon said.
“Today, the concern almost every one
has on his mind is: ‘When is the next bust
coming around? End of 2004? In 2005? In
2006?’ ” he said.
He reported research from the British
shipbroker Clarkson that showed that the
financial commitment to new containerships
during the past 11 months was more than
five times the investment made during the
corresponding period of 2002.
Cambon also described as “staggering”
the fact that the current orderbook of new
ships amounts to 2.5 million TEUs, or 40
percent of the current worldwide fleet of
containerships.
“When I started in the industry in the late
1970s, the motto was that conference pricing was creating a level playing field, as a
consequence of which competition among
all conference carriers would theoretically
only exist on service quality,” he said.
But he discarded this model as “theory.”
The assumed level playing field on prices
has disappeared, and “conference service is
no longer a guarantee of a better service,”
74
AMERICAN SHIPPER:
JULY
2004
Cambon said.
“A number of major carriers operating as
non-conference have developed powerful
networks and offer quality service which
sustains comparison with traditional conference carriers,” Cambon noted.
In times of tight capacity, the ability of
carriers to discuss rates “emboldens” them
to introduce general rate increases, rate
recoveries and peak-season surcharges “to
a level that would not be possible absent
this ability to collude,” he said.
A critic of carrier conferences, Cambon
questioned the need for carriers to discuss
prices, a topical issue in Europe since the
European Commission started a review of
the conference antitrust immunity law, EC
Regulation 4056/86.
“How can collective price-fixing in
liner shipping continue to exist whereas
a strong liberalization wind is sweeping
all other European industrial sectors?”
Cambon asked.
Asked whether Europe should narrow
the immunity of price-setting conferences
by allowing only discussion agreements,
Cambon replied: “I believe discussion
agreements are another form of conferences.
Prices should not be discussed” among carriers.
■
Carlyle Group sells Horizon Lines
Debt remains issue in U.S.-flag line’s sale
to private equity firm Castle Harlan.
NEW YORK
The aftermath of The Carlyle Group’s
“definitive” agreement in May to sell
Horizon Lines to Castle Harlan, another
investment firm, has not been as smooth
as the principals anticipated.
The Carlyle Group, a private equity firm
based in Washington, D.C., acquired 84.5
percent of Horizon Lines LLC, a U.S.-flag
container shipping and technology company based in Charlotte, N.C., in February
2003.
Horizon Lines, which was then called
CSX Lines, was sold to Carlyle by CSX
Corp. for $315 million, of which Carlyle
invested about $80 million.
At that time, Gregory Ledford, a managing director of The
Carlyle Group, told
American Shipper his
firm normally thought
of a five-year time
frame for retaining an
acquired company.
“We’ve gotten out
of some deals as early
Ledford
as 18 months, and in
others, we’ve been there over 10 years and
more,” Ledford said.
The sale of Horizon Lines comes 15
months after Carlyle acquired it.
“Timing is everything,” Ledford said
in an interview after the sale to Castle
Harlan, a New York-based private equity
company, had been announced. “Horizon
Lines has exceeded our expectations with
increased revenues aided by an improving
economy.”
Asked why Carlyle had moved faster
than usual in divesting itself of a property
acquired with considerable fanfare, Ledford
said, “Horizon Lines is hot, really hot. This
sale benefits everyone concerned.”
Castle Harlan agreed to pay $650 million
for Horizon Lines. Immediately, there was
talk in the New York financial community
of how much was equity and how much
was debt.
In the spring of 2003, The Carlyle Group
wasn’t reluctant to say how much it had
invested in acquiring Horizon Lines. Yet
in 2004, Castle Harlan did not reveal its
equity stake.
Within a few days of the sale to Castle
Harlan, Standard & Poor’s Ratings Services
placed its ratings, including its ‘BB-minus’
corporate credit rating on Horizon Lines, “on
CreditWatch with negative implications,”
according to a statement from Standard
& Poor’s.
“If the acquisition is financed with a
substantial amount of debt, Horizon Lines’
credit profile may weaken to a level no
longer consistent with the current rating,”
said Kenneth L. Farer, associate director,
corporate & government ratings for Standard & Poor’s Ratings Services.
In a subsequent interview with American
Shipper, Farer indicated that the amount
of debt involved was
a major concern to
Standard & Poor’s.
Charles G. “Chuck”
Raymond, chairman,
president and chief
executive officer of
Raymond
Horizon Lines, lost no
time in saying that Standard & Poor’s action
was “nothing unusual and nothing to be concerned about. It is standard procedure when a
company goes through refinancing that could
CLM_2004AD_AmShip.qxd
6/8/04
5:17 PM
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LOGISTICS
involve more debt (for that company) to be put
on CreditWatch. It does not mean in any way
that the company is at risk. It simply means
that rating of its debt, used to price bonds
and other debt, will be reviewed.”
On June 3, the financial press in NewYork
reported that Horizon Lines would shortly
hold a bank meeting for a proposed $275million bond offering. The company was
also said to be seeking a $250-million term
loan from three banking institutions: UBS,
ABN Amro, and Goldman, Sachs, as well as
a $25-million revolving credit facility.
According to Prospect News’ High Yield
Daily, proceeds from the debt transactions
“will be used to help fund” Castle Harlan’s
acquisition of Horizon Lines.
The $250-million term loan would be
secured by Horizon Lines’ 16 vessels as
collateral. The $275-million bond offering
would be unsecured.
By American Shipper’s calculations,
confirmed by financial sources but not by
principals to the Castle Harlan agreement,
Castle Harlan would provide equity in the
range of $125 million to $150 million.
Marcel Fournier, the Castle Harlan managing director who led negotiations for his
firm’s acquisition of Horizon Lines, refused
to comment about what remained debt.
In an interview, he said Horizon Lines
“will function as an autonomous entity. We
have every confidence in Raymond and his
strong management team.”
Fournier confirmed that the exact buyer of
Horizon Lines had been Castle Harlan Partners IV LP, an investment fund totaling $1.163
billion that closed in September 2003.
Castle Harlan generally holds on to its
acquired companies for at least three years,
Fournier said.
Goldman, Sachs, at the request of The
Carlyle Group, prepared a proposal intended
for investors who might be interested in
Horizon Lines. That proposal noted that
the “recapitalization transaction” by which
Carlyle originally acquired Horizon Lines
“took close to a year to consummate.” The
sale to Castle Harlan could also require
substantial time.
The proposal noted that the Jones Act,
which limits maritime trade between U.S.
ports exclusively to U.S.-owned, U.S.-built
and American-crewed ships, “establishes
significant barriers to new industry entrants
and helps provide” Horizon Lines “with
stable and predictable revenue growth.”
Another strong point in the company’s
favor, the proposal asserted, was a loyal
and diversified customer base, including
such clients as Wal-Mart, Ford Motor Co.,
the U.S. Postal Service, Procter & Gamble,
Toyota, Johnson & Johnson, Heinz, and
Coca-Cola.
Kenneth Farer, Standard & Poor’s analyst,
essentially agreed. Farer said that, while the
low rating reflected Horizon’s Lines “high
debt leverage, participation in the capitalintensive and competitive shipping industry, and relatively older fleet,” those risks
“are somewhat offset” by trade protections
provided by the U.S. Jones Act and “stable
demand” from Horizon Lines’ customers.
The operating margins for Horizon Lines,
before depreciation and amortization,
“have average 13 percent over the past few
years, adequate for a shipping company,”
Standard & Poor’s Ratings Services said
in a statement.
The Goldman, Sachs proposal divvied
up the operational sectors of Horizon Lines
as follows:
• Alaska division: three vessels, 41
percent market share, 429 employees; fiscal
year 2003 revenue, $217.9 million.
• Charlotte, N.C., headquarters, 46
employees.
• Dallas (an “administrative center”),
190 employees.
• Puerto Rico division: five vessels, 33
percent market share; 410 employees, fiscal
year 2003 revenue, $273.9 million.
• Hawaii/Guam division eight vessels
(one spare), 36-45 percent market share,
584 employees, fiscal year 2003 revenue,
$339.9 million.
While Horizon Lines’ Dallas-based
technology division is part of the acquisition, Marcel Fournier indicated that Castle
Harlan’s major interest was in the company’s
ships.
Castle Harlan was established in 1987
by John K. Castle, formerly president and
CEO of Donaldson, Lufkin, & Jenrette, an
investment banking firm, and Leonard M.
Harlan, formerly chairman of The Harlan
Co., a real estate and corporate finance
advisory firm.
According to Fournier, Castle Harlan’s
portfolio of 13 acquisitions — prior to
Horizon Lines — comprises AdobeAir Inc.,
Advanced Accessory Systems, Associated
Packaging Technologies, Austar United
Communications Ltd., Australian Mezzanine Investments Pty. Ltd., Charlie Brown’s
Inc., Gravograph Industrie International,
Luther’s Bar-B-Q Inc., Marie Callender’s
Restaurant & Bakery, McCormick &
Schmick Management Group, Morton’s
Restaurant Group, Sheridan Australia and
StackTeck Systems Inc.
In recent years, Castle Harlan owned but
has divested itself of Aerolink International
Inc.; American Achievement Corp., Carret
and Co., Delaware Management Holdings,
Education Communications Inc., Equipment Support Services Inc., Ethan Allen
Interiors Inc.; INDSPEC Chemical Corp.,
Ion Track Instrument, Land ‘N’ Sea Distributing Inc., MAG Aerospace Industries
Inc., Smart Carte Corp., Statia Terminals
Group N.V., Taylor Publishing Co., Truck
Components Inc.; Universal Compression
Inc., US Synthetic Corp., Verdugt Holdings
LLC, and Worldwide Flight Services Inc.
Horizon Lines will be Castle Harlan’s
only ocean carrier subsidiary, Fournier
explained.
■
Bruner to head Maersk Inc.
MADISON, N.J.
A.P. Moller-Maersk, the Danish container
shipping and logistics services company,
has named Russell Bruner president and
chief executive officer of Maersk Inc., the
parent company’s U.S.
subsidiary.
Bruner, senior vice
president of Maersk,
Inc., will succeed
Thomas Thune Andersen, who will become
a partner of the A.P.
Moller-Maersk Group
Bruner
in Copenhagen.
In a statement, A.P. Moller-Maersk said
the shift in jobs was due to “the sudden
resignation” of Kjeld Fjeldgaard, a partner
of A.P. Moller-Maersk in charge of oil and
gas activities, due to “a disagreement on
management issues.” Fjeldgaard’s resignation is effective July l.
Tommy Thomsen, Andersen’s predecessor as president of Maersk Inc., left
the U.S. subsidiary in 2001. Thomsen
also became a partner of the A.P. MollerMaersk Group.
Bruner joined Maersk Inc. in 1989. Within
the company, he has been director of the
Maersk Container Service Co. Inc., and
vice president of Latin America services,
before relocating to Sao Paulo, Brazil, as
president of Maersk South America Ltd.
As senior vice president, Bruner’s responsibilities included managing Maersk
Sealand’s liner services to and from North
America and Central America, the Caribbean and South America.
Bruner is the first American to head
Maersk Inc., since the tenure of Alfred B.
“Ted” Ruhly, who became president of the
company in 1978 when it was known as
Moller Steamship Co. Ruhly served in that
capacity until 1993.
“The actual transfer date” for Bruner to
take over Andersen’s job “will be later in the
year,” said Anne Marie Kappel, Maersk Inc.’s
director of corporate communications. ■
75
General average
Scope of 2,000-year-old legal
custom of the sea hits shippers, insurers deeply.
Some seek to exclude ‘port of refuge’ costs.
BY ROBERT MOTTLEY
A
2,000-year-old legal custom of the sea is costing shippers
and their insurers as much as $300 million a year.
The custom is called general average, and it goes to the
root of what shipping is about. Almost every bill of lading contains
rules and clauses pertaining to general average, yet many shippers are
unaware of the scope and expense of this pain in the wallet that is both
hoary and contemporary.
The very name “general average” creates confusion. In maritime
76
AMERICAN SHIPPER:
JULY
2004
insurance and shipping law, the term “average” means loss. A loss that is “general”
means that it can be spread among all parties
involved, instead of a “particular” loss that
affects specific interests only.
In ancient times, being caught in a storm
at sea frequently meant that, in order for a
ship to survive, “cargo had to be thrown over
the side. The captain would choose which
cargo to heave in an attempt to save the lives
of all on board, the cargo that remained, and
the vessel itself,” said Chester Hooper, an
admiralty attorney and partner in the firm
of Holland & Knight in New York.
“If a keg of wine had to go over the side,
everyone whose interest was saved by that
act would chip in to pay for the keg, so
everyone would suffer approximately the
same loss,” Hooper said.
In the Roman era, the Digest of Justinian
succinctly decreed: “if, in order to lighten
a ship, merchandise is thrown overboard,
that which has been given for all shall be
replaced by the contribution of all.”
That equable adjustment, no doubt arrived
at after numerous fights between shippers
and carriers, is possibly the oldest admiralty
tenet still observed to the letter.
even containerized cargo. The time-honored
principle of particular average states that
losses lie where they fall, meaning that the
party responsible pays without expectation
of help from anyone else.
General average is an exception to the
principle of particular average. “General
average refers to extraordinary sacrifices
made, or expenses incurred, to avert a peril
that threatens an entire voyage,” the legal
scholar Thomas J. Schoenbaum wrote in
his third edition of Admiralty and Maritime Law.
According to U.S. case law [Barnard v.
Adams, 51 U.S. (10 How.) 270, 1850], there
are three requirements that a sacrifice or
expenditure must meet to qualify as general
average:
• A common peril or danger must be
imminent.
• There must be a voluntary sacrifice
for the common benefit.
• The peril must be successfully
avoided.
Modern case law has put at arm’s length
the “imminency” of the peril. If the danger
is real and substantial, a sacrifice or expenditure made in good faith for the common
interest can qualify as general average,
even though catastrophe may be distant or
unlikely [Navigazione Generale Italiana
v. Spencer Kellogg & Sons (The Mincio);
(Second Circuit, 1937)].
There are limitations on general average.
Neither the shipowner nor cargo interests
may recover for loss or damage due to delay, such as demurrage, loss of market, or
deterioration of the cargo.
In the modern era, containers are rarely
jettisoned. Voluntary stranding qualifies for
general average, whether or not a storm was
involved. Salvage expenses may be included,
as long as the salvage effort was undertaken
for “the common maritime adventure.”
The vessel may also claim general average
damage to machinery and boilers, expenses
of lightening a ship when ashore, materials and stores burned for fuel in a time of
peril, and the loss of freight when cargo is
damaged. Freight, as cited above, means
compensation paid to a shipowner for carrying the goods.
General average may also include the
costs of a vessel putting into a port of refuge
for repairs, such as the expense of being
towed into port, pilotage fees, loading and
unloading cargo, as well as wages and maintenance for the crew for the period of time
the voyage was prolonged due to repairs.
Where Losses Fall. On any ocean
voyage today, despite the latest technology,
much can still go wrong that will damage
Implementation. The most common
occurrence of general average today is when
a ship goes aground. “Let’s say the master
and crew are competent and the vessel is
seaworthy, but an error of navigation runs
the vessel aground. The shipowner hires a
salvage tug to get the ship off the strand,”
Hooper explained.
If the ship can’t be saved, there is no
salvage and no general average, because
the venture is lost.
If the salvage is successful, the salvor has
the right to go to a Lloyd’s salvage arbitrator
in London, who will determine the award
the salvor is due for his efforts to save the
ship. Paying the salvor is often the largest
‘sacrifice’ today in general average.
Facing salvage and port costs, the shipowner will declare general average through
his insurance underwriter, who will ask a
professional average adjuster to prepare a
general average statement.
Average adjusters tend to work for brokerage companies. Some are freelancers, but all
are independent of other interests.
The adjuster will then demand security
from all cargo interests. If salvage is involved, the same adjuster also acts as the
agent for the salvor, demanding security
for salvage.
Since the shipowner has a possessory lien
on the cargo for general average, the vessel
owner won’t release the cargo until cargo
interests provide the requested security.
All interests that were saved have to send
in their security contributions, either in the
form of a bond from a reputable insurance
company, or a cash deposit, which is then
put into a trust account by the adjuster
pending the ultimate assessment of general
average.
Although almost all cargo is insured,
sometimes policies are with insurance
companies in developing countries, and
bonds from those insurers are not accepted
as adequate security. In that case, the cargo
owners would have to come up with cash
security.
At this point, still early in the adjustment
process, the adjuster produces a “guesstimate” of what he thinks the total general
average charges will be.
In the example at hand, the adjuster may
ask for 10 percent of the landed or delivered
value of the cargo. That’s the amount the
owner of the cargo must give the adjuster
in order to have the cargo released.
“Basically, the adjuster’s ‘guesstimate’
will be on the conservative side, but he’ll
want to make sure he has enough security,”
said Howard M. McCormack, an admiralty
attorney with Burke & Parsons in New York
and a past chairman of the Average Adjusters
Association of the United States.
There’s usually no shock and awe when
the final general average tab is presented,
77
TRANSPORT / OCEAN
which can be two or three years. “Most cargo
interests have a fair idea of what’s coming.
One reason for that is that the shipowner,
when he renews his insurance every year,
has to provide a list of potential claims,”
McCormack explained.
A typical general average adjustment
report in its final form can run 100 printed
pages, with six columns of figures on each
page. “It is a hefty document,” he noted.
Tedious Work; Ample Fee. Recipients
of the report — and courts of law if any
disputes are litigated — respect the work
of adjusters, and normally accept a general
average adjustment “as an account stated. It’s
like submitting a bill. You don’t question the
quantum of the bill,” McCormack said.
“The adjustment is accepted for the
accuracy of the figures contained in the
allocation. It is not proof that there was an
act of general average. Nor does the fact of
the adjustment’s existence settle the issue
of whether you are obligated to pay it,” he
cautioned.
A cargo interest that had been originally
asked by an adjuster to put up $20,000 in
security for release of cargo might, two years
later, find that same adjuster had apportioned
the amount owed as being $18,000.
In that eventuality, the cargo interest
would get back $2,000 from the initial
security that the adjuster had put into an
escrow fund.
Average adjustors charge fees for their
work, which are put in as a cost of general
average at the end of the process. “The
amount of such fees is determined by the
shift in general average monies — a very
complicated process to reckon,” said Ben
Browne, a solicitor and partner with the
firm of Shaw & Croft in London.
In any event, an adjuster’s fee usually
runs 10 percent of the total general average
award, plus another 10 percent for interest
and commission. If that seems like double
dipping, receiving both a fee and a commission, the governing custom goes back to a
time when fees were meager compared to
commissions.
Charging a total of 20 percent for their
work, “average adjusters do very well for
themselves,” Browne noted.
By comparison, literary agents will
charge a first-time author 15 percent of
advances and royalties, which drops to 10
percent for subsequent published work.
Organizations that book prominent speakers
charge from 25 percent to 35 percent of fees
received for engagements. Talent managers
for performing artists are paid as much as 40
percent for their all-inclusive services.
If the final general average adjustment is
disputed by any party, the matter is usually
78
AMERICAN SHIPPER:
JULY
2004
litigated in federal court.
“Cargo interests may tell the shipowner
that ‘you’re not entitled to general average
because your ship was unseaworthy. Furthermore, your master was incompetent, and
I’m not paying.’ The issue for a court then is
whether the ship was seaworthy. Everything
turns on that,” Hooper said.
“You’re then litigating as to whether the
shipowner exercised due diligence. If the
shipowner wins on that issue, the owner
recovers the general average,” he said.
Sacrifice. The principles of particular
average and general average often apply in
different ways to the same vessel incident.
Vincent De Orchis
attorney,
De Orchis and
Partners
“I would say there’s been
a trend for large
shipowners to overlook
general average ... because
they don’t want to spoil
relations with customers.
The carriers themselves
are absorbing any general
average expenses.”
If a ship hits rocks underwater, the damage
done to the cargo by the actual grounding is
particular average, not general average, “because it’s not a voluntary sacrifice,” Hooper
said. “The shipowner may not recover from
cargo interests for the damage caused just
by running aground.”
Similarly, in the case of a fire in a vessel
hold, a distinction is made between damage
by fire and damage from water hoses used
to extinguish the fire.
“The cargo that’s was already burnt by
the fire is a particular average, not general
average,” Hooper explained. “If the containers were soaked, the damage done by water
from fire hoses will be a general average
sacrifice.”
Also, as Schoenbaum noted, “the master of
the vessel must act reasonably, and there can
be no general average when he mistakenly
acts to put out a fire that does not exist.”
In short, not everything that’s lost is considered a sacrifice. Cargo losses to particular
average can’t be recovered.
Upsetting Shippers. “General average is very unpopular. Shippers don’t like
hearing from an ocean carrier who says,
‘my vessel had a major incident at sea, a
fire or whatever, and we now need you to
contribute to the overall cause. It doesn’t
go over very well,” said Vincent De Orchis,
an attorney with De Orchis and Partners in
New York.
“Let’s make that ‘fantastically unpopular.’
You wouldn’t believe the outrage among
cargo interests,” Browne said.
“I would say there’s been a trend for large
shipowners to overlook general average
— even if it’s a general average situation
— because they don’t want to spoil relations
with customers. The carriers themselves are
absorbing any general average expenses,”
De Orchis said.
“That’s absolutely true,” Hooper said. “A
lot of shipowners don’t want to make their
largest customers angry.”
“The big liner operators will either selfinsure or buy insurance to cover security for
general average. They will tell their customers, ‘I’m declaring general average, but I’m
not going to hold up your cargo. I’ll secure
general average myself. I will even secure
your salvage payments myself,’ because the
carrier doesn’t want to upset a customer,”
Hooper explained.
As a matter of law, carriers may not discriminate among shippers, favoring a larger
shipper over a smaller one. That means that
when carriers don’t pass on general average
costs, they have to extend that favor to all
shippers with cargo on a vessel.
In the United States, a few of the largest
shippers have begun using confidential service contracts as a means of avoiding both
general average and salvage commitments.
They are demanding that an ocean carrier
excluded them from such risks.
“Those shippers in the know want out,
but you don’t see that many of them — yet.
I would say that most ‘big dog’ shippers are
unaware of their exposure to general average by just having their cargo on vessels,”
said an attorney who asked for anonymity
because of his carrier clients.
Rules, Protections. General average adjustments are now made almost
everywhere according to a standard code
of practice known as the York-Antwerp
Rules, the result of a series of international
conferences.
The first conference, held in York, England, adopted a set of seven rules in 1864.
TRANSPORT / OCEAN
Those were revised in Antwerp
dockside won’t be general averin 1877.
age.”
The York-Antwerp Rules
McCormack opposes the
have been further altered by the
changes. “I don’t think they are
International Law Association in
needed. Cargo values are much
The York-Antwerp Rules provide precise guidelines for
1924 and by the Comite Maritime
higher today than ship values. In
determining general average expenses, and also specify the
International (CMI) in 1949 (efany general average, cargo intermanner of calculating contributory values.
fective Jan. 1, 1950), in 1974,
ests pay more,” he said.
Here’s a simplified calculation. Suppose a vessel under
and in 1994.
“IUMA’s position is that some
charter is worth $1 million and its pending freight is $100,000
In the first week of June 2004,
shipowners are using general
on cargo — all owned by a single shipper — also valued at
the CMI met in Vancouver, Canaaverage claims as a method of
$1 million. In a storm, cargo worth $100,000 is jettisoned
da, to consider another updating.
maintaining their vessels enwith a resulting loss of freight (defined here as compensation
Shipowners may avail themgineering-wise in a way that
owed the carrier by the shipper) of $10,000. In addition, the
selves of the content of the rules
should be done as maintenance
ship sustains damage of $5,000 because a hole had to be cut
over the years of revision, so that
costs, which are normally in the
quickly to jettison the cargo.
stipulations in 1924, 1950 or
shipowner’s purview,” McCorThe vessel’s contributory interest (ship plus freight) is $1.1
later may be opted for in 2004,
mack said.
million. Under an adjuster’s formula, this is multiplied by the
Browne said, with the caveat that
“It’s more than that,” counfraction $115,000/$2,100,000 and equals $60.238.10
hull underwriters may drastically
tered Browne, who supports
The cargo’s contributory interest is $1 million. Multiplied
increase premiums if older texts
the changes being sought. The
by the same fraction, that equals $54,761.90. It’s clear then
are used.
primary argument for cargo
that the cargo interest, having suffered $100,000 in damages,
That odd situation exists beinterests is that they are called
has paid more than its share of the loss. So, the vessel must
cause the York-Antwerp Rules,
upon to pay far too much money
pay the cargo interest $45,238.10 (the difference between
while they appear in most bills
for general average for activities
$100,000 and $54,761.90).
of lading, are not legal statutes,
that are not general average in the
Therefore, the total out-of-pocket loss of the vessel will
and the language of a contract
first place. By that I mean crew
equal $15,000 (loss of freight and damage to the ship) plus
can be whatever parties to the
wages, maintenance and stores,
$45,238.10 (the amount paid the cargo interest), for a total
pact want.
port charges, and expense for
of $60,238.10. The out-of-pocket loss for the cargo interest
In another wrinkle, the U.S.
fuel, food, unloading, storing and
will equal $54,761.90 — certainly better than the $100,000
Supreme Court ruled that a “Jason
reloading cargo. It has to stop
value of the lost cargo.
Clause” in a bill of lading allows
somewhere,”
a shipowner to recover in general
“The concept of general averaverage even in the face of faulty
age is that shipowners should
ized in certain general average situations, recover expenses that they expend while the
management of his ship.
After the U.S. Carriage of Goods by Sea Browne said.
ship and cargo are in peril. When that peril
That discontent has become most acute stops, the subsequent expenses should be
Act (COGSA) came into effect in 1936, the
where cargo interests suspect unscrupulous borne by the owner,” Browne said.
scope of a Jason Clause was broadened.
A “New Jason Clause” commonly inserted shipowners of declaring general average for
For its part, the CMI remains neutral at
into bills of lading and charterparties pro- simple repairs.
this writing — its discussions in Vancouver
Even in situations where shipowners have having yet to be assessed. But the CMI has
vides as follows: “In the event of accident,
danger, damage or disaster, before or after acted in good faith and in the full latitude cited a survey of 1,700 general average
the commencement of a voyage resulting permitted them under the York-Antwerp adjustments, conducted in 1996 and updated
from any cause whatsoever, whether due to Rules, “shippers are arguing that general in 1999, in which the annual cost of general
negligence or not, for which … the carrier average should be curtailed so that expenses average claims to insurers was reckoned to
is not responsible by statute, contract, or occurred after a vessel has reached its port of be about $300 million.
otherwise, the goods, shippers, consignees refuge are not included in the general average
“About 80 percent of the cases surveyed
or owners of the goods shall contribute with calculation,” De Orchis explained.
are considered likely to have been caused
Shippers are basically saying, “O.K., if by the fault of those on the ship. However,
the carrier in general average to the prepayment of any sacrifices, losses or expenses of the vessel is foundering at sea and you have 60-65 percent of the total costs of claims is
as general average nature that may be made to call a salvor to tow it into port, charge us borne by cargo interests,” the CMI observed
for the salvor’s going on board, jettisoning tactfully.
or incurred in respect of the goods.”
The “New Jason” clause allows a ship- cargo and towing the vessel into port. But
In time, it would seem appropriate for
owner to declare general average if an once you’re in port, don’t have us pay for cargo interests to be accorded a more equal
error of navigation occurs on an otherwise all of the charges going on in port while the ratio under the York-Antwerp Rules.
vessel is being repaired and brought back to
seaworthy vessel.
What has not changed is an assessment
However, if carriers lose their error of a condition in which it can sail again.”
of general average by Grant Gilmore and
At the Comite Maritime International Charles L. Black Jr., in their The Law of
navigation defense under a “harmonized”
international cargo carriage regime, there meeting in Vancouver, the International Admiralty (second edition, 1975), generwill be a number of general average situations Union of Marine Insurers (IUMA) proposed ally regarded as a lodestone by fair-minded
where general average will not be available various changes to the 1994 revision of the shipowners and cargo interests: “The general
York-Antwerp Rules “that would effectively average adjustment does not make anybody
for carriers but only for cargo interests.
terminate all general average charges once whole; the owner of the sacrificed property
Row At CMI. Cargo interests, especially the vessel has reached a port of refuge,” continues to bear his proper share of the
in the United Kingdom, are feeling victim- McCormack explained. “Anything done loss, but no more than that.”
■
How general average
provides rough parity
80
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2004
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TRANSPORT / OCEAN
USSM vows to fight Maersk Line takeover
MarAd approves request to transfer operation
of 15 U.S.-flag vessels operating under MSP.
WASHINGTON
The U.S. Maritime Administration may
have given its approval to Maersk Line Ltd.
to takeover 15 U.S.-flag vessels in the federal
government’s Maritime Security Program,
but the current operating company of the
ships says not so fast.
“We intend to challenge this decision
and we are confident that it will not survive
judicial scrutiny,” said U.S. Ship Management (USSM) in response to MarAd’s June
7 decision.
Maersk Line Ltd., a U.S.-flag vessel
subsidiary of A.P. Moller/Maersk Sealand,
made the request for the transfer with MarAd
in November 2002. The company claimed
that under its 1999 MarAd-approved time
charters USSM agreed to transfer direct
operations of the former Sea-Land Service
vessels to Maersk should Maersk Line Ltd.
elect to become the MSP contractor.
MSP was created in the 1996 Maritime
Security Act and is managed by MarAd. The
program provides the federal government
with immediate access to 47 militarily useful
commercial container and roll-on/roll-off
vessels during times of war or national
emergency. To help offset the higher vessel
operations costs of these U.S.-flag vessels,
the government pays the MSP operators
$2.1 million per ship per year.
If Maersk Line Ltd. can eliminate USSM,
the company would increase its MSP fleet
from four to 19 ships -- the largest operator
in the program.
USSM has vehemently opposed the transfer. In an arbitration proceeding between
USSM and Maersk Line Ltd., the arbitration
panel decided in favor of Maersk Line Ltd.’s
position that it has the authority to file an
application for the transfer. Thus, MarAd
determined that Maersk Line Ltd. is eligible
to transfer the USSM vessels under its direct
control. However, in the U.S. District Court
for the District of Columbia, USSM has
case against MarAd (filed April 29, 2003)
contesting the legality of the legal opinion.
The case is ongoing.
USSM said Maersk Line Ltd. was attempting to “hijack” the MSP program.
“MSP was designed first and foremost for
U.S. citizens,” USSM said. “Except for a
narrow exception to five vessels, the entire
program was reserved for U.S. section 2
citizen companies.”
USSM emphasized that since 1997,
MarAd has required each transfer of an MSP
agreement from a U.S. citizen company to
be a U.S. citizen company.
“Now, ignoring congressional intent,
statutory and contractual requirements, and
each of MarAd’s own precedents, the timing of MarAd’s acquiescence to Maersk’s
request is bizarre coming so soon after the
U.S. District Court’s denial of MarAd’s
motion to dismiss USSM’s challenge of
MarAd’s earlier ruling,” USSM said.
Maersk Line Ltd. appears unphased by
USSM’s efforts to stop the transfer.
“We are extremely pleased with MarAd’s
decision approving the transfer of the 15
MSP operating agreements to MLL,” said
Kenneth C. Gaulden, senior vice president
for Maersk Line Ltd., in a statement. “Now,
we look forward to the benefits that will be
brought about by streamlining operations
and creating much-needed efficiencies.”
Gaulden added: “MLL will work closely
with MarAd to assume direct operation of
the ships in an appropriate, efficient and
expeditious manner, while continuing to
support our military forces engaged in the
war on terrorism and serve our commercial
customers.”
Maersk Line Ltd. has received support for
the transfer of the USSM ships from the maritime labor unions, such as the Seafarer’s International Union; Master, Mates & Pilots; and
the Marine Engineers’BeneficialAssociation,
as well as several senior lawmakers.
USSM received letters of support to block
the vessel transfer from Farrell Lines, a time
charterer of MSP vessel and a competitor of
Maersk Line Ltd. Other submitters, including Rep. Duncan Hunter, R-Calif., chairman
of the House Armed Services Committee,
asked MarAd to prevent increased control of
U.S. assets by overseas-based operators.
Since last year, U.S.-flag vessel operators
have been scrambling to firm their position
in a newly established MSP program. In
November 2003, Congress reauthorized
and expanded the MSP program for another
10 years, starting Oct. 1, 2005, as part of
its fiscal year 2004 $400-billion defense
authorization legislation. The new MSP
will include 60 U.S.-flag commercial ships
and an increasing annual payment per ship
starting at $2.6 million per ship for fiscal
years 2006-2008; $2.9 million per ship for
fiscal years 2009-2011; and $3.1 million
per ship for fiscal years 2012-2015.
■
Coast Guard: MTSA obligations will be met
WASHINGTON
The U.S. Coast Guard told lawmakers of
the House Subcommittee on Coast Guard
and Maritime Transportation June 9 that it’s
on track to meet the vessel and port facility
security mandates of the 2002 Maritime
Transportation Security Act (MTSA).
About 9,200 vessels and 3,200 facilities
have submitted security plans to the Coast
Guard to meet the July 1 deadline.
“With only three weeks remaining before
the July 1 compliance date, the Coast Guard
is wrapping up its efforts to ensure that all
security plans appropriately document the
required security measures and shifting
focus on our task of fully exercising our
port state control authority in the conduct
of compliance examinations for foreignflagged vessels to confirm that approved
security plans have been fully implemented,”
testified Rear Adm. Larry Hereth, director
of port security for the Coast Guard, before
the subcommittee June 9.
MTSA is in line with the International
Maritime Organization’s International Ship
and Port Facility Security (ISPS) code,
which also has a July 1 deadline for implementation by the 147 nations of the Safety
of Life at Sea (SOLAS) convention.
Some lawmakers expressed concern
about the reliability of security plans approved by overseas governments. Rep. Bob
Filner, D-Calif., ranking member of the
House subcommittee, said there’s a need
to implement legislation insisting that the
Coast Guard verify all security plans, even
those developed overseas in line with the
ISPS code.
Hereth said his agency is confident in
the quality of the security plans under the
ISPS code, because it’s largely in line with
the goals of MTSA.
“At our most recent meeting with the IMO,
held just two weeks ago, the vast majority
of nations have reported that they will meet
the entry into force date and their ships and
port facilities will be acting under approved
security plans,” Hereth said.
To ensure that code is upheld, Hereth
said the Coast Guard will board every vessel entering the United States at least once
after the July 1 deadline. He said that each
vessel plan will be run through a Coast
Guard risk matrix.
“We’re going to ask the master and crew
members lots of questions,” Hereth said.
“We’ll be checking in a very aggressive
way.”
■
81
TRANSPORT / INLAND
Con-Way to go long again
LTL carrier Con-Way sees opportunity for growth
in long-distance truckload business.
BY ERIC KULISCH
L
ess-than-truckload carrier ConWay Transportation Services said
it will restart its own long-distance
truckload operation in the first quarter of
2005 to take advantage of high growth the
company is experiencing in its long-distance
business, marking the second time the lessthan-truckload carrier has taken a crack at
the truckload market in four years.
Con-Way has seen its average length of
haul increase steadily to more than 700
miles since 1997, and President Gerald
Detter said in a statement the company’s
long-haul business is growing more than
10 percent annually.
Con-Way has three regional less-thantruckload divisions and contracts with
truckload carriers to provide full load,
coast-to-coast service for its customers. The
truckload operations are more efficient than
handing off shipments from one regional
operation to another for long haul moves.
The new company, Con-Way Truckload,
will provide line-haul service to Con-Way
Western Express, Con-Way Southern
Express and Con-Way Central Express
on full loads of LTL shipments that need
to move cross-country between Con-Way
locations. Con-Way will continue to use its
existing truckload partners, and use the new
company to absorb the additional growth,
Detter said.
Con-Way estimates it will spend about
$200 million this year to purchase transportation from other carriers, but that figure
will go down as Con-Way is able to handle
more truckload service on its own.
“A growing number of shippers want
multiple supply chain services from one
company, and adding a truckload operation
to our service portfolio provides Con-Way
with a strategic way to manage costs and
service while later providing truckload services for our customers,” Detter said.
The company eventually plans to be big
enough to market its service to external
customers as well as sister Con-Way carriers, said Nancy Colvert, spokeswoman for
parent company CNF Inc. Con-Way hopes
to hold onto more customers by maintaining more control over freight, as opposed
to having an outside carrier do a portion of
82
AMERICAN SHIPPER:
JULY
2004
“Formation of Con-Way
Truckload will allow our
organization to save money
on line haul costs, protect
our service with intercompany operations that
operate in tandem with our
current truckload vendors
and allow us to build
a potential truckload
revenue base.”
Gerald Detter
president,
Con-Way Transportation
Services
the transportation.
“Formation of Con-Way Truckload will
allow our organization to save money on
line haul costs, protect our service with
inter-company operations that operate in
tandem with our current truckload vendors
and allow us to build a potential truckload
revenue base,” Detter said.
“I think it is a very smart business move,”
said Sam Gill, an Alexandria, Va.-based
trucking consultant and former executive
at the American Trucking Associations.
“Companies never want to lose control of
their customer. This to me actually takes
some pressure off of the LTL side because
they’ve had to buy some truckload.” ConWay has more than 200,000 customers.
The timing is good too, Gill said, because
trucking companies are booked solid trying
to handle record levels of freight. Large
carriers have made a conscious decision
not to grow their fleets and are counting
on shippers to make more efficient use of
trailers through better receiving operations,
especially with new hours of service rules
that restrict how much time a driver can
spend behind the wheel.
“The more capacity we can put into the
marketplace, the better we are,” said John
Gentle, manager of surface transportation
for building materials producer Owens
Corning and chairman of the National Industrial Transportation Leagues’ Highway
Transportation Committee.
Both men said Con-Way has a good
opportunity because its workforce is nonunion. A large unionized outfit like Yellow
Transportation, for example, might have
difficulty getting labor to support a separate
non-union subsidiary.
But Gentle said his first go-round with a
Con-Way truckload product was not satisfactory. “The commitments they made to me,
they didn’t keep,” he said. “They offered us
a fair amount of capacity, but they couldn’t
execute on it.”
The problem was two-fold, according
to Gentle. Trailers reserved for Owens
Corning use often arrived late or Con-Way
rejected the shipper’s tender for specific
shipments.
In August 2000, Con-Way sold the truckload business it had operated since 1995 and
some of its assets to Covenant Transport.
Con-Way discontinued its truckload business at the time because it provided coverage
in about 30 states instead of the trans-continental routes needed to be successful and
its aging fleet would have required a major
investment in new tractors, spokesman Joseph DeLuca said. At the time of the sale,
Con-Way had about 500 tractors and more
than 1,000 trailers.
DeLuca said Con-Way Truckload will
provide coast-to-coast routes from the start
using standard 53-foot trailers and twoman driving teams, and gradually expand
to broader national coverage. Eventually
the company will look more like a typical
truckload operation with irregular, direct
pickups and deliveries of full dedicated
trailers at customer locations.
Con-Way also has a truckload brokerage
operation, Con-Way Full Load, that will
allow the company to broker freight to
itself in addition to matching up contract
carriers.
Con-Way, which has annual revenues in
excess of $2.2 billion, is in the process of
ordering tractors and trailers, and hiring
drivers. The company plans to add about
450 drivers during the first two years of
operation and likely will hire independent
truck operators as needed.
Con-Way Truckload will benefit from
sharing back office support, maintenance
facilities, mechanics, information technology, and security personnel with the rest
of the Con-Way carriers — functions that
a typical start-up would have to develop
itself.
■
TRANSPORT / PORTS
Bills would boost port security funds
WASHINGTON
Two U.S. lawmakers proposed bills to
the House Transportation and Infrastructure Committee to significantly increase
funding to the nation’s port security grant
program.
The Bush administration’s proposed
budget request for fiscal year 2005 includes
only $46 million for the port security grant
program, a far cry from the Coast Guard’s
$1.125-billion estimate to comply with the
Maritime Transportation Security Act.
Rep. Juanita Millender-McDonald, D-Calif., whose district includes the Port of Los
Angeles, proposed a bill (H.R. 3712, “U.S.
Seaport Multiyear Security Enhancement
Act”) to authorize $800 million for each
of the fiscal years 2005 through 2009. The
goal of the legislation, she said, is to develop
a “reliable stream” of funding to the ports
seeking grant money.
She argued that the funding required to
secure the nation’s seaports against terrorist
attack is a drop in the bucket compared with
the $11 billion already spent on airport security since the Sept. 11, 2001 terrorist attacks.
She said her bill is also in line with the Coast
Guard’s port security funding estimates.
Millender-McDonald received additional
support for her bill from Rep. Jerrold Nadler,
D-N.Y., who has also been outspoken on
the need for increased port security grant
funding.
“It doesn’t make sense to me,” Nadler said
at a June 9 press conference of the American
Association of Port Authorities on Capitol
Hill. “Why would you spend more than $100
billion in a year to topple a regime in Iraq,
and not spend $4 billion to protect our own
ports here in the U.S.?”
Another bill (H.R.2193, “Port Security
Improvement Act”) proposed by Rep. Doug
Ose, R-Calif., to the same House committee
would make a percentage of the estimated
$16 billion in annual customs duties collected from seaports available to fund the
port security grants program.
Ose said in a written statement to the
House committee that his bill “provides
a portion of customs duties collected at
ports to be dedicated for five years to port
security enhancements” for a total amount
of $3.3 billion.
“Under the bill, ‘entitlement’ funding to
duty-collecting ports and their facilities and
vessels will flow through the Department
of Homeland Security, which by law must
review and approve each area maritime
transportation security plan, facility security plan and vessel security plan,” Ose
explained. “The distribution within a port
would be based on the approved area maritime transportation security plan.”
Both bills received strong backing from
the AAPA and the Port Security Council
of America.
AAPA representative Noel K. Cunningham, director of operations and emergency
management at the Port of Los Angeles, said
to members of the House Transportation and
Infrastructure Committee June 9 that “these
bills, along with adequate appropriations
levels, would create adequate funding for
port security projects.”
■
ILA members OK master contract
NEW YORK
Rank-and-f ile members of the
International Longshoremen’s Association
at U.S. Atlantic and Gulf coast ports
approved a six-year “master contract.”
The ILA completed negotiations on the
master contract with United States Maritime
Alliance Inc., late in March, after 18 months
of bargaining between the union and the
alliance, a management group representing
ILA employers.
ILA president John Bowers, the union’s
chief negotiator, indicated that the approval
margin, 5,084-3,920, was smaller than expected.
“I know that many members were concerned about the two-tiered wage system and
the three levels of health care eligibility, and
possibly voted against the contract because of
those provisions,” he said. “I respect and will
defend their right to vote no. We tried our best
to bridge the pay gap in salaries and responsibly address rising health care costs.”
Some port areas rejected their local agreements. The ILA and management officials
will continue local bargaining to reach agreements prior to the expiration of the previous
master contract on Sept. 30.
The ILA said Baltimore, Hampton Roads
and Charleston had rejected their local
agreements. Major port areas that could
not agree on local contracts in time for
the ratification vote include Philadelphia,
Tampa, Mobile, Gulfport and Pascagoula.
Port areas that ratified their local agreements included Portland, Maine; Boston;
New York and New Jersey; Wilmington,
N.C.; Savannah, Ga.; Miami; New Orleans;
Houston; and Galveston.
When the new master contract takes effect
Oct. 1, more recent ILA members whose
base pay this year was $21 an hour or less
will see their salaries increase $7 through
the life of the contract. Higher-waged ILA
workers will receive four pay hikes totaling
$4, the ILA said in a statement.
■
L.A./Long Beach push for daytime gate user fee
SAN FRANCISCO
Thirteen marine terminals in the ports of
Los Angeles and Long Beach have proposed
a user fee for containers that move through
their gates during day-time hours, to relieve
container-related traffic.
The West Coast Marine Terminals Operators Discussion Agreement filed an action
agreement with the Federal Maritime Commission June 3 to use its antitrust immunity
to create a tariff for a daytime gate fee.
The proposed agreement also calls for the
development of a special purpose entity to
administer and collect the fee from shippers.
The fee amount has yet to be determined.
For years, Los Angeles and Long Beach
port terminals have operated “hoot gates”
from 3 a.m. to 8 a.m. to handle large influxes of
containers, but the hours still put many trucks
into weekday rush hour, starting at 6 a.m.
Shippers and terminals in the ports of
Los Angeles and Long Beach have tried to
head off a California state legislature effort
to impose new rules for daytime container
traffic to cut down on rush-hour congestion
and pollution.
The Waterfront Coalition told the discus-
sion agreement members that any user fee
should sunset once container volumes for
the nighttime gates surpass 40 percent of
the total container volume moving through
the two southern California ports.
The proposed fee would not impact containers moving in and out of the ports of Los
Angeles and Long Beach by rail.
The discussion agreement requested
“expedited” FMC approval of the user fee
so that it would be in place before the end
of the current California assembly session,
by the third quarter of this year.
■
Port Manatee
Commerce Center
• Tampa Bay Florida •
400,000 SF Warehousing
under construction
on the port • at the entrance
Federal Port Corporation, 2300 South Dock, Palmetto, FL 34221
941-358-6081 • Fax- 941-358-8073 • [email protected]
83
Through bill of lading protects inland carrier
In December 2000, Tractabel Engineering International
contracted with Kuehne & Nagel N.V., a freight forwarder,
to handle transportation of shipments to and from a power
plant Tractabel was building in Thailand. The first shipment
was a turbine power wheel sent from the Thailand plant
to Rolls-Royce in Mt. Vernon, Ohio. K&N subcontracted
the shipment to a subsidiary, Transpac Container System
Ltd., which does business as Blue Anchor Line.
Blue Anchor issued its own bill of lading covering
the goods from Thailand to Ohio. The power wheel left
Bangkok in a sealed container on board the vessel APL
Garnet, which carried it to Los Angeles. Upon arrival,
the power wheel was transferred back into the custody
of K&N, which passed it on to Distribution Express, an
inland U.S. trucker. Distribution Express then issued
its own bill of lading covering the transportation from
California to Ohio, and designated Keith Keeran as its
driver for the journey.
While en route, Keeran called Steve Williams, the
president of Distribution Express and told Williams he
was feeling ill. According to a court summary of subsequent events, “the parties are in dispute as to whether
Keeran then voluntarily decided to continue driving. The
plaintiff (Tractabel’s insurer) claims Williams instructed
Keeran to drive another 100 to 150 miles despite his illness, while Distribution Express alleges that Williams
left to Keeran the decision of whether to pull over immediately or proceed to the closest truck stop to wait for
a replacement driver.”
Whether Keeran, 72, offered to drive or was ordered
to, he ultimately hit an overpass, and the truck and its
contents were engulfed by fire. The power wheel was
completely destroyed, and Keeran died from injuries
sustained in the accident.
Allianz CP General Insurance Co. Ltd., Tractabel’s
insurer, paid the shipper $1.15 million as a result of
the accident, and then sued Distribution Express, Blue
Anchor Line, Transpac, and Kuehne & Nagel N.V., in
federal court in New York.
U.S. District Judge Naomi Reice Buchwald wrote in her
ruling: “the Blue Anchor bill of lading, which governed
the entire shipment, was a through bill of lading.”
In addition, Tractabel had “paid the ocean carrier for
all transportation charges and did not enter into a separate
agreement with Distribution Express providing for separate
consideration for the inland transportation. The combination of these facts supports the conclusion that the Blue
Anchor bill of lading … governed the entire transportation
of goods, and applied to all connecting carriers even though
they were not parties to the contract,” Buchwald said.
Distribution Express, which “performed a stage of the
transportation provided for in the bill of lading, qualifies
as a participating carrier,” Buchwald noted. As such, Allianz could not sue the trucker because the Blue Anchor
bill of lading prevented “imposing upon any ‘participating
carrier’ any liability whatsoever,” she determined.
“While Blue Anchor concedes that it is not entirely
shielded from liability … like Distribution Express, it
has moved to limit any liability it is found to possess to
$500 per package as described in the bill of lading …
under terms laid out in the Carriage of Goods by Sea Act
(COGSA),” Buchwald said. The court ruled that in regard
to Blue Anchor, “the limitation of liability in COGSA applies to this shipment.” Buchwald then dismissed Allianz’s
claims against the other K&N defendants.
84
2004
[Allianz CP General Insurance Co. Ltd., v. Blue Anchor
Line, Transpac Container Systems Ltd., Kuehne & Nagel
Inc.; Kuehne & Nagel, N.V.; Distribution Express; U.S.
District Court, Southern District of New York, docket
number 02 Civ. 2238 (NRB), Date of ruling: May 7]
COGSA covers restowage at intermediate ports
In October 1999, Schramm Inc., sold a mobile drilling
rig to Perforacions San Rafael S.R.L. of Cochabamba,
Bolivia. The drilling rig, a large drill and the truck on which
it was mounted, cost $160,725.42, which included freight
and insurance charges. Schramm then contracted with
Shipco Transport Inc., a non-vessel-operating common
carrier, to ship the rig from Baltimore to Arica, Chile.
In a clean bill of lading issued by Shipco to Schramm,
the parties agreed that Shipco’s liability was limited to
$500 per package whenever the Carriage of Goods By
Sea Act (COGSA) applied, “unless a declared value has
been noted” by the parties. A space was provided on the
front of the bill of lading for “Shippers Declared Value,”
where Schramm was entitled to declare the value of its
goods in order to receive greater protection. However,
Schramm left that space blank, and obtained independent
cargo insurance from Atlantic Mutual Insurance Co.
The drilling rig, secured on a flat-rack container, was
loaded onto the CSAV Guayas in Baltimore. While en
route to Chile, the vessel stopped at Charleston, S.C., an
intermediate port. The ship’s master wanted the rig and
one other container to be restowed under deck to avoid
pilferage of the goods at subsequent ports, and retained
Stevedoring Services of America to handle the offloading, transportation, storage and reloading of the rig in
Charleston. SSA offloaded the rig, still attached to its
flat-rack container, and placed it on a chassis for dockside
transport. While it was being moved, the rig fell over onto
the concrete dock and was damaged beyond repair.
Atlantic Mutual paid Perforacions San Rafael
$176,797.96. Schramm and Atlantic Mutual then sued
Shipco in federal court in Charleston, to recover alleged
breach-of-contract damages from the destruction of the
rig. When U.S. District Judge Patrick Michael Duffy
eventually ruled that Shipco could limit its liability to
$500, the shipper and its insurer appealed.
The U.S. Court of Appeals for the Fourth Circuit wrote
in its ruling that “the point of discharge under COGSA is
not every time the goods are taken off the vessel — such
as for restowage — but rather the discharge of goods at
their final port of destination.”
“Our construction of COGSA,” the appellate panel
continued, “also comports with the realities of maritime
practice (which) changed considerably with the advent
of containerized shipping. Given the breath of COGSA’s
application, we find it reasonable to consider accepted
occurrences like restowage of cargo at intermediate ports
as falling within the statute’s purview.”
Atlantic Mutual and Schramm also had argued that
because the rig was damaged while SSA handled it, and
not by Shipco, Shipco could not limit its liability pursuant
to COGSA. The appeals court said, “as a non-vessel-operating common carrier, Shipco never has actual control
over the goods, but the cargo was indisputably in its legal
custody for the duration of the voyage.” The appellate
panel upheld the decision of the district court.
[Schramm Inc.; Atlantic Mutual Insurance Co. v. Shipco
Transport Inc.; et al.; U.S. Court of Appeals, Fourth Circuit; docket number 03-1075; Date of ruling: April 15]
Corporate Appointments
(800) 876-6422, FAX (904) 791-8836, e-mail [email protected]
Logistics
Exel Direct
The product fulfillment business of U.K.based logistics provider Exel has appointed
Dan Flowers president.
Flowers was vice president and general
manager of UPS Supply Chain Solutions.
He will be responsible for developing and
implementing structured processes to expand Exel Direct’s network system.
Tibbett & Britten Group
The U.K.-based provider of logistics
services has appointed Michael J. Gardner
president of Tibbett & Britten Americas.
Gardner was global chief operating officer for APL Logistics Inc. He will also
serve as a main board director for the Tibbett
& Britten Group.
Forwarding
ABX Logistics Worldwide
Hans-Jurgen Schlausch has been named
global manager of ABX Logistics’ air and
sea freight forwarding operations.
Rogers & Brown Custom Brokers
Perry “Pete” T. Smith, executive vice
president, has been named president of the
Charleston, S.C.-based company.
Former president Don Brown was named
chairman of the company’s newly formed
board of directors.
Alan Boylan, former senior vice president
in charge of ocean freight at Exel, joins CP
Ships as executive vice president, commercial, for the shipping line’s Montreal transatlantic, Australasia and Middle East/India
trades. He will be based in Gatwick, U.K.
Juan Manuel Gonzalez has been promoted
to executive vice president, commercial for
Americas-Pacific, Gulf and Atlantic trades.
He was senior vice president for the Americas-Pacific. He is based in Tampa, Fla.
Glenn Hards has been promoted to executive vice president of operations responsible
for corporate planning, ship networks, marine operations and container fleet. Formerly
vice president of alliances, he will work
from both Gatwick and Tampa.
The company’s current chief executive
officer, Ian Webber, will be based in Gatwick
when CP Ships moves its corporate headquarters from London later in the year.
Eimskip
Baldur Guonason has been named
president and chief executive officer of the
Icelandic liner carrier operation.
Guonason replaces Erlendur Hjaltason,
who recently retired. Guonason, 38, has
worked in the transportation industry, in Iceland and overseas, for the past 15 years.
Neptune Orient Lines
The parent company of container carrier
APL and APL Logistics has appointed Jim
McAdam senior vice president of business
solutions, a new position to support and
integrate the activities of the liner shipping
and logistics arms of the group.
McAdam was vice president and managing director of APL’s liner activities in
North Asia, and held senior positions in
liner shipping and logistics.
Inland
Union Pacific Corp.
Vice Chairman James Dolan and Carl von
Bernuth, senior vice president and general
counsel, have retired.
J. Michael Hemmer, vice president-law
for the company’s railroad subsidiary, was
promoted to senior vice president-law and
general counsel for both the railroad and
the corporation.
Dolan was vice president-law from 1983
until his appointment to the board in 2002.
Ports
Port of Oakland
Jerry Bridges has been named executive
director, replacing Tay Yoshitani, who is
leaving.
Bridges has been director of maritime
for three years. Previously, he was vice
president with Marine Terminals Corp. He
also worked for five years as port manager
of Sea-Land.
Maritime
APL Americas
Bill Hamlin, president, has left the company
“to pursue other opportunities outside the
container transportation industry,” Singaporebased parent Neptune Orient Lines said.
Last year, Hamlin’s geographic area of responsibility was broadened to include Latin
America in addition to his original region
of North America. He also represented APL
and its marine terminal subsidiaries within
the Pacific Maritime Association of U.S.
West Coast terminal operators, as a member
of its board of directors.
John Bowe will succeed Hamlin as the
new head of its APL Americas region, based
in Oakland, Calif.
Bowe was vice president and managing
director of APL’s Hong Kong/South China
region, a position he had held since 2001.
CP Ships
The company has appointed three senior
executives who will report to Frank Halliwell,
new chief executive officer since May.
85
Service Announcements
(800) 876-6422, FAX (904) 791-8836, e-mail [email protected]
TACA’s bunker charges take off
Alliance resumes Asia/U.S. East Coast link
Carriers of the Trans-Atlantic Conference Agreement plan to
raise bunker charges substantially July 16, saying fuel prices have
shown “exceptionally high price increases.”
For shipments to and from U.S. Atlantic and
Gulf ports, the TACA’s bunker adjustment factor
will go up from $158 to $198 per 20-foot container and from $316 to $396 per 40-footer.
For traffic to and from Pacific Coast ports,
the charge will rise from $237 to $297 per
20-foot box and from $474 to $594 per 40-foot container.
TACA carriers are Atlantic Container Line, Hapag-Lloyd, Maersk
Sealand, Mediterranean Shipping Co., NYK Line, Orient Overseas
Container Line and P&O Nedlloyd.
Grand Alliance carriers OOCL, P&O Nedlloyd, NYK Line
and Hapag-Lloyd will reinstate a second Asia/Panama/U.S. East
Coast all-water service in July and reallocate ports between the
two resulting services to speed up transit times.
Instead of the weekly “ECX” service in operation, and former
fortnightly loop “ECX2,” suspended last winter, the carriers will
operate a weekly “East Coast South” service covering mainly U.S.
South Atlantic ports and a weekly “East Coast North” loop serving
New York and Savannah.
The “ECX” service employs nine ships of 3,390-TEU capacities.
The new “East Coast South” loop will use nine 2,700-TEU vessels
the “East Coast North” eight 3,600-TEU ships.
P&O Nedlloyd said the “East Coast South” service will have a
rotation of Tokyo, Busan, Qingdao, Shanghai, Shekou, Hong Kong,
Miami, Savannah, Norfolk, Miami and back to Tokyo. The “East
Coast North” will call at Busan, Shanghai, Shekou, Hong Kong,
New York, Savannah and back to Busan.
In a separate development, OOCL said the Grand Alliance will
split its U.S. East Coast/Mediterranean/Suez Canal/Asia/Pacific
Northwest/Asia/Suez Canal/Mediterranean/U.S. East Coast “AEX/
PNX” pendulum service into two shorter end-to-end services.
With nine ships, the future “AEX” loop will cover the Asia/Suez
Canal/Mediterranean/U.S. East Coast portion of the current service.
The “PNX”, using six larger and faster ships of about 5,500-TEU
capacities, will provide a service between Asia and the Pacific
Northwest, OOCL said. The port rotations of the services have
not been finalized.
New World Alliance adds Pacific capacity
The New World Alliance of APL, Hyundai Merchant Marine and
MOL will add transpacific capacity for this year’s peak season by
reinstating its Asia/U.S. West Coast “PSV”
loop, suspended during the slack period, and
upgrading capacity on one of its Asia/U.S.
East Coast all-water services.
Jin Il Chung, general manager of liner planning at Hyundai, said the alliance would add
some 600 TEUs a week to its “NYX” Asia/U.S.
East Coast service, when compared to last year. Average capacity
will rise to about 3,400 TEUs a week, from 2,800 TEUs.
Despite the resumption of the “PSV” service to the U.S. West
Coast, the alliance will add “almost nil” capacity in the Asia/U.S.
West Coast trade when compared to the situation in last year’s peak
season, Chung added.
The “PSV,” or “South China/Los Angeles Express” service, has
been reinstated. It will employ four ships of about 4,600-TEU capacities and has a rotation of Hong Kong, Chiwan, Kaohsiung, Los
Angeles and Hong Kong. The New World Alliance said it “expects
the ‘PSV’ to remain a permanent, year-round service.”
Alliance carrier Hyundai has also just started an additionalAsia/U.S.
West Coast service, the “PCX,” outside the New World Alliance. MOL
is taking space on the “PCX” service, but not APL. This additional
China/Korea/California loop employs Hyundai ships of about 3,300
TEUs that will contribute additional capacity in the trade.
The combined capacity increase of the “NYX,” “PSV” and
“PCX” is estimated to amount to 8,500 TEUs a week, or about 3
percent of the trade’s current total eastbound capacity.
APL, Hyundai and MOL also said they would revise the rotations
of three of their Asia/U.S. West Coast services.
Eastbound calls at Chiwan of the alliance’s “SAX” service will
be removed from its port rotation and picked up by the “PSV”
service. The “SAX” loop will have a revised rotation of Los Angeles, Oakland, Kaohsiung, Hong Kong, Chiwan, Laem Chabang,
Singapore and Los Angeles.
Calls at Kaohsiung will be stopped in the rotation of the “PS2”
loop, which will then call at Los Angeles, Oakland, Dutch Harbor,Yokohama, Busan, Xiamen, Hong Kong, Yantian and Los Angeles.
The call at Hong Kong of the “PS3” service will be stopped, and
the order of the Ningbo and Shanghai calls on this loop will be
reversed. The “PS3” will have a revised rotation of Los Angeles,
Seattle, Vancouver, Tokyo, Nagoya, Kobe, Shanghai, Ningbo, Kobe,
Tokyo and Los Angeles.
Excluding the Hyundai/MOL “PCX” transpacific service, the New
World Alliance now operates 10 weekly transpacific services.
86
AMERICAN SHIPPER:
JULY
2004
U.S. Lines adds China/U.S. East Coast link
U.S. Lines plans to enter the Asia/U.S. East Coast trade by taking
space from Zim Israel Navigation Co.
U.S. Lines, which entered the China/U.S. West Coast trade last
December with a service employing chartered containerships of
about 1,600-TEU capacities, had said it was looking at a potential
East Coast operation.
U.S. Lines recently agreed to buy slots from Hanjin Shipping
in the China/U.S. trade.
Maersk Sealand alters Pacific TP8 service
Maersk Sealand has added the ports of Tacoma, Yantian and
Kwqangyang to the port rotation on its weekly transpacific “TP8”
service. The new port calls replace previous calls at Nagoya,
Shanghai and Ningbo.
Five vessels of about 4,300 TEUs will now call at Los Angeles,
Oakland, Tacoma, Yokohama, Kobe, Kaohsiung, Yantian, Xiamen,
Kwangyang and back to Los Angeles.
CP Ships gets slots on Maersk vessels
CP Ships-owned Lykes Lines and TMM Lines will broaden
their transpacific U.S. West Coast services by exchanging slots
with Maersk Sealand.
The deal appears to provide a big break to CP Ships in the
transpacific market, where its services are much more limited than
those of the global alliances and Maersk Sealand.
Under an agreement filed with the U.S. Federal Maritime Commission, the CP Ships carriers and Maersk Sealand will be allowed
to exchange slots in the trade connecting the ports of Oakland, Los
Angeles, Tacoma, Anchorage and Vancouver, British Columbia, on
the one hand, and the ports of Nagoya, Kobe, Tokyo, Yokohama,
Kwangyang, Busan, Kaohsiung, Hong Kong, Shanghai, Ningbo,
Yantian, Xiamen and Qingdao, on the other hand.
CP Ships operates relatively small containerships on its “Asia
Canada Sprint,” “Asia North America Sprint” and the “MaxPac”
transpacific loops, which serve mainly Canada, Alaska and Mexico.
Lykes, TMM and Canada Maritime started the “Asia North America
Sprint” service in March, using vessels with an average capacity
of 1,500 TEUs.
Maersk Sealand operates five Asia/U.S. West Coast and two
Asia/U.S. East Coast weekly services using its own ships in the
transpacific trade, where it is largest carrier.
Med/Canada carriers raise rates
Ocean carriers of the Mediterranean Canadian Freight Conference said they have
increased westbound freight rates by $200 per
20-foot container and $250 per 40-foot box.
Mediterranean Canadian Freight Conference carriers are Canada Maritime, Cast,
Senator Lines and Zim Israel Navigation.
U.S./Latin southbound rate hikes
Major carriers in the U.S./Venezuela and U.S./Central America
trades have raised rates through general rate increases.
The Venezuela Discussion Agreement,
whose members are Maersk Sealand, Hamburg Sud, King Ocean, Seaboard Marine and
Seafreight Line, said its carriers have adopted
increases of $200 per 20-foot container and
$400 per 40-foot or 45-foot box, effective
June 20.
Central America Discussion Agreement members have agreed to
implement a general rate increase in the U.S.-to-Panama trade, to
be effective “no later than July 15.” The proposed rate increase to
Panama will be $150 per 20-foot container and $300 per 40-foot or
45-foot box. The Central America Discussion Agreement recently
said it would increase freight rates on all southbound dry cargo
from the U.S. to Costa Rica, Honduras, Guatemala, El Salvador
and Nicaragua, also by $150 per 20-foot container and $300 per
40-foot or 45-foot box.
The Central America Discussion Agreement carriers in the U.S./
Panama trade are Maersk Sealand, APL, Crowley Liner Services
and Seaboard.
The Caribbean Shipowners Association said it is planning to
implement a general rate increase on Aug. 1
The U.S./Caribbean carrier group said southbound rates will
go up $150 per 20-foot container, $300 per 40-foot box, $340 per
container over 40 feet long, $100 per unit on vehicles not exceeding 700 cubic feet, and $5 per freight ton of breakbulk cargo and
vehicles over 700 cubic feet.
Member carriers are Bernuth Lines, CMA CGM, Crowley Liner
Services, Interline, Lykes Lines, Seaboard Marine, SeaFreight Line,
TMM Lines, Tropical Shipping and Zim Israel Navigation.
Maersk Sealand changes Latin loops
From mid-June Maersk Sealand is replacing three of its Central
American and Caribbean services — the weekly “Progreso” and
“Dominican Republic Express” services and the fortnightly “North
Coast of South America II” — by three new loops.
The weekly “Expreso” service will replace the “Progreso”
service which started in November 2003. The new loop will use
three vessels of 1,100 TEUs and have a port rotation of Progreso,
Mexico; New Orleans; Houston; Santo Tomas de Castilla; Puerto
Cortes; Manzanillo, Panama; Cartagena, Colombia; Barranquilla;
Santa Marta; Cartagena; Manzanillo; Puerto Limon; Puerto Cortes;
Santo Tomas de Castilla; Progreso, New Orleans and Houston.
The former “Progreso” service had used two ships and called New
Orleans; Progreso; Puerto Limon; Manzanillo; Puerto Cortes;
Progreso and New Orleans.
The “Dominican Republic Express” service is being replaced by
the weekly “Dominican” service. The “Dominican Service” will
deploy just one vessel, and call at Miami; Port-au-Prince; Caucedo;
Freeport, Bahamas; and Miami. The former Dominican Republic
service had used two ships and called New York, N.Y.; Freeport;
Miami; Port-au-Prince; Rio Haina and New York.
The fortnightly “Maracaibo Feeder” service will replace the
“North Coast of South America II” service. With a two-loop rotation,
the new link will call at Manzanillo; Oranjestad; Guanta; Puerto
Cabello; back to Manzanillo; Maracaibo; and back to Manzanillo
again. The “North Coast South America II” service had called at
Puerto Limon; Manzanillo; Cartagena, Colombia; Santa Marta;
Barranquilla; Cartagena; Manzanillo and Puerto Limon. The Colombian ports formerly serviced by the “NCSA II” will instead
be covered by the “Expreso” service.
Internet Index
of Advertisers
Check out these locations on the World Wide Web
American Shipper www.American Shipper.com
ComPair Data www.compairdata.com
A.N. Deringer www.anderinger.com
Alabama State Port Authority www.asdd.com
Americas Systems LLC www.AmericaSys.com
Atlantic Container Line www.ACLcargo.com
Avalon Risk Management www.avalonrisk.com
BAX Global www.baxglobal.com
China Ocean Shipping Co. wwwcoscon.com
Council of Logistics Management www.clm1.org
Crowley Maritime Corp. www.crowley.com
E.J. Brooks www.ejbrooks.com
Emirates Sky Cargo www.sky-cargo.com
Evergreen America Corp. www.evergreen-america.com
Eye for Transport www.eyefortransport.com
Freightgate www.freightgate.com
Hanjin Shipping www.hanjin.com
Hatsu Marine www.hatsu-marine.com
HUAL North America Inc. www.hual.com
Hyundai America Shipping Agency www.hmm21.com
IES Ltd. www.iesltd.com
Intermarine Inc. www.intermarineusa.com
Lloyd Triestino www.lloydtriestino.it
Maritime Security Expo www.maritimesecurityexpo.com
Mediterranean Shipping Co. USA Inc. www.mscgva.ch
MOL (America) Inc. www.molpower.com
Oceanwide Inc. www.oceanwide.com
P&O Nedlloyd (USA) www.ponl.com
Panama Canal Authority www.pancanal.com
Port Everglades Authority
www.co.broward.fl.us/port.htm
Port of Houston www.poha.com
Roe Logistics www.roelogistics.com
Seaboard Marine Inc. www.seaboardmarine.com
Tyden Brammall www.tydenbrammall.com
United Arab Shipping Co. www.usac.com.kw
United Shipping www.unitedshipping.com
UPS www.ups.com
Yang Ming Line www.yml.com.tw
87
End Shipper Welfare
Something’s cooking in the Louisiana bayou and it’s not the gumbo.
Instead it’s inefficient crawfish producers heating the political pots to ward off competition
from lower cost overseas suppliers and, at the same time, staying alive with the help of an
annual government payout. In some cases, those same opponents of overseas competition
import crawfish meat to supplement their sales volumes.
The fuel for the Louisiana crawfish producers’ fire, as reported by American Shipper
associate editor Eric Kulisch this month (pages 6-28), is a three-year-old provision in the
U.S. trade law that mandates the federal government transfer the proceeds of antidumping
duties to the domestic producers that filed or supported the complaint. The law is known as
the “Byrd amendment,” after its chief architect Sen. Robert Byrd, D-W.Va.
Crawfish producers that persuade the government they’re harmed by imports could be
collectively eligible to receive millions of dollars a year from what is essentially a taxpayer
subsidy.
The Byrd amendment has in effect created a shipper welfare program within the domestic
crawfish industry. This industry is not alone. Domestic companies that produce other types of
products, such as ball bearings, pigments, shrimp, furniture, and wax candles, have applied
for similar treatment. In fact, the government expects to dole out $885 million in payments
to effected domestic shippers in fiscal year 2004.
While no one likes to see a local company go out of business, American producers must
confront the realities of a ruthlessly competitive global market and be ready to engage it.
Some domestic industries will whither away as others have done since the founding of this
country. However, new products will emerge and some traditional industries, such as agriculture and aircraft, will allow American business to thrive in the global market.
Antidumping regulations should be used sparingly, not abused, because the consequences
to this country’s powerhouse export industries could be severe. Last year the World Trade
Organization declared the Byrd amendment to be unlawful, which could open the door to
retaliation from trading partners.
To that end, Congress must end this shipper welfare program by repealing the Byrd
amendment.
88
AMERICAN SHIPPER:
JULY
2004
THE
FASTEST
GROWING
M A J O R
O C E A N
CARRIER
T O T H E U N I T E D S T A T E S*
(What more can we say?)
*Source: PIERS; 104.8% growth in U.S. import TEUs in 2003,
fastest among top 25 ocean carriers worldwide
Hatsu Marine is building a powerful fleet, extending routes around the world and seeking
cooperative relationships to meet the requirements of global trade. We aim to build stability in the
worldwide container freight market. With headquarters in London, we are dedicated to setting a
high mark for service in Europe, North America and around the world.
Gain competitive edge. Find the contact information for
our local agents at www.hatsu-marine.com.
A London Vantage for Global Vision
www.hatsu-marine.com
HAT_Ad_Fastest_AmShp_2004.ind 1
4/28/04 12:36:51 PM

Dumped on - American Shipper

Transcription

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