Antitrust foes harden battle lines 6 Will FMC

Transcription

JULY 2002
Container lines’ “worst year ever”
www.americanshipper.com
Antitrust foes harden battle lines
Will FMC probe Pacific carriers’ conduct?
Where’s the payback in e-logistics?
U.S. spurs bid for harmonized cargo regime
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Vol. 44, No. 7
July 2002
LOGISTICS
20
Supreme Court rules against FMC
40
Quest for multimodal manifest
44
Elogex knows which niche to scratch 52
Kuehne & Nagel starts 4PL
55
On the Cover
Who’s making money?
20-30
2001 was one of the worst years on record
for the international container shipping
industry. Yet, American Shipper’s annual
survey of container shipping lines’ results
and industry trends found analysts and several
container shipping lines predict that the
carriers’ financial results and vessel capacity
utilization in 2002 will be even lower.
FORWARDING / NVOs
57
Stepping up export data enforcement 58
Manifest privacy fight continues
59
IANVOCC reborn
60
Canada, U.K. to share shipment data 61
Faster Russian Customs clearance
62
The border security agency
63
TRANSPORT/OCEAN
U.S., Chinese regulators at odds
Blust ready for FMC post
Will FMC probe Pacific carriers?
CP Ships acquires Italia
TOTE looks ahead
Matson adds containerships
Do megaports save money?
65
6
10
14
15
18
66
67
68
TRANSPORT/AIR
70
U.S., Uganda reach open-skies pact 70
IATA looks at war risk insurance issue 70
Industry should not bear security costs 70
CLADEC seeks model of efficiency
71
TRANSPORT/INLAND
U.S. Customs builds CAFES
72
72
PORTS
Shippers warn of port strike risks
Securing a port security bill
CSI program goes global
Le Havre to award port concessions
73
17
73
74
75
SERVICE ANNOUNCEMENTS 78
Sinotrans, Hasco swap slots ... WTSA seeks
to raise fruit rates ... COSCO adds Asia/
PNW link ... Carriers warn of war-risk surcharge ... Evergreen starts U.S./Haiti link
DEPARTMENTS
Comments & Letters
Peter Baish
Theodore Prince
Shippers’ Case Law
Corporate Appointments
Service Announcements
Editorial
2
63
54
56
77
78
80
62%
47%
39%
Where’s the payback in e-logistics?
32
Supply chain management IT systems are costly, and many
take longer to implement than exporters and importers
expect when they decide to invest in a new system. But,
while many companies’ IT budgets are down, logistics
staffs still require systems that help manage and integrate
their operations and all of their supply chain partners.
Users, though, need proof of tangible benefits and dollar
savings from their investments.
Baby ... or the bathwater?
46
“Don’t throw out the baby with the bathwater,” the old
wives’ admonition, might be good counsel for those who
have outsourced the shaping of a prime maritime tenet
to international hands. A revised Carriage of Goods By
Sea Act (COGSA), launched under American auspices, has
been given over to the United Nations Commission on
International Trade Law and the Comite Maritime
International. The lofty goal is an international convention
that would provide a harmonized cargo regime.
Buyers rule vendors
36
Increased outsourcing and markedly lower costs define
the “extraordinary” state of logistics, according
to the annual industry study by Robert V. Delaney
and Rosalyn A. Wilson. But while the lower logistics
costs were largely due to lower inventory investment
and carrying costs, future reductions “will have
to come from managing inventory investment more
efficiently,” the consultants said.
Subscribe online at www.americanshipper.com
AMERICAN SHIPPER: JULY
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2002 1
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Gary G. Burrows, Managing Editor
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Mark McHugh, Associate Editor
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Robert Mottley, Feature writer
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London
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Vol. 44 No. 7
July 2002
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2 AMERICAN SHIPPER: JULY
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Comments
Letters
&
Can carriers say no to shippers?
Michael F. Hampel, logistics manager for PM Global Foods, has some good advice
for ocean carriers: “Just say no” to accepting or offering rates at below operating costs.
“There’s a lack of discipline (with pricing) from the carriers,” Hampel told carrier
executives at the Agriculture Ocean Transportation Coalition meeting in San Francisco June 7.
Container rates have fallen to all-time lows across all the major trades and
increasingly shippers are less concerned about pushing rates down further. “I now see
reductions from the carriers that I don’t ask for,” Hampel said.
While some shippers say they still feel some pressure from customers to reduce
ocean transportation costs, most just want to focus on improving relationships with
their core carriers.
Carrier executives agree that the current pricing scenario has become damaging to
the ocean shipping business.
“We believe in partnerships and relationships,” which bring “value and benefits for
both parties,” said Ed Zaninelli, vice president of the transpacific trade for OOCL
(USA). “What’s happening is that relationships are being destroyed.”
However, with overcapacity in the liner market and slow improvement in the world
economy, carrier executives expect rates to remain relatively flat through 2003.
Many carrier executives are studying ways to reduce internal operations costs. Nick
Hay, vice president of APL Ltd., outlined strategies that carriers may take to trim their
operations costs:
• Adjust capacity according to seasonal demands.
• Improve customer service through centralization of certain operations, such as
documentation, and take advantage of lower labor costs overseas (APL is preparing
to centralize its Asian documentation work in Shanghai.).
• Increase use of electronic commerce transactions with shippers.
• Improve management of empty containers back to manufacturing markets
overseas.
As a shipper, Hampel urges carriers to get on board with e-commerce systems
development if they want to continue to handle his business. Last year, PM Global Foods
saved more than $100,000 in internal operations costs by using Web-based carrier
systems, in addition to improving the company’s carrier relationships. “If carriers don’t
have it, they won’t have a contract with me in 2003,” he said. (Chris Gillis)
Support for merging security agencies
President Bush’s announcement in June of a proposal to form a Cabinet-level
homeland defense agency was met favorably by shipping industry executives as well
as lawmakers.
Bush’s plan calls for merging several government agencies, including the Coast
Guard, Customs Service, the newly formed Transportation Security Administration
and Immigration and Natural Service, and placing them within a new Department of
Homeland Security.
Sandra Scott, international trade and customs advocate for Roadway Express, said
the time is ripe for forming of this agency. The proposal would integrate trade and
security in prearation for rolling out Customs’ Automated Commercial Environment,
a computer system to monitor trade, and the International Trade Data System, the
front-end of ACE. Scott said such a merging would also give industry a single location
to confer with when confronted with security questions.
Scott added that the plan will centralize security and compliance information for
trade. Since Sept. 11, such organization has been difficult to track down. “Everybody
was trying to do what they thought was best within their own agency, and trade looked
2002
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at it as a sort of overlapping,” Scott said.”I believe that if
Congress passes this, you will see more trust, more respect and
more partnership between trade and government.”
“The first order of government is to protect its people,” said
Jack Rafferty, director of Trade & Regulatory Services for PBB
Global Logistics.
Rafferty added that, while he was aware that turf wars may
erupt among Washington agencies, such a response would
detract from a mood that reflects solidarity, and added that
government must “approach this national challenge in a spirit
of unity and singularity of purpose.” (Mark McHugh)
expressed interest in these four vacancies. I cannot express how
honored I am that Speaker Hastert and the House leadership
have committed one of these seats to me, together with a
restoration of my seniority on the committee.”
Calling herself “a defense hawk” while in Congress, Bentley
said that “my thoughts, like the spokes of a wheel, keep
returning to one central abiding theme: security, and all its
component parts. Homeland security, national security, and
economic security. It is because of what I have to offer … in
these three areas, that I want to return to the Congress.”
Bentley’s persona and acumen seem ageless. We wish her
well in her run. (Robert Mottley)
What’s on Sen. McCain’s mind?
At the June 5 Senate Commerce Committee confirmation
hearing for Steven R. Blust as U.S. Federal Maritime Commission chairman, Sen. John McCain, R-Ariz., had something else
on his mind.
McCain asked for Blust’s view on ocean carriers’ use of flags
of convenience to register their vessels, in specific the Liberian
ship registry.
While the FMC has no jurisdiction over these matters, Blust
responded that he believed the use of a new “international
standard” has reduced some of the risk of carriers using flags of
convenience to register substandard ships.
“Does it bother you, (that) we drive these companies to
register their ships in a God-awful place like Liberia?” McCain
asked Blust. “It’s a joke and a shame.”
In the ongoing war against terrorism, McCain’s words may
be a prelude to Congress conducting a review of flags of
convenience. (Chris Gillis)
Bentley’s campaign
A neutral political source in Baltimore said that Helen Delich
Bentley has a good chance of winning her bid for the U.S. House
from Maryland’s Second District. Here’s why. Rep. Robert
Ehrlich is giving up that seat to run for governor of Maryland on
the Republican ticket. Ehrlich and the Bush Administration are
certain to provide strong backing for Bentley.
Her Democratic opponent in the general election is likely to
be Baltimore County Executive C.A. Dutch Ruppersberger,
who has made several recent blunders, notably a misjudged
pitch for a county revitalization plan that voters turned down by
a 70-30 margin. Half of the Second District is in Baltimore
County; the rest is divided between the city of Baltimore, Anne
Arundel and Harford Counties. Although the district was reshaped recently to benefit a Democrat, Mrs. Bentley’s strong
populist pitch should play well in all sectors.
Helen Bentley, now 78, has long been a staunch friend for the
U.S transportation industry. When President Nixon appointed
her to chair the Federal Maritime Commission in 1969, she was
the first woman to head a government regulatory agency.
During her 10 years in Congress, representing the Second
District from 1984 through 1995, she was a scrapper for
maritime causes. There is no reason to doubt that Bentley will
return to the ramparts if elected in the fall.
In remarks announcing her bid, made against a backdrop of
the Baltimore waterfront, Bentley said that “in this election
cycle, there are only four Republican vacancies on the (House)
Appropriations Committee, and we have been told there are
literally dozens of sitting Republican congressmen who have
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Security Quiz
A number of legislators on Capitol Hill worry about the
danger of a weapon of mass destruction being brought into the
U.S. in a container. Here’s a brief test intended to sharpen
debate on this issue, based on recent events in New York harbor:
1. Nuclear and conventional bomb components routinely
and legally pass through U.S. ports, stored in containers carried
on commercial ships.
(a) True.
(b) False.
2. In mid-February, the U.S. Coast Guard detained a vessel
in New York containing what were officially called “explosives.” In regard to this ship,
(a) The master came from Yemen, a fact kept from the
Coast Guard.
(b) Inspectors found three containers of 47 conventional
warheads deliberately misidentified.
(c) Several owner’s cabins had been rented to passengers
who boarded the vessel earlier in its port rotation, the ship
having called at Sri Lanka, Yemen and Egypt.
(d) All of the above.
3. Six weeks later, the Coast Guard banned a second vessel
from New York harbor. On that ship,
(a) The cargo included high-powered armaments being
shipped from France to French Polynesia in 20 containers
so substandard that “you could put your fist through their
sides,” according to a Coast Guard source.
(b) International rules require such bombs to be stowed a
safe distance from each other. Here, the bombs were closely packed.
(c) Before being banned, the vessel docked for a short time
at Red Hook, directly above an entrance to the Battery Tunnel connecting Brooklyn with lower Manhattan.
4. In the port of New York and New Jersey, the reaction
among officials could be summarized as
(a) No sweat, it’s only business as usual.
(b) The Coast Guard did its job both times, so why worry?
(c) The public doesn’t need to know everything.
The answers are (1) a, and (2), (3) (4), d.
So, it was coincidence that Jackie A. Goff, director of
intermodal hazardous materials programs in the Department of
Transportation, was being given a tour of New York harbor on
the day the second ship was banned, and heard an earful from
on-scene inspectors.
Goff has been shaking up complacent bureaucrats ever since
returning to Washington, D.C. (Robert Mottley)
2002
6/12/02, 12:09 PM
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NEWSFRONT
Liner carriers warn of ‘destructive’ consequences
if exemption is removed from OSRA.
BY CHRIS GILLIS AND PHILIP DAMAS
A
U.S. Justice Department official
called for the end of ocean carriers’ immunity from the nation’s
antitrust laws, at a June 5 House Judiciary
Committee hearing.
“We have consistently supported the
elimination of antitrust immunity,” said
Charles A. James, the
newly appointed assistant
attorney general of
Justice’s Antitrust Division. “A cartel used to
stabilize this industry is
bad public policy.”
The House Judiciary
James
Committee is debating the
proposed Fair Market Antitrust Immunity
Reform (FAIR) Act of 2001 on the ocean
shipping business. If passed, the legislation
calls for a one-year phase-out of the exemption for inter-carrier agreements. The legislation, however, would not affect the
immunity for marine terminal operators.
“In certain limited circumstances, more
aggressive or less restrictive antitrust laws
may be appropriate,” said James in his
written testimony to the House Judiciary
Committee. “We do not believe that the
ocean shipping industry exhibits extraordinary characteristics that warrant departure
from normal competition policy or the application of the antitrust laws.”
Questioned Exemption. The ocean
carriers have been exempt from the
country’s antitrust laws since the implementation of the 1916 Shipping Act. This
exemption has allowed the carriers to jointly
discuss pricing without breaking the law.
The fight to eliminate antitrust immunity
for ocean carriers began in the mid-1990s
when Congress considered amending the
1984 Shipping Act. The carrier lobby successfully prevented the removal of its antitrust immunity in the 1998 Ocean Shipping
Reform Act.
Months after OSRA’s implementation,
Rep. Henry Hyde, R-Ill., then chairman of
the House Judiciary Committee, heard numerous complaints from freight forwarders
and non-vessel-operating common carriers
in his jurisdiction in and around the Chi6 AMERICAN SHIPPER: JULY
06_08AS07
6
cago O’Hare area, calling for the repeal of
antitrust immunity for carriers. A similar
movement in Washington was underway
by the Coalition for Fair Play and other
related trade groups, alleging antitrust immunity-related abuses from carriers during
the contract season of 1999.
Hyde held oversight hearings on the antitrust aspects of OSRA on May 5, 1999,
and followed up with the introduction of the
FAIR Act in October 1999. But the bill
stalled because of the changes in presidential administrations.
When Rep. F. James Sensenbrenner, RWis., became chairman of the House Judiciary Committee in 2000, he vowed to keep
the FAIR legislation alive. Sensenbrenner
has repeatedly made it clear that he’s not
convinced that antitrust immunity protects
U.S.-flag carriers and shipyards, especially
now that foreign carriers own most of these
operations and containerships for the international trades have not been built in the
United States for many years.
“If Congress were to consider granting
antitrust immunity to ocean carriers in
today’s shipping environment, it would be
hard-pressed to justify this policy to the
American people,” Sensenbrenner said in
his opening remarks at the June 5 hearing.
Call For Repeal. Opponents of carrier
antitrust immunity have sharpened their
attack during the past two years, weighing
all aspects of the OSRA provision that they
consider detrimental to their business and
constituents.
To the International Brotherhood of
Teamsters, ocean carriers
antitrust immunity has
been a major contributor
to the plight of the port
drivers. “Complete elimination of this exemption… is the only way to
end the systematic exploiHoffa
tation of America’s port
drivers,” said James Hoffa, general president of the Teamsters at the June 5 hearing.
“Something is seriously wrong with the
system where the laws protect the
multibillion dollar, foreign-owned cartel,
but not the little guy — who is the hard
working port driver,” Hoffa said. “We are
still operating under a 1916 law that gives
the economic giants of the steamship industry antitrust protection — and prosecutes
the driver if he meets with three other truck
drivers in a church basement or union hall
to counter the unsustainable rates set by the
very same ocean carrier cartel.”
The Teamsters blame the ocean carriers
for using their antitrust immunity to unilaterally reduce the rates on the trucked portion of intermodal container moves.
“Unlike their relationships with shippers,
ocean carriers enjoy tremendous leverage
over port trucking companies due to the
carriers’ ability to collaborate with one another on freight rates,” Hoffa said. “Because
carriers know what other carriers pay for
inland transport, they can present ‘take-it-orleave-it’ rates to the trucking companies.
Thus, there are no meaningful negotiations.”
Hoffa told the House Judiciary Committee that on average port drivers earn a wage
of $7 to $8 per hour before taxes. “The
wages port drivers receive are unsustainable,” he said.
Hoffa also pointed out in his written
testimony that the pricing conditions for
truckers under carrier antitrust is not getting any better.
“Many port trucking companies on the
East and West coasts recently received notices from ocean carriers announcing a rate
reduction for inland transport,” he said.
“One ocean carrier, Evergreen America
Corp., informed its trucking company vendors that it would be reducing its inland
transport rates by 5 percent effective April
15. These unilateral decreases show that it
is the ocean carriers, not free market forces,
that control inland transport rates. And because carriers have no incentive to increase
those rates (to the contrary, low inland
transport rates help carriers recoup losses
from underpricing the ocean voyage), they
will continue to set prohibitively low rates
for inland transport.”
Robert Coleman, chairman of the Pacific
Coast Council of Customs Brokers & Freight
Forwarders Associations, who also represented the National Customs Brokers and
Forwarders Association of America, the
New York/New Jersey Foreign Freight
Forwarders and Brokers Association, and
the Agriculture Ocean Transportation Coalition, said ocean carriers continue to abuse
their antitrust immunity with regard to forwarders, NVOs and small shippers.
“They have done this (recently) by assessing NVOCCs two surcharges totaling
more than $300 a container while allowing
cargo owners (large direct shippers) to sign
similar contracts without these surcharges,”
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Coleman said in his testimony, regarding
contracting under the Transpacific Stabilization Agreement. “Some NVOCCs ship
far higher volumes of containers than the
cargo owners but they are still being assessed the two surcharges.”
The NCBFAA and the International Association of NVOCCs have formally petitioned the Federal Maritime Commission
to investigate and take action against this
“collusive activity,” Coleman said (see
story, page 15).
Coleman also cited the Westbound Transpacific Stabilization Agreement’s recent
proposal to “manipulate” refrigerated container capacity in the trade as another example of carriers abusing their antitrust
immunity privileges.
“Specifically, carriers which had invested
in new equipment to more efficiently carry
U.S. exports would be penalized in the amount
of $1,000 per container for every container
they carried in 2002 above the containers
carried in 2001,” Coleman said. “Carriers
which reduced their carriage of refrigerated
exports would be financially rewarded.”
The FMC, after receiving protests from
shipper and forwarder/NVO groups, rejected the WTSA’s proposal, although the
carriers warned of trouble ahead regarding
reefer capacity.
“Arguments based upon concerns about
‘ruinous’ or ‘destructive’ competition are
often made, but are virtually never substantiated,” James said. “Congress has heard
them many times before, often with respect
to transportation industries, such as railroads, airlines, and motor carriers … Over
time, however, each of them has been substantially deregulated and the applicable
antitrust exemption has been curtailed or
eliminated, with the result that competition
has increased for shippers and consumers,
without the horrible consequences predicted
by industry.”
‘Radical Surgery.’ Ocean carriers disagree with the FAIR bill’s “radical surgery” of the shipping act. “The assumption
that repealing antitrust immunity would
have no negative effects on the current
open, multilateral, non-restrictive regime,
but would simply facilitate increased competition and lower rates, is ill-founded,”
said Christopher Koch, president and chief
executive officer of the World Shipping
Council, in his testimony to the House
Judiciary Committee.
Koch questioned the soundness of the
arguments against carrier antitrust immunity presented by the Justice Department
and ocean transportation intermediaries.
“It would produce destructive competition in an industry that is already fiercely
06_08AS07
8
competitive and suffering from inadequate
returns on investment,” Koch said. “It would
result in poorer service and fewer choices, at
likely post-consolidation rates. It would invite other nations to respond by applying
their own, different, national shipping laws
to the business. And finally, it is likely to
produce a shortfall of private investment in
transportation infrastructure, with predictable long-term consequences for international
trade.”
Koch also disagreed with the Teamsters’
allegations. “Ocean carriers do not have antitrust
immunity to collectively
negotiate or set rates they
pay truckers or railroads,”
he said. “It is true that port
drivers are not highly compensated. It is simply not
Koch
true that carriers’ limited
antitrust immunity is the problem or results in
carriers charging their customers too little or
in mistreating truckers … The problem is the
imbalance in supply and demand, not antitrust immunity.”
In addition, the carriers cited the FMC’s
OSRA Impact Study, released in September,
which concluded that the legislation is, for
the most part, working as Congress intended.
The liner carriers gained support from
other maritime unions and U.S.-flag shipping associations in opposing the FAIR Act.
“We strongly oppose H.R. 1253,” said a
letter to the House Judiciary Committee
signed by the leaders of the International
Organization of Masters, Mates & Pilots,
Marine Engineers’ Beneficial Association,
Transportation Institute, American Maritime
Officers, Maritime Institute for Research and
Industrial Development, Seafarers International Union, and American Maritime Congress. “Its enactment would, at a minimum,
create chaos and confusion within the liner
industry, and cause severe and negative disruptions within our nation’s ports.”
“During these extraordinary times, as the
United States and its trading partners around
the world struggle to protect their shores
and ports from terrorist
attack, our nation cannot
afford to deal with the
instability and general
chaos that H.R. 1253
could ignite in the international shipping industry,” the group said.
Creel
FMC also sided with
the ocean carriers in written testimony to
the House Judiciary Committee.
“OSRA has significantly transformed the
industry and is working as Congress intended, resulting in more competition in the
industry,” said Harold J. Creel Jr., FMC
chairman. “As a consequence, I cannot support H.R. 1253, which eliminates antitrust
immunity for shipping lines in our international trades.”
“The aim of allowing limited antitrust
immunity in ocean transportation is not
simply to ensure adequate returns for the
liner shipping sector,” Creel added. “Rather,
the primary objective is far broader and
much more important: to ensure an adequate and efficient supply of ocean transportation services so that U.S. exports and
U.S. trade can compete in the global marketplace.”
Battle Not Over. The House Judiciary
Committee is next expected to mark up the
FAIR Act legislation. How far the committee
ultimately goes with the legislation this year
will largely depend on advocacy efforts made
by industry, a committee staffer said.
The Teamsters and the forwarder/NVO
groups said they intend to use their influence on Capitol Hill to pursue the elimination of antitrust immunity. Ocean carriers
and their supporters are expected to lobby
strongly to retain it.
Unlike two years ago, the FAIR Act
proponents have an emerging international
support to eliminate carrier antitrust immunity in other countries’ national maritime
rules on their side.
In April, the Organization for Economic
Cooperation and Development issued a comprehensive report on the liner shipping industry, which concluded that “antitrust
exemptions for conference price-fixing no
longer serve their stated purpose — if they
ever did — and are no longer relevant.” In
addition, Canada and European Union are
similarly considering the elimination of antitrust immunity provisions for shipping lines
(June American Shipper, pages 14-27).
The European Shippers’ Council favors
the removal of the antitrust immunity of
carriers.
Nicolette van der Jagt, policy adviser, said
the ESC has tried to follow the developments
of the Congress hearings. She said she understands that a repeal of the carriers’ immunity
in the United States is unlikely now.
“That ... is a kind of a political issue,”
said Ted Kawamura, managing director of
the Japan Shippers’ Council.
“The NIT (National Industrial Transportation) League is not in a clear position,”
Kawamura said. “They are not pushing —
they are in a wait-and-see position.”
Both the House Judiciary Committee and
Justice Department noted their interest in
these international reviews of antitrust exemptions for ocean carriers. “Perhaps, it’s
time for the United States to exercise leadership,” James said.
■
2002
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NEWSFRONT
U.S., Chinese regulators at odds
Discussions to resolve widening differences continue,
but bilateral maritime agreement renewal is put on hold.
BY PHILIP DAMAS
T
he U.S. and China governments are
criticizing each other for what they
regard as unilateral restrictions imposed by the other side.
And while disagreements between the
United States and China on maritime regulations are not new, the two nations’ positions are getting further apart. Meanwhile,
industry players are concerned about the
impact of regulatory problems between the
U.S. and its largest trade partner.
Officials of the U.S. Maritime Administration and China’s Ministry of Communications have discussed maritime regulations
and their differences several times since the
beginning of the year. The Chinese want the
end of U.S. restrictions on governmentcontrolled carriers like China Ocean Shipping (Group) Co. and China Shipping, and
they are keen on implementing their new
maritime law, the “Regulations of the
People’s Republic of China on the International Maritime Transportation.” The United
States is concerned about restrictions on
non-Chinese carriers and intermediaries
contained in China’s new law, and about
continuing restrictions on shipping in China.
Government officials from both countries met in Beijing in March and talked “in
a friendly and frank atmosphere,” U.S. officials reported.
Yet, in broad terms, each side says its own
maritime regulations are justified, while some
of the other nation’s regulations are discriminatory.
In April, a delegation from China’s Ministry of Communications traveled to Washington to meet officials of the U.S. Federal
Maritime Commission, the House of Representatives, and industry associations.
Gao Weijie, the executive vice president
of Beijing-based COSCO, also traveled to
Washington to stress the impact of U.S.
regulations on Chinese carriers. Gao said he
does not believe the U.S. government should
use its controlled carrier law as a commercial
weapon against Chinese ocean carriers.
The controlled carrier rules were developed 20 years ago by the United States
initially to isolate and regulate the activity
of the Soviet bloc’s ocean carriers during
the Cold War. The law evolved over time to
10 AMERICAN SHIPPER:
10_12AS07
cover other forms of overseas state-regulated carrier activities.
Today, “the Controlled Carrier Act not
only hampers Chinese carriers, but hampers the trade,” Gao said at a press briefing
of the International Management and Development Institute in Washington. “We
feel these Cold War rules should go away.”
COSCO said it is at a competitive disadvantage under the rules, because they restrain
its ability to reduce tariff rates to its customers. Government-owned COSCO, classified
as a controlled carrier, is subject to a 30-day
wait period before it can reduce tariff rates,
and has an exemption that allows it to match
(but not undercut) another carrier’s tariff rate
on one-day’s notice.
COSCO is frustrated that, to match another carrier’s tariff rate on one-day’s notice,
it must provide the FMC with documents
showing the published tariff rate it wishes to
match. The Chinese carrier cannot take the
commercial initiative to lower rates on oneday’s notice without such regulatory procedures, and it can only act to match a
competitor’s tariff rate.
However, COSCO is free to lower rates
on one-day’s notice under service contracts.
The restriction bites when some shippers,
like companies shipping irregular project
cargoes, need tariff rates and are not willing
to sign a service contract with COSCO.
“We lost the flexibility,” Gao said. “We
lose market opportunities.”
The FMC has made relatively little use of
the controlled carrier rules to investigate
government-controlled ocean carriers.
“There were at least two cases involving
FESCO,” said David Miles, acting general
counsel at the FMC.
In 1979, the agency investigated the thenSoviet government-owned carrier. FESCO
has since been removed from the controlledcarrier list because it is no longer owned by
the Russian government.
Commenting on concerns that controlled
carriers may engage in predatory pricing,
the Chinese carrier said in a 1999 petition to
the FMC that removing the controlled carrier restrictions would not affect the FMC’s
power to investigate any carrier that has
unreasonable rates.
COSCO and China Shipping are now
among the top 20 ocean carriers in U.S. liner
trades. They are the only major carriers that
are subject to the 30-day wait periods for
lower tariff rates.
Gao said the U.S. government’s continued use of the Controlled Carrier Act against
Chinese ocean carriers would only hinder
improved maritime relations between China
and the United States.
Timeline: Sino-U.S. history of divergence
1988 - FMC starts proceedings into
Chinese shipping restrictions; U.S./Chinese talks to resolve maritime trade
problems fail.
eases tariff-filing requirements, and
allows confidential service contracts.
China approves a terminal joint venture of Sea-Land in Tianjin.
1996 - Sino-U.S. relations improve
2002 - January - ºChina’s Regulations
with an agreement by China to grant
licenses to APL and Sea-Land. China’s
new Shanghai Shipping Exchange requires carriers to file rates.
of the People’s Republic of China on the
International Maritime Transportation
add new tariff-filing and licensing requirements, and requires a $100,000
deposit for all non-Chinese NVOCCs.
March - FMC starts proceedings into
new Chinese law; MarAd and Chinese
officials meet in Beijing.
April-May - Chinese officials meet with
Congress, FMC officials, and industry
representatives in Washington; Chinese
officials and COSCO argue that controlled carrier rules should no longer
apply.
June - FMC gathers critical industry
comments on new Chinese regulations
as part of proceeding against China.
1998 - Bilateral relations turn sour, as
U.S./China bilateral maritime agreement
expires and COSCO’s request to open
a container terminal in Long Beach is
denied. FMC grants COSCO limited exemption from the controlled carrier rules.
1999 - The U.S. Ocean Shipping Reform Act angers Chinese state-owned
carriers by widening the scope of applicability of the controlled carrier rules
to include bilateral trades. OSRA also
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NEWSFRONT
The Chinese also regard the U.S. Ocean
Shipping Reform Act as a step back in the
China/U.S. trade’s maritime relations. One
of the lesser known changes introduced by
OSRA is that it widens the scope of applicability of the controlled carrier rules to
include the China/U.S. and other bilateral
trades, thereby increasing the degree of
supervision by the FMC over controlled
carriers (May American Shipper, page 76).
The adoption by China of the “Regulations of the People’s Republic of China on
the International Maritime Transportation,”
effective since January, has further stretched
the uneasy U.S.-China relations.
In recent years, the FMC has indicated that
it’s losing patience with China for alleged
failure to change its policies toward nonChinese ocean carriers and related interests.
The agency also criticized China for the
preferential treatment of its state-controlled
ocean carriers. They include vessel operators COSCO and China Shipping Container
Lines, in addition to Sinotrans, or China
National Foreign Trade Transportation
(Group) Corp., which controls forwarding,
ship agency, vessel management and
multimodal operations in China.
Non-Chinese carriers have complained
to the FMC about China’s continued restrictions on vessel calls, inland operations,
and establishment of branch offices and
shipping between China and Taiwan. These
carriers say restrictions give Chinese carriers preference to lucrative export cargoes.
Dr. Zhang Guofa, deputy director-general for the Department of Water Transport
in China’s Ministry of Communications,
flatly denied that the new Chinese law contains restrictions.
Gao, at COSCO, said China has come a
long way toward opening its doors to foreign trade and competition, and would move
faster toward a market-driven economy now
that the country has entered the World Trade
Organization. In addition, China has recently issued new international maritime
rules that, he said, closely follow U.S. and
European Union maritime laws.
The new Chinese rules impose a 30-day
wait period on all carriers for new tariff rates.
Sources close to COSCO point out that this
resembles the 30-day wait period that controlled carriers have to follow in the U.S.
In May, Harold Creel, FMC chairman,
urged the industry to submit comments to
his agency about China’s new maritime
law, which the agency regards as restrictive. Industry comments were due by June
13, as part of a formal “notice of inquiry”
published by the FMC in March.
Perceived restrictions on shipping lines,
ocean transportation intermediaries and
shippers who do business with China caused
10_12AS07
U.S., Chinese laws on how carriers
can change freight rates
U.S. Ocean Shipping Reform Act
Section 8(d) on tariff rates (applies to
all carriers except controlled carriers)
“No new or initial rate or change in an
existing rate that results in an increased
cost to the shipper may become effective earlier than 30 calendar days after
publication ... A change to an existing
rate that results in a decreased cost to
the shipper may become effective on
publication.”
Section 9(c) on controlled carriers
(applies to controlled carriers only)
“Notwithstanding section 8(d) of this
Act and except for service contracts,
the rates, charges, classifications, rules,
concern among MarAd officials and industry associations.
Creel told the Monterey Seminar of the
National Industrial Transportation League in
May that he hopes the Chinese “now go back
and work hard on some good implementing
rules that will go further to address, not only
the concerns that the (MarAd) administrator
has raised in his discussions with them back
in March, but also the concerns that they will
receive directly from the industry.”
Creel said the new law initially led to a
“collective gasp of surprise and shock.”
The commission has received expressions of concern regarding the new Chinese
legislation from several sources. These include executive branch agencies with responsibilities affecting transportation policy
and the conduct of negotiations with foreign governments, as well as organizations
representing shippers and ocean transportation intermediaries operating or seeking
to provide shipping and shipping-related
services in the U.S. trade with China.
The National Customs Brokers and Forwarders Association of America said, “U.S.
intermediary and shipper interests will be
directly and discriminatorily affected in an
adverse manner.”
The FMC will continue an ongoing proceeding into Chinese restrictions initiated
in August 1988. The notice of inquiry into
the new Chinese law is now part of the longrunning proceeding.
“In that proceeding we are gathering information regarding certain apparently restrictive Chinese laws, rules and regulations in
order to determine if further action under
either section 19 of the Merchant Marine Act
of 1920 or the Foreign Shipping Practices
Act of 1988 is warranted,” Creel told the NIT
League seminar. Under both laws, the FMC
or regulations of controlled carriers may
not, without special permission of the
(Federal Maritime) Commission, become effective sooner than the 30th
day after the date of publication.”
Regulations of People’s Republic
of China on the International
Maritime Transportation
Article 20 (applies to all carriers)
“The published freight rates will be
effective 30 days after proper filing with
the competent departments of communication under the State Council,
the service contract rates will be effective 24 hours after filing.”
can impose fines on, and restrict the activities
of carriers of the offending country.
During their visit in May, the Chinese
government officials were able to provide
some reassurances about the impact of the
new law (June American Shipper, page 26).
Yet, U.S. non-vessel-operating common
carriers are eager to enter China’s ocean
freight consolidation market, and that
country’s new “bonding” requirements
threaten to shut out the NVOs. Under the new
rules, China will require all non-Chinese
NVOs to deposit more than $100,000 in hard
currency into a special bank account in China.
Representatives from the NVO-Government Affairs Conference and the New YorkNew Jersey Foreign Freight Forwarders
and Brokers Association met with Chinese
government officials in Washington in April
to express their concerns about the bonding
requirements of China’s new international
maritime regulations. The Chinese delegation addressed some of the industry’s concerns when it told the U.S. NVO
representatives that it would temporarily
suspend its tariff-filing requirement until
further review by the Ministry of Communications. The Chinese also said that service contract rates between carriers and
shippers would be confidential.
The U.S.-China bilateral maritime agreement expired in 1998 and the governments
have since been unable to agree on a renewal of the pact. Each side still observes
the terms of the agreement. In March, MarAd
said the U.S. and Chinese governments still
expect to renew the bilateral agreement.
However, William Schubert, maritime
administrator, said the United States would
hold off discussions on a new bilateral maritime agreement until the current issues with
China’s new maritime law are resolved. ■
JULY 2002
12
6/12/02, 12:42 PM
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NEWSFRONT
Blust ready for FMC post
New chairman comes with abundance
of industry experience.
BY CHRIS GILLIS
S
teven R. Blust has dedicated 30 years
of his career to the ocean shipping
industry, and now plans to put this
experience to good use as the next U.S.
Federal Maritime Commission chairman.
The White House nominated Blust to
FMC commissioner and chairman in January. His confirmation came before the
Senate’s Surface Transportation and Merchant Marine Subcommittee on June 5.
“Many of the functions that I have performed in my career have been subject to
the maritime laws and regulations that are
administered by the Federal Maritime Commission,” Blust told the Senate subcommittee. “I have extensive experience in the
areas of ocean carrier liner trade management, marine terminal management, public port administration, tariff and service
contract use and publication, and liner operations.”
“I believe that my diverse and proven
background in the maritime industry will
allow me to contribute to the efforts of the
Federal Maritime Commission,” he said.
Blust’s term on the commission would run
through June 30, 2006.
Prior to his appointment to the FMC,
Blust was president and chief executive
officer of Tampa Bay International Terminals in Tampa, Fla. From 1987 to 1996, he
held senior management positions with
Lykes Bros Steamship Co., and from 1985
to 1987, Blust worked for the Jacksonville
Port Authority in Florida. In the early 1980s,
he worked for Delta Steamship Lines and
Crowley Terminal Operators in New Orleans. Blust, a graduate of the U.S. Merchant Marine Academy, spent most of the
1970s on board U.S.-flag vessels.
Surface Transportation and Merchant
Marine Subcommittee Chairman John B.
Breaux, D-La., said Blust has the “professional credibility and background” to be a
successful FMC chairman. Blust is “not a
political appointee that they just found a
place for,” Breaux said.
Harold J. Creel Jr., previous FMC chairman, told the Senate subcommittee that
Blust was “extremely qualified” for the
14AS07
Steven R. Blust
job, because he understands the issues before the commission.
Blust emphasized to the Senate subcommittee that the 1998 Ocean Shipping Reform Act “has greatly benefited
international trade by allowing shippers
and ocean carriers to work more closely
together through the use of the confidential
service contracts to better meet the needs
of both parties.”
He said the FMC must continue to focus
on market trends “for indications of disrupting and distorting practices adversely
affecting U.S. international trade.” Blust
also said that under his watch the agency
would work closely with other federal agencies and the Congress in the war against
terrorism.
The independent commission comprises
five commissioners appointed to five-year
terms by the president with the advice and
consent of the Senate. Not more than three
commissioners can belong to the same
political party.
One of the agency commissioners is
picked by the president to serve as chairman. The FMC chairman essentially serves
as the agency’s chief executive and administrative officer. The chairman also has
authority over personnel matters, organization and supervision, business delegation, and use of funds for administrative
purposes.
As FMC commissioner and chairman,
Blust fills the position of former Commissioner Antony M. Merck, who resigned
from the FMC in December.
Creel will finish out his term, ending
June 30, 2004, as a FMC commissioner.
Joseph Brennan’s term does not expire
until June 30, 2003. Delmond J.H. Won’s
term expires on June 30, 2002, but he has
the option to stay on until his position is
filled. John A. Moran resigned from agency
in mid-April after three years as commissioner.
President Bush has the opportunity to
appoint another commissioner to complete
the five-person commission.
Many industry representatives are
pleased with the new FMC chairman’s
maritime background and eagerness to fulfill his role.
“Change is always good for bringing in
a fresh perspective to laws which the commission is charged with carrying out,” said
Peter Gatti, vice president of international
policy for the Arlington, Va.-based National Industrial Transportation League.
“But the commissioners staying on will
maintain a degree of continuity and help
the new chairman and commissioners that
come on board. That’s a positive mix which
will bode well for the industry.”
“Blust thinks outside the box and we are
operating outside the box in this industry,”
said William S. App Jr., president of J.W.
Allen & Co., a New Orleans-based freight
forwarder, and secretary of the National
Customs Brokers and Forwarders Association of America in Washington.
“He’s fair and just, and has good vision,” added App, who has worked with
Blust in the private sector for nearly 20
years. “He will be an excellent chairman.”
However, some forwarder and non-vessel-operating common carrier executives
worry that Blust’s deep ocean carrier and
terminal management roots may sway his
decision-making in favor of the carriers.
The FMC is already widely perceived by
many forwarders and NVO executives as
“pro-carrier.”
“As a regulator of the business in which
the FMC’s stakeholders operate and function, my relationship will be one of fairness
and impartiality, combined with understanding and support,” Blust said. “I will strive to
ensure that the stakeholders are allowed to
function free from discriminatory practices,
market-distorting activities, and in case of
cruise passengers, protection from undue
financial risk.”
■
JULY 2002
14
6/12/02, 12:48 PM
NEWSFRONT
Will FMC probe Pacific
carriers’ misconduct?
Industry front may convince FMC to probe
into alleged abuses by transpacific carriers.
BY PHILIP DAMAS AND CHRIS GILLIS
H
aving received industry comments
about alleged discriminatory service contracting practices by transpacific carriers, the U.S. Federal Maritime
Commission will decide in the next few
weeks whether to open a formal investigation into the case.
The National Customs Brokers and Forwarders Association of America and the
International Association of NVOCCs have
filed a petition urging the regulator to investigate this year’s contracting practices
of ocean carriers in the Transpacific Stabilization Agreement in the eastbound transpacific trade for misconduct.
The NCBFAA and IANVOCC made serious allegations that TSA carrier members
violated the 1984 Shipping Act and discriminated against ocean transportation intermediaries as a class of shippers.
The main complaints of the industry
groups are that TSA ocean carriers have
allegedly:
• Refused to negotiate with intermediaries or shippers’ association representing
their business until after they had signed
contracts with direct shippers.
• Agreed to charge OTIs “substantially”
higher rates than direct shippers, regardless
of their freight volumes or other lawful
transportation factors.
• Charged general rate increases and
peak-season surcharges under intermediaries’ service contracts, but not under direct
shippers’ contracts.
The industry groups of OTIs said the
TSA’s carrier members refused to negotiate or enter into service contracts with intermediaries at the same time as the direct
shippers. They complained about carriers’
“unreasonable increases in transportation
costs.”
In addition, the NCBFAA and IANVOCC
said the TSA’s members appear to be “abusing” their voluntary guidelines authorized
under the shipping act “by failing to file
their true agreements with the commission.”
“We told the FMC: ‘You’re
the only entity out there
that has the information
to look at this.’ ”
Peter Gatti
vice president,
NIT League
Industry Front. The National Industrial
Transportation League and the Transportation Intermediaries Association (TIA) have
backed the petition made by the NCBFAA
and the IANVOCCs that the FMC should
investigate the carriers.
The TIA is the U.S. member of the International Federation of Freight Forwarder
Associations, better known as FIATA.
The fact that four of the largest industry
groups representing American intermediaries, forwarders, NVOCCs and shippers
have formed a front to ask for an investigation provides significant pressure for the
FMC to act on the complaint. But is it
enough to convince the FMC to proceed?
“I would hope so,” said Peter Gatti, vice
president of the NIT League. “That was the
purpose behind our submission.”
Gatti said the FMC had a duty of oversight to avoid abuses of the antitrust immunity that ocean carriers have.
The FMC received only three industry
comments on the complaints made by the
NCBFAA and the IANVOCC: a reply from
the TSA carrier group, a submission by the
NIT League, and one by the TIA.
However, Bryant VanBrakle, secretary
of the FMC, said the number of submissions backing the request for an investigation “is not relevant at all.” He added that
the issues raised by the OTIs are “significant,” and the FMC will consider their
petition.
The FMC will need to decide whether the
allegations of bias against OTIs by TSA
carriers, and of unfiled secret agreements
among transpacific carriers, warrant an investigation.
VanBrakle could not say how long the
FMC is going to take to decide whether to
act on the complaints. However, the agency
is likely to announce its intention in late
June or early July.
The NIT League and the TIA have written to the FMC to express their concerns
about alleged heavy-handed practices used
by transpacific carriers, to the detriment of
non-vessel-operating common carriers and
other OTIs.
“If the TSA has designed a scheme to
enforce rigid adherence to supposedly ‘voluntary’ service contract guidelines to disadvantage independent NVOCCs and favor
either proprietary shippers or the logistics
companies created by the ocean carriers to
compete with NVOCCs, then the FMC
needs to ferret out the facts and put an
immediate stop to such conduct,” the TIA
told the agency.
The NIT League’s attorneys wrote in a
submission to the FMC that the league is
“concerned about the state of affairs described in the petition.”
TSA Denies Allegations. The Transpacific Stabilization Agreement, a group of
14 of the major ocean carriers in the Asia/
North America container trade, has rejected
the allegations of discriminatory practices
made by the NCBFAA and the IANVOCC.
The attorneys representing the carrier
group asked the FMC to reject the petition
asking for an investigation, and said the
allegations are unsupported and untrue.
“Petitioners have provided no facts or
evidence of any kind to warrant an investigation, and have made it clear in their
AMERICAN SHIPPER:
15_16AS07
15
6/12/02, 12:53 PM
JULY 2002
15
NEWSFRONT
petition ... that their members have no intention of providing any facts now or during the course of any investigation,” said
Stanley O. Sher and David F. Smith, of the
law firm Sher & Blackwell, on behalf of the
TSA.
“The requested investigation would tie
up the resources of the commission and
TSA for months and perhaps years in a
detailed examination of thousands of service contract provisions — all on the basis
of a petition based solely on unsupported
allegations,” TSA said in its response.
TSA said there was no agreement among
its members “not to negotiate with OTIs
until proprietary shipper negotiations were
concluded,” nor was there any agreement
among carrier members that OTIs would be
charged “substantially higher rates than
proprietary shippers for the same services,”
or that proposed rate increases for OTIs
would be compulsory, whereas proposed
increases for proprietary shippers would be
waived.
“TSA’s rate guidelines were and have
been at all times voluntary and non-binding, and each TSA member is free to act
independently and to disregard any such
guideline at any time,” the TSA said.
The attorneys said the TSA is confident
that its members’ existing contract rates
“reflect an intensely competitive and diverse market with a plethora of individual
customized rates and services,” and that
most current rates, including those of petitioners’ OTI members, are lower than they
were at this time last year.
The NCBFAA and the IANVOCCs had
alleged that TSA carriers refused to negotiate with OTIs until after having concluded
contracts with proprietary shippers. But the
TSA replied that, to the extent that OTI
contracts are negotiated later in the contract
cycle, “it is a function of the market, not a
TSA agreement.”
The group of transpacific carriers also
noted that the rates of most shippers in their
2002 transpacific eastbound service contracts are “lower, and in many cases substantially lower,” than the rates in their
Providing evidence of misconduct
WASHINGTON
The associations representing ocean
transportation intermediaries are facing
a problem in trying to convince the U.S.
Federal Maritime Commission to act on
their complaints about discriminatory
practices: Most service contracts are confidential and their terms are not known to
the public.
The Transpacific Stabilization Agreement said the only evidence the associations of intermediaries have advanced in
their petition to the FMC is the general
allegation of complaints from non-vesseloperating common carrier members about
the TSA’s service contracting practices
during the current negotiating season.
What evidence does the National Customs Brokers and Forwarders Association of America have of discriminatory
practices by TSA transpacific carriers?
“Lots of complaints from members,
that seem to say the same things,” said Ed
Greenberg, counsel to the NCBFAA.
“Also, it’s common knowledge in the
industry.”
“In a recent meeting of the (National
Industrial Transportation) League’s
ocean transportation committee, several
league members that are proprietary shippers reported that they had been told by
OTIs that TSA carriers are imposing general rate increases and peak-season surcharges on them without exception,” the
15_16AS07
NIT League told the FMC. Beyond such
general information, the NIT League said
it could neither directly confirm nor deny
the factual allegations made by the
NCBFAA and the International Association of NVOCCs.
“However, the league believes that the
factual allegations in the petition at least
raise sufficient cause for the commission
to promptly investigate the matter,” the
shippers’ organization told the FMC.
Because service contracts are confidential, the shippers’ organizations
pointed out that the FMC is the only
entity that has the ability to analyze the
TSA members’ contracts with OTIs and
other shippers.
“We told the FMC: ‘You’re the only
entity out there that has the information
to look into this,’” said Peter Gatti, vice
president of the NIT League. The shippers’ group wants the commission to
evaluate whether the TSA has engaged
“in a pattern of discrimination or other
misconduct to a particular class of shippers,” the NIT League said.
The NIT League said the FMC “should
at least take the first step to immediately
review contracts filed with the commission by ocean common carriers with OTIs,
to determine promptly whether carriers
are uniformly and without exception
imposing general rate increases and peak
season surcharges on OTIs.”
2001 contracts. “In particular, TSA understands that many contract rates, including
those of many OTIs, declined significantly
— in some cases up to 30 percent,” the
carrier group said.
The TSA also sought to undermine the
complaints of OTIs by saying that they
produced no factual evidence of discriminatory conduct by TSA carriers (see related
story).
Voluntary Or Compulsory? Both the
TIA and the NIT League raised the question
of whether the “voluntary guidelines” on
service contracts with shippers adopted by
the TSA carriers are truly voluntary. The
Ocean Shipping Reform Act allows ocean
carrier agreements to adopt “voluntary
guidelines,” but prohibits compulsory rules
that would affect the contracts between an
agreement carrier and its customers.
The TSA carriers have an estimated combined share of about 80 percent of the
transpacific trade. TSA members are APL,
CMA CGM, COSCO Container Lines,
Evergreen Marine Corp., Hanjin Shipping,
Hapag-Lloyd, Hyundai, “K” Line, Maersk
Sealand, MOL, NYK, OOCL, P&O
Nedlloyd and Yang Ming Marine.
Because of the potential anticompetitive
characteristics of large discussion agreements, the FMC has said in the past that it
would monitor their activities.
“Ocean carrier discussion agreements such
as TSA have attempted to avoid characterization of their activities as collective action,
subject to the statutory prohibitions, by claiming that member adherence to recommended
policy guidelines is ‘voluntary,’ ” the TIA
said.
The association expressed suspicions that
TSA carriers may have collaborated to enforce among themselves the imposition of
the peak-season surcharge and general rate
increases on NVOCCs, but not on direct
shippers. This would amount to a conduct
“to coerce or enforce compliance with the
guidelines,” the TIA said.
“While these actions may not breach or
violate any formal, written agreement
among the ocean carrier participants in the
TSA, their effect is the same,” the association alleged.
If the FMC’s investigation finds that
TSA’s members violated the Shipping Act,
the NCBFAA and IANVOCC urged the
agency to:
• Issue sanctions against TSA and its
members under section 13 of the shipping
act.
• Require TSA member lines to pay
reparations to affected intermediaries.
• Seek appropriate “injective relief to
enjoin further operation of TSA.”
■
JULY 2002
16
6/12/02, 12:53 PM
NEWSFRONT
Shippers warn of port strike risks
As deadline for ILWU/PMA contract talks near,
shippers are concerned about port disruptions.
BY PHILIP DAMAS
S
hippers using U.S. West Coast ports
have become increasingly nervous
as the July 1 expiration of the current
contract between the dockworkers’ union
and employers looms.
The International Longshore and Warehouse Union and the Pacific Maritime Association, which represents employers, have
to renew their labor contract on wages and
working conditions in West Coast ports. No
progress had been reported as of mid-June,
suggesting that a conflict is looming.
Organizations representing shippers —
the National Industrial Transportation
League and the West Coast Waterfront
Coalition — are worried about the potentially serious impact of port disruptions if
both sides fail to reach an agreement.
The NIT League has written to the U.S.
departments of Transportation, Commerce
and Labor to express its concerns, and warn
of the importance of the issue. Edward
Emmett, president of the NIT League, wrote
identical warning letters to Norman Y.
Mineta, Transportation Department secretary; Donald L. Evans, Commerce secretary; and Elaine L. Chao, secretary of Labor.
The NIT League asked the secretaries to
monitor these negotiations closely and “provide whatever help the parties need to arrive
at a mutually negotiated solution” that will
result in an efficient and productive system of
ports for the U.S. transportation industry.
“If there is even a small disruption, extremely serious consequences for the U.S.
economy would result with consumers experiencing shortages of needed commodi-
ties,” Emmett warned. “These ports are
critical to the United States economy.”
No information on the progress of the
ILWU/Pacific Maritime Association contract negotiations has been made public, as
both parties imposed a news blackout on the
talks.
“I’m concerned, of course, because of
this news blackout,” said Robin Lanier, a
director of the West Coast
Waterfront Coalition, a
Washington-based group
that represents shippers.
The group has recently
met with officials of the
departments of Commerce and Labor, of the
Lanier
office of the U.S. Trade
Representative, of the Maritime Administration, and of the White House.
“They are well aware of the impending
potential crisis,” Lanier said. “We could
fall off a cliff on July 1.”
“I’m not entirely sure the Bush administration intends to do something about it.”
Lanier added.
In the previous round of contract talks
between the ILWU and the Pacific Maritime Association, ports were hit by several
days of slowdowns. Eventually, the union
succeeded in rejecting employers’ demands
to revise the contract to allow new technologies to be used at the ports.
The NIT League stressed it is “essential” for the parties to confront issues of
productivity and security at the bargaining
table. Emmett said U.S. West Coast ports
have in recent years lagged behind ports in
other areas of the world, in terms of productivity.
Lanier said the Pacific Maritime Association “does not have the luxury” this year
of allowing the union to reject the need to
introduce new technology.
Lanier said that, if no new contract is
agreed to by July 1, employers are likely to
lock workers out of the terminals. That
could shut down all U.S. West Coast ports
and cut or disrupt the supply chains of U.S.
exporters and importers.
“We want the administration to weigh in
now,” Lanier said.
The Bush administration could set up an
advisory board before July 1, or send both
sides to the Federal Mediation Service, or
make public pronouncements about the
issue, she suggested.
“You don’t have to wait until the slowdown starts,” she added.
Lanier said the Pacific Maritime Association may come under strong pressures
from shippers to find an agreement with
the ILWU, even at unfavorable terms.
Under the Taft-Hartley Labor Act, the
government has the right to obtain an 80day injunction against strikes that “imperil
the national health.” The Bush administration would then order a “cooling off period” and order dockworkers and employers
back to work.
However, Lanier warned, “negotiations
under the threat of Taft-Hartley are going
to be difficult.”
Emmett said many NIT League members transport substantial quantities of
goods in the transpacific trade via West
Coast ports. In 2000, the ports handled 42
percent of U.S. waterborne trade, and nearly
30 percent of all U.S. trade, he said.
“There are shippers that have contingency plans, and are ready to ride the
strikes,” Lanier said. “But there are shippers that have no flexibility whatsoever,”
she added, citing shippers of perishable
agricultural goods.
■
AMERICAN SHIPPER:
17AS07
17
6/12/02, 4:33 PM
JULY 2002
17
NEWSFRONT
CP Ships acquires Italia
London-based container shipping group
returns on the acquisition trail.
BY PHILIP DAMAS
L
ondon-based CP Ships has returned
to the acquisition trail after a pause
of two years by taking over Italian
container shipping company Italia di
Navigazione.
CP Ships said it has reached agreement
with d’Amico Societa di Navigazione
S.p.A., the parent company of Italia, to
acquire all issued and outstanding shares of
the Italian shipping line for $40 million in
cash.
The takeover is CP Ships’ first since it
became an independent public company
last fall. Last November, CP Ships announced an agreement to acquire Nordana
Line, a small Danish niche carrier, but the
transaction fell through.
Series Of Takeovers. “It’s a classic
CP Ships transaction,” said Ray Miles, chief
executive officer of CP
Ships, of the group’s latest acquisition. “In terms
of size, it fits the sort of
acquisitions we’ve done
before.”
Italia operates its principal container services
Miles
between the Mediterranean, West Coast of North America and
Central and South America. It carried about
180,000 TEUs in 2001. CP Ships, the parent company of ANZDL, Canada Maritime, Cast, Contship Containerlines, Lykes
Lines and TMM Lines, carried 1.84 million
TEUs last year.
“The purchase of Italia is the continuation of a key element of CP Ships’ overall
strategy of making acquisitions to strengthen
our regional position, create new opportunities for growth and build trade lane economies of scale,” Miles said.
Italia is about one-tenth of the size of CP
Ships. Miles would not comment on whether
Italia has been losing money, but he said
that he expected Italia to add to the group’s
profits next year.
CP Ships said the acquisition of Italia is
subject to regulatory approval in Italy and
certain other closing conditions. It does not
have to be approved by the European
18AS07
Commission’s competition directorate.
The takeover is expected to close in the
third quarter. Italia will remain headquartered in Genoa, Italy. CP Ships said that
Italia will retain its Genoa headquarters and
staff, including employment guarantees
given by d’Amico to the Italian government
Formerly owned by the Italian government, Italia was privatized in 1998, when it
acquired by d’Amico.
Atlantic Presence. The takeover
should reinforce the CP Ships group’s already substantial presence in the transatlantic trade, and its activities in Central and
South America.
Italia will become the sixth transatlantic
shipping line controlled by CP Ships, alongside Canada Maritime, Cast, Contship
Containerlines, Lykes Lines and TMM
Lines.
Italia recently terminated its Mediterranean/U.S. East Coast service, blaming noncompensatory freight rates, but continued
its Mediterranean/West Coast of North
America service. Miles suggested that CP
Ships has no immediate plan to resume
Italia’s Mediterranean/U.S. East Coast service.
The sale of Italia has been a decision
made to guarantee the future of the company, said Cesare d’Amico, a senior executive of d’Amico. He said his company will,
following the sale of d’Amico, concentrate
on its bulk and product carrier shipping
activities, in which it is heavily investing.
D’Amico will also focus on expanding its
intra-Mediterranean feeder services and on
entry into the short-sea trades.
The acquisition of d’Amico by CP Ships
includes its brand and logo; its services in
four container shipping trade lanes; the
charter of 11 containerships with capacity
between 1,000 and 2,500 TEUs; a mainly
leased container fleet of about 40,000 TEUs;
the Genoa headquarters and staff; and owned
agency operations in Italy, Spain, Canada
and Venezuela.
“The strong Italia brand will complement
CP Ships’ existing brand strategy,” said Frank
Halliwell, chief operating officer.
Although CP Ships’ pace of carrier takeovers has slowed in the last two years, the
company said that more acquisitions will
follow.
“There will be more opportunities,” Miles
said.
He stressed that, given the CP Ships
group’s presence in worldwide container
shipping, future takeovers will “almost inevitably” overlap the existing trades covered by existing CP Ships services.
CP Ships has built its reputation by acquiring and turning around a string of regional carriers.
Why was there a two-year gap between
the previous acquisition, that of the U.S./
Africa niche carrier CCAL, and the takeover of Italia?
“There’s always a pipeline of potential
opportunities,” replied Miles, who said that
CP Ships is constantly considering takeovers.
“We don’t have a set plan of one or two
(takeovers) a year,” he said. “Also, we were
pretty busy getting CP Ships spun off from
Canadian Pacific.”
CP Ships became an independent public
company, listed on the New York and
Toronto stock exchanges, last October.
Share Issue. CP Ships also announced
a plan to raise about $350 million in a
combination of approximately $100 million in additional stock, through an offering
of common shares, and about $250 million
in debt, through an offering of 10-year
senior notes.
The shipping group said the transactions
are part of a restructuring of its balance
sheet.
CP Ships said it intends to use the proceeds of the common share offering, plus
the proceeds of a $250-million private offering of senior notes, “to acquire the container shipping company Italia di
Navigazione, to purchase four ice-strengthened ships currently bareboat chartered and
to reduce borrowings under its $175-million revolving credit facility.”
The finance will effectively replace “off
balance sheet” and revolving credit liabilities, the company said.
The senior notes may not be offered or
sold in the United States absent registration
or an applicable exemption.
The final terms of the share issue and
senior notes issue have not been determined. CP Ships has filed a preliminary
short-form prospectus for the common share
offering with the Canadian securities regulators and a Form F-10 registration statement with the U.S. Securities and Exchange
Commission.
■
JULY 2002
18
6/12/02, 1:04 PM
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Industry slump led to multibilliondollar decrease in shipping lines’
aggregated operating results.
BY PHILIP DAMAS
Main findings of annual survey
• Effects of overcapacity and lower rates pushed ocean carriers into the red.
• 2001 was one of the worst years for the containership industry, and 2002 is
•
•
•
•
•
expected to be worse.
Some shippers are concerned about the viability of their ocean carrier vendors.
Cost-cutting programs are top priority for many carriers.
Trend towards carrier mergers and takeovers has slowed, but there are more
instances of ocean carriers withdrawing from certain markets or closing down.
There will probably be few major mergers and takeovers among carriers.
With uncertain prospects of a return to fast cargo growth, carriers and their
customers continue to face market instability.
20_30AS07
JULY 2002
20
6/13/02, 10:26 AM
LOGISTICS
O
vercapacity ... slowing traffic volumes ... falling freight
rates ... carrier financial losses ...
2001 was one of the worst years on record for the
international containership industry. Industry analysts have
described the second half of the year as a “blood bath.”
Worse still, analysts and several container shipping lines
predict that the carriers’ financial results and vessel capacity
utilization in 2002 will be even lower.
The containership industry is in crisis, and some carriers
predict they will face a downturn until 2004.
“The confidence that we felt at the beginning of 2001
evaporated rapidly, as the world economy entered a period of
much lower growth and at times recession,” said C.C. Tung, chairman of Orient Overseas (International) Ltd., the
parent company of OOCL. “This was at
a stage in the cycle at which the rate of
delivery of new containerships was approaching an all-time high. The compound impact upon the general level of
freight rates has been extreme and the
current year is likely to be one of the
most difficult year in the history of conC.C. Tung
tainer shipping.”
chairman, Orient
The OOIL/OOCL group remained
Overseas
profitable last year, but at least 11 ship- (International) Ltd.
ping lines incurred losses last year — representing about half of
those shipping companies that disclose profit results.
Red ink has flown at Hyundai Merchant Marine, Hanjin
Shipping, the A.P. Moller’s Tankers and Liners in Partnership
unit (which contains activities of Maersk Sealand), Neptune
Orient Lines/APL, Yang Ming Marine Transport, China Shipping Container Lines, the container shipping arms of the NYK,
Mitsui O.S.K. Lines and “K” Line groups, Norasia Container
Lines and Trailer Bridge. Navieras, the subsidiary of The Holt
Group Inc. that operates under Chapter 11 protection under the
U.S. Bankruptcy Code, is also believed to have lost money last
year.
According to American Shipper’s latest annual survey of
container shipping lines’ results and industry trends, the mean
operating margin of liner carriers, as a percentage of revenues,
decreased to just 4.5 percent in 2001, from 7 percent in 2000.
This means an estimated decrease in operating profits of
about $2 billion for the containership industry as a whole.
While 2000 was a record year for containership operators
(July 2001 American Shipper, pages 30-39), 2001 has shown
not only a sharp deterioration of carriers’ profits from 2000, but
also from earlier years (see Table No. 1, page 22-23).
But there were a few carriers that raised their operating
profits and bucked the trend last year: Hapag-Lloyd Container
Line, United Arab Shipping Co., Safmarine, Uniglory and
Seaboard Marine.
Hamburg-based Hapag-Lloyd said its container-shipping
arm made higher profits last year “despite weaker demand and
the resulting significant declines in rates.”
Atlantic Container Line, Hapag-Lloyd Container Line and
Tropical Shipping were ranked as the three most profitable
carriers in container shipping in 2001 in terms of operating
profit margin (see Table No. 2, page 24).
“While Atlantic Container Line enjoyed good profits in the
difficult 2001 market environment, most of our competitors
posted losses,” said Olav Rakkenes, president and chief executive officer of ACL in the company’s 2001 annual report.
But Rakkenes warned: “In 2002, the increased magnitude of
those losses will make survival a major consideration.”
P&O Nedlloyd, Zim Israel Navigation Co., Uniglory Marine Corp. and the
“K” Line group had net profit margins
last year that were below 1 percent of
revenues.
Although there have been few bankruptcies among container carriers —
Cho Yang and Navieras being isolated
cases so far — the financial standing of
ocean carriers is serious.
Olav Rakkenes
Rate Pressures. The fall in freight president & CEO,
rates last year isn’t a secret in the con- Atlantic Container Line
tainer shipping business. Freight rates have decreased faster
than carriers were able to cut costs.
In a recent report on the A.P. Moller group, investment
analyst WestLB Panmure said that average freight rates at
Maersk Sealand decreased 4.8 percent in 2001. It predicts that
rates will decline another 6 percent this year, before increasing
4.3 percent in 2003.
“The fourth quarter of 2001 was a terrible quarter for Maersk
Sealand,” WestLB Panmure said. “P&O Nedlloyd reported
declining rates of 14 percent in the same quarter.”
American Shipper and other publications have also reported
sharp reductions in freight rates last year, particularly in the
transpacific and Asia/Europe trades. Although the extent of rate
decreases varied by trade route and direction, research by
American Shipper concluded that average freight rates dropped
about 5 percent globally last year, to an estimated $1,260 per
TEU (see Table No. 3, page 26).
Those carriers that are focused on the main east/west trades
suffered sharper decreases in revenue per TEU.
Neptune Orient Lines, the parent company of APL, said its
container shipping subsidiary’s average freight rates decreased
9 percent last year, to $2,304 per forty-foot equivalent unit,
from $2,523 in 2000.
“Across the industry and globally, rates fell significantly,”
said Ed Aldridge, chief operating officer of APL, in NOL’s
annual report.
APL said rates began to soften at the end of 2000 and the slide
continued through the year. In major trades they were as much
as 20 and 30 percent lower year-on-year in December, the
carrier reported.
OOCL reported that its average revenue per TEU fell 13
percent in the transpacific and Asia/Europe trades last year. The
carrier’s average rates in the transatlantic did not fall last year.
Danske Securities, the Danish investment analyst, estimates
that a 9-percent, $100-per-TEU fall in average freight rates at
Maersk Sealand would shave DKr5 billion (about $620 million), or 25 percent, off its pre-tax profit.
Decreases in freight rates go straight to the bottom line of
AMERICAN SHIPPER:
20_30AS07
21
6/13/02, 10:26 AM
JULY 2002
21
LOGISTICS
carriers. Investors describe the over-proportional impact of
changes in rates on carriers’ profits as “a high operational
gearing.”
Besides its Maersk Sealand business, A.P. Moller also operates
very large crude carriers, product carriers, gas carriers, dry
bulk carriers, supply vessels and cable-laying vessels.
A.P. Moller warned it expects Maersk Sealand to have a net
loss this year.
The group expects average freight rates at Maersk Sealand
to be about $225 lower per 40-foot container than in 2001,
leading to a loss of income of about DKr2 billion ($237
million).
In a report on A.P. Moller, Danske Securities estimated that
Maersk Sealand, the world’s biggest container shipping line,
would have revenues of $8.7 billion in 2002, up slightly from
$8.6 billion in 2001.
Other carriers have sought to increase revenues by gaining
market shares. Industry-wide overcapacity has triggered pressures on rates and on market shares as carriers attempted to fill
their ships (see “Fight for market share”).
Maersk Sealand In Red. The Tankers and Liners in
Partnership arm of Denmark’s A.P. Moller group moved into
the red last year with an annual deficit of DKr329 ($39
million), as Maersk Sealand suffered from the slowdown in
container trade and lower freight rates.
The 2001 loss for A.P. Moller’s Tankers and Liners in
Partnership unit, which includes some of the activities of
Maersk Sealand, compares with a net profit of DKr945 million
in 2000.
In 2001, the tanker/liner unit’s result before gains on sale
and special items fell 65 percent to DKr886 million ($105
million), from DKr2.6 billion in 2000, A.P. Moller said. The
unit’s revenue increased 5 percent to DKr77.9 billion ($9.2
billion).
“Cargo volumes and freight rates for container vessels were
under pressure from the beginning of the year due to stagnant
world trade and addition of tonnage,” A.P. Moller said, commenting on the 2001 results of its shipping activities. “Volumes transported were slightly above those of 2000, but the
average freight rates considerably lower.”
The Danish group said the result for its container activities
was below that of 2000, and lower than expected.
The lower result from container shipping was the main
reason for the fall in the group’s result from shipping in 2001.
Cost Cuts. Ocean carriers’ priority, more than ever, is to
reduce costs. Several companies have announced plans to lay
off staff, slim down their organizations, close down offices in
high-wage locations, raise productivity, and put pressures on
vendors to reduce their prices.
APL said it focused on cost reductions last year, but it wasn’t
enough “to counter the rate decline brought on by capacity
issues and industry inability to sustain stability.”
“Services have either been scaled back or removed in
response to the reduced demand of customers, and as volumes
Table No. 1
Carriers’ financial roller-coaster 1999-2001
(annual operating profits — shown in million dollars;
2000/2001 percentage change shown on top of bars)
800
700
600
(46%)
500
(36%)
(77%)
400
(40%)
(51%)
300
(66%)
(3%)
100
16%
(35%)
(39%)
200
(34%)
(54%)
0
-100
PL
A
L/
L
AC
NO
ips
M
MA
CG
C
CP
Sh
CS
ne
AV
n
ree
rg
e
Ev
ing
ri
Ma
nS
nji
Ha
p
hip
d
loy
-L
g
pa
Ha
u
Hy
nd
ai
ine
ol
Source: Global liner shipping database ComPairData.
JULY 2002
22
ers
Ma
.M
20_30AS07
e
kS
/
ler
P
A.
nd
ala
”L
“K
6/13/02, 10:26 AM
n
tso
Ma
LOGISTICS
return the focus will be on improving fleet utilization,” said
Aldridge, at APL.
APL reported that the volume of shipping transactions made
by its customers through electronic channels rose from 18
percent to 34 percent of the total during 2001. Nearly one-third
of its customers actively use APL’s electronic commerce
products, and 2001 saw a two-thirds increase in Internet
transactions, the company said.
“By expanding the use of e-commerce solutions, particularly in the areas of documentation, savings have been achieved
for both the company and our customers,” Aldridge said.
Maersk Sealand has “a quite substantial program” to reduce
costs this year, said Eivind Kolding, chief financial officer of
A.P. Moller. “It’s the top task for our organization to get unit
costs down.”
“The key focus for Maersk Sealand is to get back on track
and reduce the cost per TEU, as all competitors are striving
hard to reduce this at the moment,” said the WestLB Panmure
investment firm in a recent report on the A.P. Moller group.
In May, “K” Line said it would implement a new three-year
management plan that includes cutting costs by 30 billion yen
($230 million). The new “KV-Plan” succeeded the Japanese
group’s former five-year management plan, named “New “K”
Line Spirit for 21.”
“K” Line said the previous plan was stopped “in view of
various huge changes to management circumstances.”
Hapag-Lloyd Container Line has continued to raise its
productivity. The German carrier increased its containers
volume 8 percent last year, to 1.7 million TEUs, with almost no
increase in staff.
Gunther Casjens, chief executive officer of Hapag-Lloyd
Container Line, said the carrier achieved another productivity
increase thanks to its information technology systems, and also
benefited from the joint management and use of ship capacities
within the Grand Alliance.
2002 Prospects. Prospects for profits in container shipping don’t good this year.
Michael Behrendt, the new chairman of the Hapag-Lloyd,
warned that Hapag-Lloyd Container Line “will have to expect
a drop in earnings” this year because of pressures on freight
rates. He also said the container line will continue to grow
faster than average in the market.
“We anticipate moderate growth in volumes during 2002,
but unless rates recover, APL cannot show a turnaround this
year,” said Aldridge, at APL. “No amount of cost reduction can
compensate for such dramatic rate decline and neither can the
industry sustain services at this level.”
Maersk Sealand expects to be in the red this year.
Unusually, CMA CGM, the French shipping line, said its
profits may increase this year, assuming that expected freight
rate increases in the Asian trades hold.
Rakkenes believes 2002 will probably be “the worst year
ever for liner shipping worldwide.”
Information on first-quarter revenue per TEU and freight
rates published by P&O Nedlloyd and CP Ships indicates that
1999
2000
2001
800
(29%)
(30%)
700
600
500
400
300
(57%)
(35%)
2%
66%
(32%)
(494%)
(59%)
(172%)
(43%)
200
100
175%
0
-100
M
OL
N
YK
OO
CL
dl
&O
P
Ne
rd
a
bo
a
Se
e
idg
e
rin
d
loy
Ma
ler
ai
Tr
Br
g
pin
hip
lS
a
pic
SC
UA
y
or
igl
Un
an
i
Ha
ing
ng
W
M
Ya
o
Tr
AMERICAN SHIPPER:
20_30AS07
23
Zim
6/13/02, 10:26 AM
JULY 2002
23
LOGISTICS
Table No. 2
Shipping lines ranked by 2001 operating profit
All figures are in million U.S. dollars / million local currency when specified
Rank/Carrier
1. Atlantic Container Line
SKr
2. Hapag-Lloyd Container Line
euro
3. Tropical Shipping
4. Matson
5. Mitsui O.S.K. Lines group (1)
Yen
6. Seaboard Marine
7. Hyundai Merchant Marine group (1)
Won
8. NYK group (1)
Yen
9. Evergreen Marine Corp. (2)
NT$
10. United Arab Shipping Co. (3)
11. Hanjin Shipping group (1)
Won
12. CSX Lines
13. OOIL (parent of OOCL)
14. Zim Israel Navigation
Shekel
15. CP Ships (4)
16. Wan Hai
NT$
17. ”K“ Line group (1)
Yen
18. A.P. Moller / Maersk Sealand (5)
DKr
19. P&O Nedlloyd Container Line (6)
20. CMA CGM
euro
21. NOL/APL (1)
22. Uniglory Marine Corp.
NT$
23. Cia. Sud Americana de Vapores
24. Yang Ming Marine Transport
NT$
25. China Shipping Container Lines (6)
Rmb
26. Trailer Bridge
TOTAL
REVENUES
OPERATING PROFIT
Amount
as % of
revenues
$289
3,062
$1,978
2,235
$230
$797
$6,784
903,943
$385
$4,196
5,551,823
$8,577
1,142,934
$1,551
54,431
$743
$3,486
4,612,000
$681
$2,379
$1,677
7,378
$2,646
$855
30,021
$4,285
571,014
$9,237
77,868
$4,132
$1,981
2,238
$4,737
$642
22,537
$1,735
$1,294
45,412
$940
7,782
$82
$35
370
$197
223
$18
$62
$449
59,772
$24
$234
309,214
$492
65,558
$89
3,116
$42
$192
254,000
$32
$107
$68
298
$103
$30
1,059
$143
19,049
$303
2,553
$87
$40
45
$79
$9
331
$19
($13)
(449)
n/a
n/a
($26)
12.1%
10.0%
7.8%
7.8%
6.6%
6.2%
5.6%
5.7%
5.7%
5.7%
5.5%
4.7%
4.5%
4.1%
3.9%
3.5%
3.3%
3.3%
2.1%
2.0%
1.7%
1.4%
1.1%
(1.0%)
n/a
n/a
(31.7%)
NET PROFIT / LOSS
Amount
as % of
revenues
$21
223
n/a
n/a
n/a
n/a
$79
10,544
n/a
($242)
(319, 605)
$132
17,538
$48
1,695
$42
($59)
(78,300)
n/a
$60
$13
56
$76
$18
638
$36
4,768
($39)
(329)
$31
$25
28
($57)
$6
201
$26
($19)
(675)
($136)
(1,123)
($29)
7.3%
n/a
n/a
n/a
1.2%
n/a
(5.8%)
1.5%
3.1%
5.7%
(1.7%)
n/a
2.5%
0.8%
2.9%
2.1%
0.8%
(0.4%)
0.8%
1.3%
(1.2%)
0.9%
1.5%
(1.5%)
(14%)
(35.4%)
Notes:
The operating profit is defined as profit from normal activities before finance (earnings before interest and tax). The results for “K” Line,
MOL and NYK are for their financial year ended March 31, 2002.
(1) Denotes a diversified shipping group with substantial maritime transport activities other than liner shipping.
(2) The results are those of Evergreen Marine Corp., the listed arm of the group, not those of the entire group.
(3) The results for United Arab Shipping Co. are preliminary.
(4) CP Ships is the parent company of Canada Maritime, Cast, Lykes, Contship, TMM Lines and ANZDL.
(5) The results for A.P. Moller / Maersk Sealand are those of the group’s Tankers and Liners in Partnership unit. The figure shown
under operating profit is the company’s result before interest and depreciation, less depreciation and write-downs. Separate figures
for Maersk Sealand are not published. A.P. Moller is also the parent company of Safmarine.
(6) The figure shown as net profit for P&O Nedlloyd and China Shipping are before tax.
Source: Global liner shipping database ComPairData at www.compairdata.com and carriers.
20_30AS07
JULY 2002
24
6/13/02, 10:26 AM
6/8/02
12:18 PM
Page 1
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LOGISTICS
rates have continued to decline. Table No. 3
Mitsui O.S.K. Lines group in
P&O Nedlloyd’s average revseveral business fields, the comenue was down 17 percent, to
pany is “much stronger than
$1,148 per TEU, from $1,389
other shipping companies.”
in the first quarter of 2001. CP
Hyundai Merchant Marine,
Ships’ average freight rates were
the heavily indebted Korean
down 7 percent from the fourth
shipping group, said it has re63 million TEUs (up 2% from 2000)
quarter of 2001 and 13 percent World box traffic
duced its long-term liabilities
lower than in the first quarter of (loaded TEUs)
from 3.62 trillion Korean won
2001.
(about $2.8 billion) at the end of
Carrier
TEU volume
9.2 million
P&O Nedlloyd said there are 3-million-TEU+ carriers Maersk Sealand
2000 to Won2.83 trillion ($2.1
Evergreen/Uniglory unknown traffic
“early signs” that the reduction
billion) at the end of 2001.
P&O Nedlloyd
3.2 million
in revenue rates has bottomed
“Because Hyundai Merchant
COSCO
3.0 million
out, but pressure from industry
Marine has not delivered any
2-million-TEU+ carriers APL
2.8 million
overcapacity will remain.
new vessel since 2000, longMSC
unknown traffic
Shippers are aware of the fiterm liability has not increased
Hanjin
2.2 million
OOCL
2.0 million
nancial instability faced by some
any more,” said S.K. Kang, diocean carriers.
rector of public relations at
1-million-TEU+ carriers CMA CGM
1.9 million
Some are nervous about the
Hyundai Merchant Marine.
CP Ships
1.8 million
Wan Hai
unknown traffic
risk of bankruptcy of carriers,
Hyundai also hopes to sell its
Hyundai
1.8 million
although little information is
car carrier division to Wallenius
Hapag-Lloyd
1.7 million
publicly available about carriWilhelmsen “as soon as posChina Shipping
1.7 million
“K” Line
1.7 million
ers’ debts.
sible,” thereby raising more
NYK
1.6 million
“Nike is concerned about the
cash.
MOL
1.5 million
long-term financial risk of carIndustry analysts point out
Yang Ming
1.5 million
CSAV/Norasia
1.4 million
riers,” Sam Ruda, director of
that mergers and takeovers
Zim
1.3 million
global transportation at Nike
among container carriers have
Senator
unknown traffic
Inc., told the recent Trans-Paslowed, and it is unlikely that
cific Maritime conference in Avg. revenue per TEU $1,260 (down 5% from 2000)
many major consolidation
Carriers’ avg. operating 4.5% (down from 7% in 2000)
Long Beach, Calif.
moves will happen among the
margins
Ruda said Nike has recently
top 20 carriers (see “Little scope
added a fifth ocean carrier to its Source: Research by American Shipper and carriers.
for consolidation,” page 30).
list of vendors to lower the risk.
CP Ships, one of the more profitable container shipping lines
There have been few takeovers and mergers in the in recent years, saw its net result move into the red in the first
containership industry in the last two years. Perhaps more quarter of this year. The U.K.-based group still expects to earn
significantly, some carriers are scaling down their operations or a profit this year, but it will be lower than in 2001.
leaving the industry:
Ray Miles, chief executive officer of CP Ships, said he sees
• FESCO pulled out of the Far East/U.S. container trade last “a number of positive signs” in the market, including an
year, to focus on its Russia/U.S. market niche.
improvement in the U.S. economy, and initiatives by carriers to
• National Shipping Co. of Saudi Arabia recently pulled out reduce capacity.
of the Asia/Europe container trade and effectively stopped its
In its annual report, CP Ships said that industry experts
container shipping activities.
predict overall trade growth this year will be faster than in 2001.
• Cho Yang stopped trading in early 2001 and was liqui- But it said market conditions will be affected by significant
dated.
deliveries of new containerships, and will remain difficult.
• In February, Italia di Navigazione suspended its weekly
“Our industry ... and our company certainly face considerMediterranean/U.S. East Coast/Canadian East Coast service in able uncertainty in the marketplace,” Miles said during an
because of the fall in freight rate levels. CP Ships has recently analysts’ conference meeting in April. “There’s too much
agreed to acquire Italia (see story page 18).
containership capacity.”
Earlier this year, Kunio Suzuki, president of the Mitsui
The issues of overcapacity and a rebound of cargo growth are
O.S.K. Lines group, warned that several container-shipping key drivers in the future recovery of the container shipping lines
lines without the benefit of income from other activities might (see “Economics of container shipping: Two views,” page 28).
not survive the current downturn.
Miles expects to see more losses among container shipping
International competition in liner shipping has drastically lines this year. “Those heavy losses drive actions to increase
strengthened since 1998, Suzuki said. “Many other liner opera- freight rates,” he said.
tors around the world also find themselves in the red, like
If the decline in rates isn’t stopped, and with operating
MOL,” he said in a message to employees of the group.
margins now lower than they have been for years, the alterna“Some of our competitors may not survive this difficult tive scenario would have to be that some carriers will be driven
period,” Suzuki said. Yet, because of the diversification of the out of the industry.
Facts and figures
Container shipping in 2001
20_30AS07
JULY 2002
26
6/13/02, 10:26 AM
LOGISTICS
Fight for market share
I
n a market with very slow growth, some carriers have
sought to increase their market shares, but found that lower
rates impacted their revenues.
Last year, global container traffic increased only 2 or 3
percent, to an estimated 63 million loaded TEUs. This represents a sharp slowdown, following the 13-percent growth
recorded in 2001 (see Table No. 3, page 26).
Last year China Shipping Container Line, the fast-growing
Chinese carrier, increased its container traffic by 21 percent, to
1.74 million TEUs. However, it incurred a pre-tax loss of 1.1
billion Renmibi ($136 million).
China Shipping Development Co. Ltd., the Hong Konglisted subsidiary of China Shipping Group, said China Shipping
Container Lines Co. Ltd., an associate of the company, “faced
tremendous challenges” in 2001.
“In 2001, the global shipping capacity of container vessels
increased by 12.3 percent, and the average freight rate dropped
by over 20 percent as compared with 2000,” it said.
China Shipping Container Lines’ operating loss in 2001 was
largely due to the slowed growth of world trade and more
shipping capacity delivered into service, China Shipping Development said. “The excessive shipping capacity of container
vessels caused the freight rate in the global container transpor-
tation (to drop) to its lowest level.”
In 2001, China Shipping Container Lines carried about 1.7
million TEUs, 21 percent more than in 2000. However, its
revenue rose only 11 percent, to Renmibi7.78 billion ($940
million).
Faced with difficult market situation, China Shipping Container Lines adopted a series of measures “to decrease the
operating risk,” such as a reduction in the number of vessels
deployed in the Asia/Europe and transpacific trades and the
merger of its Asia/north Europe and Asia/Mediterranean services.
CMA CGM, the expansion-driven French shipping line,
posted a 74-percent fall in net profit for 2001, to 28 million euro
($25 million), despite a 17-percent increase in the volume of
containers carried.
CMA CGM’s total revenues rose 11 percent last year, to 2.2
billion euro ($1.98 billion), from 2 billion euro in 2000. Container volume soared to 1.9 million TEUs, from 1.6 million
TEUs in 2000, as a result of increases in market shares and the
launch of new container services.
“The year 2001 has been a difficult year for the maritime
industry,” said Jacques Saade, chairman of the executive board
of CMA CGM. The company said that sharp decreases in
AMERICAN SHIPPER:
20_30AS07
27
6/13/02, 10:26 AM
JULY 2002
27
LOGISTICS
freight rates last year followed the slowdown in trade growth
and the rise in global containership capacity.
“Shipowners and operators faced an overcapacity problem,”
Saade said. “The east/west trades were the
hardest hit.”
Saade acknowledged that CMA CGM’s
17-percent volume increase last year exceeded by a large margin the average
growth of 2 or 3 percent of the global
container shipping market last year.
“This growth was a bit distorted, because we took delivery of our new ships
(of 6,600 TEUs) in 2001,” he added. Eight
new 6,600-TEU were deployed by CMA
Jacques Saade
CGM in the Asia/Europe trade. CMA
chairman,
CMA CGM
CGM was “forced to increase its volumes” in this trade because of its additional ship capacity, he said.
Last year, CMA CGM also launched several new container
services, in the Asia/West Africa, North America/East Coast
South America and other trades, accounting for half of the
additional container volume carried.
Most carriers reported modest increases in cargo volumes
last year, because of the slowing market.
Hanjin Shipping, the largest Korean shipping line, reported
market share gains and an increase in container traffic that was
substantially higher than average market growth. Its volume
increased 7 percent last year, to 2.2 million TEUs.
Yet, Hanjin also reported that its vessels’ load factor decreased to 73 percent, from 76 percent in 2000.
The prospect of a further large increase in vessel capacity this
year, outpacing cargo growth, will mean another decrease in
ship utilization for carriers in 2002.
“Ominously, the various estimates for 2002 forecast that the
fleet is set to continue growing ... a further 12 percent (in 2002),”
said C.C. Tung, chairman of Orient Overseas (International)
Ltd., the parent company of OOCL.
Economics of container
shipping: Two views
Senior executives comment on behavior of carriers and the relationship
between supply and demand in a difficult market.
T
he container shipping market is driven by simple economics, according to Chris Bourne, managing director
of Mitsui O.S.K. Lines (Europe) Ltd.
Speaking at the recent CI Shipping Forecast Conference in
London, Bourne denied that the container shipping industry
chronically orders too many ships and is unable to forecast
demand.
“Supply and demand decides freight rate levels,” Bourne
said. With the exception of 2001, supply and demand on the
main trades have been nearly aligned, he said. In 1999 ship
capacity rose 11 percent, while cargo volumes were up 10
percent. In 2000, capacity went up 7 percent, while demand
increased 11 percent, he said.
“2001 was a disaster,” Bourne admitted, citing a demand
growth of 1.5 percent against a capacity of 11 percent. “(But) I
would argue that in most years the industry got it right.”
On the profitability of container carriers and freight rates,
Bourne said 2000 was “very profitable” because demand growth
outpaced capacity. “2001 was very unprofitable because demand went flat and freight rates collapsed — basic economics.”
“Vessels have to be well over 90-percent full before you get
strong rate increases,” Bourne added.
Bourne said ocean carriers see the need to lay up ships to
improve their bottom lines in period of overcapacity.
If capacity is reduced, “the rates will not fall further” and a
carrier can make “very real” savings on vessel-operating costs,
he said. However, there is always the temptation for carriers to
“rush” the vessels back. In 2001, ships have been off-chartered
20_30AS07
or laid up by carriers, he added.
Bourne said ocean carriers have stopped ordering new ships.
“New buildings in 2004 will be at a record low. With the current
return on capital, no one is going to order new ships.”
Theodore Prince, senior vice president of marketing and
sales at Optimization Alternatives Ltd., disagreed, arguing that
shipping lines are not always driven by the profit motive.
Conglomerates that own both shipyards and shipping lines
pressure their ocean carrier arm to order ships, he told the CI
Shipping Forecast conference. Several shipping groups are
“vertically integrated,” he added.
Prince also accused most shipping lines of not knowing their
costs, or measuring the wrong costs. Shipping companies
assign their costs, such as terminal costs, “somewhat arbitrarily” because they are vertically integrated with other businesses, such as container terminals.
“Part of this may be due to the fact that operating units do not
carry a true cost of capital, which is managed at the parent
level,” he said.
Ocean carriers also rely on “transfer prices” covering services provided to affiliates. “Frequently, the transfer prices are
established to minimize tax liability, or to make certain business
segments appear more (or less) profitable,” Prince said.
Urging carriers to capture costs “on a through movement,” he
said that successful companies have adopted activity-based
costing, even though its implementation can be complex.
“You need to understand the relationship between the service
you provide and the costs you incur,” he told the conference.
JULY 2002
28
6/13/02, 10:26 AM
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LOGISTICS
“You need to capture costs on a meaningful basis.”
Prince, also a columnist for American Shipper, also warned
against the use of average costs to make decisions about
contracts with customers.
“Some lines developed rudimentary net-contribution-to-vessel programs, which can actually enhance problems,” he said.
Without knowing specific costs, an ocean carrier will retain
undesirable sectors of the business, “while better-informed
competitors solicit the better pieces of the business.”
The recovery of the container shipping market from the
current overcapacity-driven phase will depend on how quickly
cargo volumes will grow in the next few years, Ray Miles, chief
executive officer of CP Ships, told the CI Shipping Forecast
Conference.
“The big issue for us right now is supply and demand ... and
what impact it has on our industry,” Miles said.
In 2001, world container trade increased only about 3 percent,
a level of growth described by Miles as “one of the lowest level in
the last 20 years.” With too much ship capacity in the market,
freight rates have decreased and carrier profits have fallen.
Transatlantic freight rates have decreased in each of the last
four quarters at CP Ships, Miles reported. He also alluded to
large losses faced this year by carriers in the Asian trades, where
CP Ships has a small involvement.
“The big question is how fast demand will recover to redress
this situation,” he told the conference.
Miles said world container shipping has increased 7 percent
annually over the last 20 years, and demand growth will likely
increase faster this year and next year. If there is strong
economic growth in the United States and other economies, this
will have a “multiplier effect” on container traffic growth
internationally, he predicted.
“When you are at the bottom of the cycle, it’s awfully hard to
see it through to the next two to three years,” he said.
Miles recalled that carriers stopped ordering ships after the
Asian financial crisis of 1997, and suggested that the same may
happen now, with few new containerships expected to be
delivered in 1994.
Many container shipping lines, including CP Ships-owned
carriers, have rationalized services and vessel capacity, Miles
said. He noted the recent move by COSCO, “K” Line and Yang
Ming to remove ships from the North Atlantic market to charter
space on ships of CP Ships and the Grand Alliance carriers.
He said he expects more vessel capacity-reduction initiatives
by carriers on a trade-by-trade basis to lower ship network costs.
However, industry conditions for container carriers will
remain difficult through 2002 and maybe next year. He also
expects further mergers and takeovers among carriers.
Little scope for consolidation
T
here have been no major mergers and takeovers among
container shipping lines since Maersk’s $800-million
acquisition of the international services of Sea-Land
Service in 1999.
For some, it’s a paradox, given that the containership industry is in crisis and would benefit from consolidation.
“Key companies maintain that consolidation is the future, but
our analysis of the top 20 carriers showed limited scope for
this,” WestLB Panmure, the investment analysts, said in a
recent report on container shipping.
“Among the top 20 carriers, very few takeover or merger
combinations are likely,” the report said. “Therefore the companies’ ability to grow organically should be the focus.”
Tue Ostergaard, senior transport analyst at WestLB Panmure,
said there have been no major takeovers and mergers among
container shipping lines since 2000, despite the industry pressures and the downturn they have experienced.
“I would have expected it, but it did not happen,” Ostergaard
said.
One reason for the absence of recent carrier takeovers may be
the lack of available cash and debt capacity of ocean carriers as
potential buyers, Ostergaard said. Other barriers to consolidation concern the incompatibility of the management cultures of
potential buyers and sellers of different continents.
In an overview of possible consolidation “candidates” among
ocean carriers, WestLB Panmure said that:
• The P&O group is interested in reducing its stake in
containers (it owns 50 percent of P&O Nedlloyd Container
Line).
• Zim is in the process of being sold.
20_30AS07
• Hanjin Shipping is an “acquisition/merger candidate for
an Asian carrier.”
• OOCL could be a takeover target because of its “very
strong customer base.”
• Hapag-Lloyd is not a part of the core of its parent group,
Preussag, and is “definitely in play.”
• Yang Ming is a potential takeover candidate for another
Asian carrier.
• Maersk Sealand “cannot be taken over,” but is likely to
acquire other carriers.
• CP Ships is “likely to take over minor carriers.”
But industry players still expect some consolidation within
the industry.
“There is a feeling in the industry that the pace of consolidation will quicken over the next year,” said Ray Miles, chief
executive officer of CP Ships. In May, CP Ships announced an
agreement to acquire Italia di Navigazione (see story page 18).
In recent months, there have been another three takeovers,
but they were of second-tier carriers, rather than major consolidation moves:
• Sea Star is in the process of taking over U.S.-flag operator
Navieras.
• Delmas has recently bought Setramar, of Italy.
• Tropical Shipping has acquired certain assets and services
of Canada-based Kent Line.
According to ComPairData, the global liner-shipping database, there are still 215 ocean carriers worldwide. Of these,
however, 22 are owned by four groups that use multiple carrier
“brands:” CP Ships (seven carriers), Compania Sud Americana
de Vapores (seven), Hamburg Sud (four) and Evergreen (four). ■
JULY 2002
30
6/13/02, 10:26 AM
ASEYANGMIN01
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6/8/02, 11:53 AM
LOGISTICS
“The importer said:
‘if I have to wait one day,
then that’s $500 million
of inventory sitting there
— are you willing
to pay for it?’ ”
Kong-based logistics cooperative system
and fourth-party logistics provider. LINE
works for large sports shoe and sports apparel firms like Reebok and Yue Yuen.
Mak said a collaborative system also
enables freight volumes to be aggregated,
and better prices to be negotiated with 3PLs.
In three months, LINE has also cut by
three days a supply chain of shoe parts from
Busan, Korea, to Hong Kong, freeing HK$12
million ($1.5 million) in inventory, Mak
said. For shipments coming into Hong Kong
and bound for mainland China, a collaborative system can better aggregate volumes,
avoid double-handling and speed up inbound
shipments of raw materials, he said.
John Urban, president of GT Nexus, said
a new productive method in container shipping is “bill of lading automation.”
“It is possible for the
B/L to flow from the forwarder to the carrier without being touched by
human hands,” he said.
This digitized method will
Urban
replace current manual
processes, and remove the need for shippers to audit their bills, he said.
GT Nexus said it has started to implement a system whereby the shipper enters
data electronically, and the system automatically generates the documentation,
applies service contract rules to the shipment, and generates the B/L for the shipper
and the carrier.
“It makes it more efficient for everybody,” Motley said.
An Asian factory’s packing-list data will
be sent to the forwarder to prepare trade
documentation and shipping instructions;
those trade and shipping data are then sent
to the consignee, the ocean carrier and
trucker, he said.
Log-Net said its systems also run freight
audits that identify errors in rating. Typically, 5 to 10 percent of bills of lading
contain errors, the company said.
“If you know real-time
the position of the cargo,
you can organize your
trucking, clearance and
labor efficiently,” Motley
said.
Mak
With collaborative logistics networks that integrate the shipments of several Asian manufacturers, “we
can find the best location for consolidation
and save time and money,” said Aaron
Mak, chief executive of Logistics Information Network Enterprise (LINE), a Hong
Supply Chain Networks. When a company joins an electronic logistics system set
up by an IT company, it can more easily
integrate its logistics activities’ data with
those of carriers, forwarders, suppliers and
customers. This means that the cost and
speed of system integration are lower, when
compared to one-to-one IT integration between individual companies. IT system providers say they provide “connectivity” with
carriers, forwarders and other parties in the
supply chain.
Mak said Yue Yuen and Reebok have
implemented e-logistics collaborative networks with their supply chain partners.
“We integrate the supply chain all the
way into the manufacturing line,” he said.
Production schedules trigger purchase orders for raw materials.
Mak said LINE’s collaborative system
accommodates potential changes in the allocation of purchase orders to different Asian
factories, and the associated links with logistics providers.
“You don’t have to build a network yourself,” said Nathan Pieri, vice president of
product management and marketing at Celarix
Where’s the payback
in e-logistics?
Users need proof of tangible benefits and dollar
savings from information technology investments.
BY PHILIP DAMAS
S
upply chain management information technology systems are costly,
and many take longer to implement
than exporters and importers expect when
they decide to invest in a new system.
But while many companies’ IT budgets
are down, logistics staff still require systems that help them manage and integrate
all of their operations and supply chain
partners, using the best information and
methods available.
How important are cost-saving considerations when shippers consider IT investments nowadays?
“Number 1 and number 2 and number 3,”
replied John Motley, president and chief
executive of Log-Net, an international supply chain execution systems provider.
International transportation management
systems cost tens or hundreds of thousands
of dollars apiece.
About five years ago, companies were
prepared to invest millions in enterprise
resource planning systems, “but nobody
can get away with it anymore,” Motley
said. “The return on investment has to be
very discrete, almost very tangible.”
Log-Net and other Internet-based providers of international supply chain software say the payback for users comes from
savings in several areas, and even from
additional sales revenue in some cases.
Staff, Transport Costs. Automation of
some activities in supply chain management
also leads to lower staff costs — either within
the company or within a vendor’s company.
“For us, we focus on tactical savings,”
Motley said. This means targeting realdollar “transactional costs,” such as documentation fees, brokerage fees and the cost
of inputting data borne by forwarders, brokers and carriers.
By capturing data from the original purchase order of the importers and passing it
along the supply chain to all the parties
involved, data input can be reduced.
32_35AS07
John Motley
president & CEO,
Log-Net
JULY 2002
32
6/12/02, 1:32 PM
Untitled-4
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6/3/02, 11:40 AM
LOGISTICS
tion, from mapping to testing, depends on
whether the company uses extensible
markup language (XML), electronic data
interchange (EDI), or flat files, and on how
strong the company’s IT department is.
“When we built the technology platform
(of GT Nexus), we recognized that integration would be key,” Urban said.
“We’re almost becoming an integration
hub for carriers and shippers, “ said Gary
Frantz, spokesman for GT Nexus.
“We probably have more ocean (data)
feeds than INTTRA and GT Nexus combined,” Motley said.
Inc., the supply-chain IT systems provider.
Users “get the ability to tap into an existing
pool of relationships and connections.”
Typically, companies joining such a system find that many of their carriers or forwarders are already linked to it. Easier
integration of a company into such networks is also one of the main benefits of
industry-backed portals, like the INTTRA,
GT Nexus and CargoSmart container-shipping portals.
“Integration can take from as little as 18
to 20 hours of work to some 70 hours,”
Urban said. The speed of system integra-
Report: Internet tools can solve export pain
Problems. Forrester identified what it
described as “export challenges” — customs compliance, duty/tariff management,
shipping and logistics costs and other
aspects — and looked at available Internetbased applications.
The research firm asked survey respondents about which export activities their
companies were planning to conduct
online over the next three years (see chart).
However, Forrester warned that
“today’s export technology is a jumble.”
“Export execs look to technology to
help with exporting, but they see barriers
on the road to success,” the report said.
Barriers include, foremost, the difficulty
and cost of integrating new applications
with legacy systems.
“Typically only a third of integration
projects are completed on time and on
budget,” the report said.
From the exporter’s viewpoint, the report also highlighted barriers such as the
LONDON
Exporters look to Internet technology
to transform their operations and untangle
trade snarls, Forrester Research said in a
new report, Easing Export Headaches.
Forrester surveyed 77 executives involved in exporting at their companies.
On average, those companies generated
35 percent of their revenues from exports.
“Exporting is expensive,” the report
said. “Respondents told us that export
processes add 9 percent to the cost of
goods sold.”
The survey found that exporting incurs
higher costs for smaller companies: those
with less than $1 billion in revenue report
that export processes add 11 percent to
their costs, while larger firms’ export costs
amount to only 7 percent.
More than half of respondents in the
survey identified the Internet as “very
important” or “critical” to their long-term
export strategy.
“Which of the following export activities does your company
plan to conduct online over the next three years?”
Base: 77 export managers (multiple responses accepted)
Transportation
Compliance
Finance
69%
62%
47%
39%
38%
34%
34%
27%
g
kin
rac
pm
t
ent
Shi
istic
Log
n
atio
din
or
s co
on
tati
or
nsp
ent
ent
rem
cu
pro
gem
y
Dut
na
ma
Tra
Source: Forrester Research Inc.
32_35AS07
t
duc
Pro
n
atio
ific
s
clas
ons
lati
lcu
t ca
os
dc
de
Lan
22%
ent
tlem
ent
m
Pay
et
ds
an
en
um
Doc
on
tati
ent
y
iver
del
dit
Cre
gem
na
ma
Pieri said there is “a high degree of reuse” of data standards and interfaces when
a company uses an e-logistics network, but
the task of IT systems integration is still
necessary.
For years, IT providers have targeted the
visibility of supply chains and inventory as
a key benefit of Internet-based software.
For international shippers, particularly
retailers, the problem is often that import
lead times take weeks, whereas consumer
demand changes daily. IT system providers, together with third-party logistics providers, say the solution to this dilemma is to
lack of customs automation, the lack of
buyer readiness, and the difficulty of
choosing the right technology.
“Companies face a bewildering array
of overlapping applications including shipping logistics, customs management, and
collaborative finance applications,” the
report said.
Export Processes. “Today’s manual,
paper-intensive export processes can’t
meet the needs of a burgeoning global
economy,” the report said.
Forrester said new technology investments would address the key areas of
export operations:
• Transportation. By using Internetbased freight management tools, exporters can “improve delivery visibility for
buyers while minimizing costs and bottlenecks.”
• Compliance. “By using technology
to fulfill customs obligations in advance,
firms will save processing costs as they
deliver products on time and at the expected (landed) cost.”
• Finance. “Online finance applications and credit information can simplify
the coordination required to initiate and
complete international transactions with
buyers.”
Forrester’s report said the transportation online applications would cover rating and routing, booking and confirmation,
documentation, end-to-end visibility,
multiple mode optimization, and payment
and claims.
“International shipments today stagger
along through a labyrinth of carriers,
freight forwarders, and third-party logistics providers with little coordination,”
the report said. “But Net-based technologies that assemble information from ocean,
land, and air carriers, as well as customs
brokers, allow exporters to minimize
freight costs and deliver goods more reliably,” it added.
JULY 2002
34
6/12/02, 1:32 PM
LOGISTICS
have total visibility of incoming inventory
and the ability to reroute inbound shipments.
International shipments have longer supply chains, but information on these products can be captured early by a supply chain
visibility system.
“You can get one or two months of extra
visibility,” Pieri said.
Real-time visibility and exception management systems for supply chains aim to
improve outbound and inbound logistics
operations. However, some transportation
providers are not capable of providing shippers with real-time data.
Motley relates the case of a Log-Net
customer who asked his carriers to provide
data by EDI within 12 hours after the event.
“But carriers said they could not,” he
said. “The importer said: ‘If I have to wait
one day, then that’s $500 million of inventory sitting there — are you willing to pay
for it?’ ”
For inbound logistics, “you get more
accurate delivery times,” Pieri said. “You
can align your delivery schedules with inventory that’s in motion.”
Pieri also cited retailers who use such
systems to plan warehouse operations and
support cross-docking programs. Lowe’s
the retailing group, has selected the Celarix
system.
Another goal for e-logistics systems is
the ability to ship direct to a store, bypassing a distribution center. Motley said bypassing a distribution center saves one
trucking move and one handling operation.
Shipping direct to stores is “very popular, but very difficult to establish,” he said.
The retailer or 3PL must then integrate
domestic distribution with international
transportation, he said.
“You create a ‘pedal run’ — one container designed to have multiple stops. The
critical part is the execution part of it,”
Motley said.
Ship-direct-to-store operations often require dynamic allocations. This means, for
example, that 60 percent of product in an
inbound container is allocated to sales, and
the other 40 percent will be allocated to
stores while the shipment is in transit, Motley explained.
“It is important to have a time-based
exception management system,” Pieri said.
He stressed that shipments that are one day
late are very different from a situation where
shipments are running three days late.
“Customers can now track their inventory in motion and have enough information to project future inventory over the
next few weeks,” he said.
For outbound logistics, Pieri said Internetbased visibility systems come into play for
activities like sales promotion programs.
“For promotions, it’s very important to
know where the product is,” he said. “Then,
the benefit is revenue.”
The distribution concept known as “availability to promise” also requires systems
with the capability to project product availability.
Pieri believes that e-logistics systems
also improve the order-fill rate of companies and reduces supply chain costs, warehousing and in-transit inventory.
Other IT providers say that inventory
speed can also be increased by using elogistics systems.
Urban said GT Nexus’ “Orders” IT system contains an “analytics” module that
can do “milestone modeling” by product.
Milestones are sequential steps or events of
a particular supply chain. This means that
users can compare the “ideal supply chain”
— the baseline — with actual measured
performance. Urban said the Orders system
helps identify the causes of suboptimal supply chain performance by supplier and by
carrier. By matching data on supply chain
execution with a company’s demand planning or enterprise system, a retailer can
identify the cost of lost sales due to suboptimal supply chain performance, he said. ■
AMERICAN SHIPPER:
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JULY 2002
35
LOGISTICS
And freight hauled for fun.
“Look at the 2.7 percent of growth in
2001 for truck transportation,” Delaney told
American Shipper. “Now, look at the 7.4percent growth in business reported by thirdparty logistics providers. Considering the
small rate of growth for trucking, that’s
attractive, even remarkable, in its implications for continued outsourcing.”
Buyers rule vendors
Annual study finds increased outsourcing, lower
costs lead to resurgent year for logistics.
BY ROBERT MOTTLEY
I
ncreased outsourcing and markedly
lower costs define the present “extraordinary” state of logistics, according to the latest review by Robert V. Delaney
and Rosalyn A. Wilson.
In their 13th annual industry overview,
presented at the National Press Club in
Washington,
D.C.,
Delaney and Wilson reported that logistics expenditures managed by
third-party providers
grew 7.4 percent in 2001
to $60.8 billion.
At the same time, loDelaney
gistics costs declined to
$970 billion, down from $1.0 billion in
2000. Last year, logistics costs were equal
to 9.5 percent of the nation’s nominal gross
domestic product, down from 10.2 percent
in 2000.
“The chief source of the reduction in
logistics costs was lower inventory investment, and lower inventory carrying cost
due to declining interest rates,” Delaney
and Wilson said in their survey.
Inventory investment dropped during all
four quarters of 2001, continuing a trend
begun in the third and fourth quarters of the
previous year.
Rails Up, Trucks Down. Since it is
unlikely that the industry will be able to
maintain its current level of transportation
productivity, “future reductions in business
logistics costs will have to come from managing inventory investment more efficiently,” Delaney and Wilson said.
One thing is clear to them: “We do not
expect future reductions in transportation
costs.”
Looking at individual modes of transportation, the authors said rail cost increased
$2 billion, or 5.6 percent, in 2001.
“Improvements in intermodal services
reliability have enabled railroads to capture
long-haul traffic from truckload carriers.
The railroads have also managed to selectively increase rates on non-competitive
traffic,” Delaney and Wilson said.
Last year, the cost of domestic and international transportation by water increased
36_38AS07
$2 billion. Revenue from oil pipeline transportation was flat. The costs of domestic
and international air-freight transportation
declined $3 billion, the survey said.
“The economic deregulation of trucking
within 41 states that became law in 1995
has really paid off,” Delaney and Wilson
said. “Federal Express, United Parcel Service, Airborne and BAX have increased
their ground transportation operations in
second-day delivery.”
In 2001, “revenues for domestic freight
forwarders, after payments to line-haul carriers, increased by $1 billion,” the authors
said.
Trucking costs increased last year by $10
billion, or 2.7 percent. “That was lower than
the 3.4 percent in nominal GDP. Motor
carriers reported that trucking tonnage was
down between 5 percent to 10 percent,
depending on market segment,” Delaney
and Wilson said.
Poet Laureate. In 2001, the profitability of trucking companies declined because
of under-used assets, higher insurance and
rising fuel costs. The authors quoted BBT
Capital Markets as saying that 60,000 truck
owners or operators have gone bankrupt in
the last two years.
Delaney and Wilson said the current market for truck service made them think of a
poem written 50 years ago by the late
Malcom McLean:
May the day never come
When the rising sun
Sees rates below cost
Strategic Edge. Delaney and Wilson
defined logistics as the management of inventory in motion or at rest. “Inventory is in
motion during transportation. It is at rest,
while awaiting production into finished
goods, or in distribution at the final point of
sale.”
“We have said that a logistics manager
has the primary responsibility for the investment, condition, and location of inventory. That is still true regarding raw material
and work in process inventory,” the study
said.
In 2002, “we are learning that the management of finished goods inventory has
become a marketing activity with strategic
implications. That is a significant change
from the analysis presented in our first
twelve “state of logistics’ reports,” Delaney
and Wilson said.
Citing findings of the Ohio State
University’s Supply Chain Management
Research Group, the authors noted that
“finished goods inventories increased between 1996 and 1999, when our economy
was strong. Prof. Bernard J. LaLonde, codirector of the university’s group, calls this
the ‘Wal-Mart effect.’ Wal-Mart is famous
for holding low inventories, but they make
it clear that their suppliers have to hold
inventory to maintain positions in WalMart’s distribution system,” Delaney and
Wilson said.
Today, “intuition would suggest that companies which maintain high levels of finished goods would be burdened by lower
profit margins. But the Ohio State group
recently made an unexpected finding. The
opposite turns out to be true,” Delaney and
Expenditures managed by 3PLs
Third party service providers
Dedicated contract cartage
Domestic transportation management
Value-added warehouse / distribution
U.S. based with international operations
3PL software
Total contract logistics market
2000 gross
revenues
$8.3
$17.5
$15.3
$15.7
$4.0
$60.8
Note: $ billions
Source: 13th annual “State of Logistics Report.”
JULY 2002
36
6/12/02, 1:39 PM
Current
growth rate
2.5%
3.6%
13.3%
7.5%
n/a
7.4%
ABK 188 Rising Star Am Shipper
5/20/02
3:22 PM
Page 1
A Rising Star in Technology
MSC combines high-tech savvy with solid shipping tradition.
The MSC group, based in Geneva, Switzerland, spans 65 countries and
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to optimize performance and provide top level service. MSC’s technology provides accurate
booking confirmation and container track and tracing by a real-time electronic system that
ensures fast service, reliable inventory management and a prompt delivery system. MSC’s
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expertise to offer solid market value to its customers.
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504-837-9396
CHARLESTON
843-971-4100
CHARLOTTE
704-357-8000
CHICAGO
847-296-5151
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NORFOLK
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757-625-0132 925-939-3200
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713-681-8880 949-660-1100
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604-685-0131
LOGISTICS
inventory may explain why macroeconomic
measures are no longer helpful,” Delaney
and Wilson said in citing of Urban’s work.
“Chrysler used to buy paint from DuPont.
In those days, Chrysler kept paint in its raw
materials inventory. The paint was reclassified into work-in-process inventory as
Chrysler painted each car,” Urban told
American Shipper. “Today, Chrysler pays
DuPont for each car painted. Chrysler has
no paint in raw material or work-in-process
inventory.”
“That’s a situation where the vendor owns
the supplies, and is not paid until the manufacturer takes them into work in progress.
The seller absorbs all of the inventory risk,”
Urban explained.
Using Urban’s example in their report,
Delaney and Wilson noted that, “in effect,
DuPont has reclassified the sale of paint
into a service. This is much more than a
reclassification of inventory. This is a fundamental change in the business relationship between Chrysler and DuPont.”
Index of business logistics costs
(as a percent of GDP 1981-2001)
110%
90%
70%
50%
83
19
8
19 4
85
19
86
19
87
19
88
19
89
19
90
19
9
19 1
92
19
93
19
9
19 4
95
19
9
19 6
97
19
98
19
9
20 9
0
20 0
01
19
19
19
81
82
30%
Inventory
Transportation
Total
Source: 13th annual “State of Logistics Report.”
Wilson said. “Companies that maintain high
levels of inventory turn out to have higher
profit margins. They apparently hold high
levels because they can afford them. That is
an arresting finding.”
In fact, “that may be counter-intuitive,
but being counter-intuitive and being right
is how money is made.”
Lure Of False Savings. Delaney and
Wilson also cited logistics data from research done by Roger Urban, founder of
Urban Wallace Associates, a consulting
firm that concentrates on business strategies.
Urban has found that
many shippers, looking to
save money, are “buying
down” in order to cut costs
— choosing slower, less
expensive transportation
services. They are also
Urban
investing in transportation management software in response to
cost reduction claims made by software
vendors.
“These cost reduction strategies are rather
elementary,” Delaney and Wilson said.
“They include switching to slower modes,
consolidating orders into larger shipments,
and shipping less often.”
Urban has observed that each of these
strategies increases the amount of inventory
held in the supply chain, to the point that
holding additional inventory actually more
than offsets any transportation savings.
“Urban has concluded that, in this
economy, cutting transportation costs is a
sub-optimization that produces false savings,” Delaney and Wilson said.
Reclassifying Sales. Urban also has
an explanation for why his data suggests
that manufacturers have shown an increase
in finished goods.
“It comes from the growing power of
retailers and manufacturers over their suppliers,” Urban said in an interview.
“This is a new concept: vendor-managed
inventory is really vendor-owned inventory,” he explained. “The buyer has the
power. It now falls to the vendor to locate
the inventory wherever the buyer wants.”
“To some extent, this reclassification of
Robert V. Delaney is vice president for Cass Information Systems,
a provider of data services and processes for the logistics and transportation industry, and a consultant
for ProLogis, a provider of distribution properties. He may be contacted
at [email protected], or (314)
506-5820, fax (314) 506-5840.
Rosalyn Wilson, who has her own
consulting practice, was a senior consultant with Booz Allen & Hamilton’s
transportation group. She may be contacted at [email protected],
or (703) 404-4362, fax (703) 430-6430.
Software Slump. The upshot is that companies with higher gross margins can afford
larger amounts of finished goods inventory.
“They use their availability of finished goods
as a marketing weapon and service advantage,” Delaney and Wilson said.
That may explain why software suppliers of event-driven inventory systems are
having problems breaking through and finding an adequate number of customers in
today’s market.
“Perhaps the vendors of event-driven
inventory visibility systems should be contacting marketing executives, in addition to
information technology and supply chain
managers,” the authors surmised.
“We do not know where the line is between marketing and logistics when it comes
to the management of finished goods inventory. Given the poor record of (software) adoption thus far, that may be a
worthwhile idea.”
Have Delaney and Wilson found a logistics moral in their upbeat David (logistics)
beats Goliath (2001’s economy) report?
“We think it’s very important to reserve the
right to know more tomorrow than you do
today,” they said. “We are just beginning to
understand the new innovations and business practices that may be driving inventory investment.”
“Collaboration may be oversold. The
management of finished goods inventory
may be over-taught. We have a lot to learn,”
Delaney and Wilson said.
■
Subscribe online at www.americanshipper.com
36_38AS07
JULY 2002
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LOGISTICS
Supreme Court rules against FMC
Widening of 11th Amendment still leaves commission
leeway in pursuing cases against state agencies.
BY ROBERT MOTTLEY
W
hen the U.S. Supreme Court
ruled last month, in a 5-4 decision, that the South Carolina
State Ports Authority had sovereign immunity and did not have to defend itself before
the Federal Maritime Commission, the high
court did not weaken the commission’s
hand in suing state agencies.
The decision was one step further along
the Supreme Court’s well-documented path
in enlarging the scope of the U.S.
Constitution’s 11th Amendment, which
grants immunity to states from private lawsuits.
Yet, “many commentators in their inevitable post-mortems did not understand the
FMC very well, nor the context in which
you have to place this decision,” said C.
Jonathan Benner, an attorney in Washington, D.C., and former general counsel of the
FMC.
“The Supreme Court’s holding is actually fairly narrow. It’s an important constitutional decision in the 11th Amendment
and sovereign immunity area, but I don’t
see any reason why this should have any
significant effect on anything the FMC tries
to do,” Benner told American Shipper. “All
it means is that private individuals cannot
directly sue state agencies before the FMC,
but there are a lot of options left for the
FMC.
“Somehow, the idea got around that the
decision meant you and I couldn’t go to the
FMC and complain about a state agency,”
Benner said. “It doesn’t mean that at all. It
just means that the decision to litigate has to
be undertaken by the FMC itself.
“In fact, I think the Supreme Court’s ruling
is a good thing for the FMC, because it forces
the commission to pay more attention directly to activities undertaken by state agencies that are within the FMC’s jurisdiction,
because the FMC now can’t just say ‘well,
we’ll let private plaintiffs take care of this for
us.’ The commission is going to have to be
involved from now on, and it’s going to have
to be alert,” Benner said.
Discretionary Power. The FMC looks
at the majority ruling in a different way.
40_45AS07
Christopher Hughey
Office of the General
Counsel,
U.S. Federal Maritime
Commission
“Not being subject
to private complaints
is a competitive advantage
if you’re operating a port.”
“The decision is unfortunate for a number
of reasons,” said Christopher Hughey in
that agency’s Office of the General Counsel.
“Not being subject to private complaints
is a competitive advantage if you’re operating a port. Our view was that we didn’t
think that simply by virtue of being aligned
with a state, a port should have competitive
advantages over maritime terminal operators that are not operated by states,” Hughey
said.
“The majority opinion creates a playing
field that isn’t level. Another important
difference is that prior to the ruling, anyone
filing a complaint with the FMC was guaranteed adjudication of that complaint,” he
said.
“The way it is now after this ruling, you
have to ask the commission to investigate.
What was previously an entitlement to an
agency determination as to whether your
complaint is valid is now entirely discretionary,” Hughey said.
Alleged Discrimination. The Supreme
Court began when a company called South
Carolina Maritime Services Inc., asked the
South Carolina State Ports Authority on
five occasions for permission to berth a
cruise ship, the Tropic Sea, in Charleston.
Maritime Services intended to offer
cruises on the Tropic Sea, some to the
Bahamas, others on a loop through international waters back to Charleston. On all of
these trips, passengers would be allowed to
gamble. The port authority repeatedly denied the company’s requests, on grounds
that it had an established policy of denying
berths in the port of Charleston to vessels
whose primary purpose was gambling.
Maritime Services filed a complaint with
the FMC, contending that the port authority
had implemented its antigambling policy in
a discriminatory fashion by providing
berthing space in Charleston for two vessels operated by Carnival Cruise Lines,
even though Carnival offered gambling
activities on those ships.
Maritime Services complained that the
port authority had unduly and unreasonably
preferred Carnival over Maritime Services,
in violation of U.S.C. App. 1709(d)(4),
which says that “no marine terminal operator may give any undue or unreasonable
preference or advantage, or impose any
undue or unreasonable prejudice with respect to any person.”
The FMC referred Maritime Services’
complaint to an administrative law judge,
who found that the port authority, as an
entity of the state of South Carolina, was
entitled to sovereign immunity and dismissed the complaint.
The FMC then reversed the law judge’s
ruling, on grounds that a state’s sovereign
immunity covered proceedings before judicial tribunals, not executive branch agencies.
Subsequently, the U.S. Court of Appeals
for the Fourth Circuit in Richmond, Va.,
reversed the FMC’s ruling, saying that a
proceeding before the FMC “walks, talks
and squawks very much like a lawsuit,” and
should be treated as one under the 11th
Amendment. After losing that round, the
FMC appealed to the Supreme Court.
Affirming Sovereignty. In writing the
opinion of the high court’s majority, Justice
Clarence Thomas began by affirming that
“dual sovereignty is a defining feature of
the nation’s constitutional blueprint, and an
integral component of the sovereignty retained by the states when they entered the
union is their immunity from private suits.”
Joining Thomas in the majority were
Chief Justice William H. Rehnquist and
justices Sandra Day O’Connor, Antonin
Scalia, and Anthony M. Kennedy.
Justices Stephen G. Breyer, John Paul
Stevens, David H. Souter, and Ruth Bader
Ginsburg dissented, a familiar pattern in
recent cases involving issues of federalism.
“The sovereign immunity of the states
fell into peril in the early days of our history
JULY 2002
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LOGISTICS
when this court held, in Chisholm v. Georgia (1793), that Article III of the Constitution authorized citizens of one state to sue
another state in federal court. In order to
overturn Chisholm, Congress quickly
passed the 11th Amendment, and the states
ratified it speedily,” Thomas explained.
The 11th Amendment, dating to 1798,
states: “The judicial power of the United
States shall not be construed to extend to
any suit in law or equity, commenced or
prosecuted against one of the United States
by citizens of another state, or by citizens
or subjects of any foreign state.” The brief
amendment does not define the scope of a
state’s immunity.
“We must now consider whether the
sovereign immunity enjoyed by states as
part of our constitutional framework applies to adjudications conducted by the
FMC,” Thomas said.
“In truth, the relevant history does not
provide direct guidance for our inquiry.
The (Constitution’s) framers, who envisioned a limited federal government, could
not have anticipated the vast growth of the
administrative state …
“We attribute great significance to the
fact that states were not subject to private
suits in administration at the time of founding, or for many years thereafter,” the earliest example occurring in 1918. [California
Canneries Co. vs. Southern Pacific Co.
(1918)]
Given “the strong similarities between
FMC proceedings and civil litigation, we
hold that state sovereign immunity bars the
FMC from adjudicating complaints filed
by a private party against a non-consenting
state,” Thomas said.
“Simply put, if the framers thought it an
impermissible affront to a state’s dignity to
be required to answer the complaints of
private parties in federal court, we cannot
imagine that they would have found it
acceptable to compel a state to do exactly
the same thing before the administrative
tribunal of an agency, such as the FMC …
“While some might complain that our
system of dual sovereignty is not a model
of administrative convenience, that is not
its purpose. Rather, the constitutionally
mandated balance of power between the
states and the federal government was
adopted by the framers to ensure the protection of our fundamental liberties,” Thomas concluded for the majority.
Curbing Federal Power. In a dissent,
Breyer noted that in its decision, “the court
holds that a private person cannot bring a
complaint against a state to a federal administrative agency where the agency (1)
will use an internal adjudicative process to
40_45AS07
decide if the complaint is well founded,
and, (2) if so, proceed to court to enforce
the law.
“The case before us presents a fairly
typical example of a federal administrative
agency’s use of agency adjudication,”
Breyer said.
“The upshot is that this case involves a
typical executive branch agency exercising typical executive branch powers, seeking to determine whether a particular person
has violated federal law. The Constitution
created a federal government empowered
to enact laws that would bind the states,
and it empowered the federal government
to enforce those laws against the states. It
also left private individuals perfectly free
to complain to the federal government about
unlawful state activity, and it left the federal government free to take subsequent
legal action,” he explained.
“I think the Supreme
Court’s ruling is a good
thing for the FMC, because
it forces the commission
to pay more attention
directly to activities
undertaken by state
agencies that are within
the FMC’s jurisdiction.”
C. Jonathan Benner
attorney & former
counsel, FMC
“I cannot find anywhere in the Constitution the principle that the Constitution forbids an executive branch agency to
determine through ordinary adjudicative
processes whether such a private complaint
is justified,” Breyer said.
The Supreme Court’s federalism rulings
in the last seven years have “set loose an
interpretive principle that restricts far too
severely the authority of the federal government to regulate innumerable relationships between state and citizen. Just as this
principle has no logical starting place, I fear
that neither does it have any logical stopping point,” he said.
‘Untethered Dignity.’ Stevens joined
Breyer’s dissent, noting that the 11th
Amendment left intact the personal jurisdiction holding in Chisholm, to the effect
that “the Constitution does not immunize
states from a federal court’s process.”
Stevens also said the majority’s decision
in the case was “anachronistic” because it
“extended the untethered ‘dignity’ (of states)
rationale to the context of routine federal
administrative proceedings.”
“The Constitution and the federal system
are premised on the existence of the states
as independent entities, protecting the structure of state government from federal intrusion,” wrote Laurence H. Tribe in American
Constitutional Law.
However, “the 11th Amendment lies at
the center of the tension between state sovereign immunity and the desire to have in
place mechanisms for the effective vindication of federal rights. The Supreme Court
has negotiated this tension by … interpretations of the 11th Amendment that have
made that amendment far more controversial than its language would, on its face,
suggest,” Tribe said.
“You can only sue a state in a state court.
The Constitution precludes a lawsuit against
a state in federal court. It would then stand
to reason that the same principle would
preclude a lawsuit against a state before a
federal agency,” said Warren L. Dean Jr.,
an attorney who represented the South Carolina State Ports Authority
For Benner, “what is being said here is
that if a private citizen cannot haul a state
into court and put the state through the siege
of litigation that takes place in court, why
should an individual be able to do that
before a federal agency?
“As a long-time practitioner before the
FMC, I can assure anyone who wants to
know that it is at least as burdensome to go
through FMC litigation as to go through a
court proceeding,” Benner said.
“I really don’t think the decision has
significant effects for the commission’s
policies, practices or procedures. The FMC
is always free to initiate a formal investigation on its own against any state entity that
is involved in matters subject to the
commission’s jurisdiction,” he explained.
“The FMC is also free to hear complaints
from private persons who feel there’s been
a violation.”
Nuisance Suits. If the FMC decides to
litigate, on its own, there’s no constitutional issue. “As an agency of the federal
government, and sovereign itself, the FMC
has every right to litigate,” Benner said.
“The only issue is what a private citizen
can do against a sovereign, not what one
sovereign can do against another sovereign.
“When any individual can bring a suit
before the FMC under its complaint procedures against a state, those individuals can
JULY 2002
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LOGISTICS
vary from people having fantasy ideas about
what is right and wrong to people who have
legitimate grievances that go to the heart of
the FMC’s regulatory authority,” Benner
explained.
“Oftentimes, in agency practice, whether
it’s the FMC or other agencies, it’s very
hard to control the course of litigation
brought by people with frivolous claims.
The state can become stuck in those for a
very long time.
“The FMC has every right to go on
listening to people complain. The commission now just can’t let those people put
state agencies on trial,” Benner said.
Benner represents the Charleston Naval
Complex Redevelopment Authority, set
up by the South Carolina state government
to disburse property once part of a naval
shipyard.
Hughey, at the FMC, said the Supreme
Court’s decision “will presumably reduce
the number of cases on our docket. I don’t
think as many people would pursue the
route of asking the agency to do an investigation as would pursue the route of filing
a formal complaint.
“The key difference is if you could file a
formal complaint against a state-run port,
which you could do prior to this decision,
you were allowed to obtain money damages if you won,” Hughey explained.
“Whereas if you simply go in and ask the
agency to investigate, there’s no opportunity for monetary compensation for whatever loss you’ve claimed to have suffered.”
The FMC had “rarely exercised” its investigative processes, “which are going to
be expensive to implement,” said C. Peter
Lambos, attorney for the United States
Maritime Alliance Ltd. and the Carriers
Container Council.
The Supreme Court decision will affect
two other cases before the FMC, Ceres
Marine Terminal vs. the Maryland Port
Administration, and Carolina Marine Handling vs. the South Carolina State Ports
Authority. Legal sources said that both
case, after the high court’s ruling, cannot
proceed as they were initiated.
“The question is whether the FMC will
believe there are sufficient grounds in those
complaints to warrant the commission’s
own investigating of them,” Lambos said.
Note: Although many U.S. ports are run
by state agencies, the Port Authority of
New York and New Jersey is not legally
one of them, commercial and political appearances to the contrary. Although the
Port Authority is a bi-state creation, courts
have ruled that it is not strictly an agency of
either New York or New Jersey, and thus
ineligible for sovereign immunity.
■
40_45AS07
Quest for a multimodal manifest
U.S. Customs, transport industry
want to read off same sheet.
BY CHRIS GILLIS AND MARK MCHUGH
T
he manifest has long been an essential piece of the U.S. import process, and it has taken on greater
significance since the Sept. 11 terrorist attacks.
The manifest lists the cargo that’s transported by carriers. During the past 15 years,
Customs and the various modes of the transport industry — ocean, rail, and air — have
worked together to shift the process from
one based on paper to computer transmissions through the Automated Manifest System.
Now, Customs and a group of industry
experts are attempting to eliminate most of
the differences in automated manifest formats among the transport modes. The work
of this group will be used to develop the socalled “multimodal” manifest in Customs’
future umbrella system, the Automated
Commercial Environment.
“The manifest is the key place for Customs to get advanced information,” said
Leonard A. Podgurny, director of revenue
management at Canadian National Railway Co., and co-chairman of the Trade
Support Network’s Multimodal Manifest
Committee. “Timeliness and uniformity of
information is everything in today’s shipping environment.”
The committee has recently submitted to
Customs and other federal agencies its proposal to streamline much of the manifest
data between the transport modes.
The committee held numerous meetings
since it started last year. Participants admit
that there was heated debate about what a
multimodal manifest
should entail.
“A lot of people went
into this multimodal
manifest effort thinking
there could be a generic
Scott
manifest for all modes,”
said Sandra A. Scott, international trade
and customs advocate for Roadway Express and a member of the Multimodal
Manifest Committee. “It’s a great thought
but there are differences between the modes
that need to be recognized and dealt with.”
The committee came up with a dozen
core data requirements for all import
multimodal manifests, regardless of transport mode. Each transport mode will provide additional information for shipments
to meet federal requirements. For example,
data regarding vehicle registration and license numbers would be required for truckers, but not for rail, ocean and air carriers.
Truckers First. Both Customs and the
transport industry agreed that the
multimodal manifest would be rolled out in
stages during the course of the four-to fiveyear development of ACE. They also agreed
that the truck piece of the multimodal manifest should be first. The trucking industry
doesn’t directly participate in the current
AMS like the other modes.
The committee hopes to finalize the
multimodal format in ACE by October, so
that Customs and the truckers can prepare
their systems for automated manifest filings by December 2003.
The ocean carriers began using AMS in
the mid-1980s. A similar version, based on
electronic-data-interchange standards, was
created for the rail industry in 1995.
Common data
elements of import
multimodal manifest
•
•
•
•
•
•
•
•
•
•
•
•
•
Trip number
Carrier identification
Crew or person in charge of conveyance
Method of transport
Conveyance identification
First expected U.S. port of arrival
Expected date of U.S. arrival
Shipment control number
Shipper
Consignee/delivered-to party
Cargo gross weight & unit of measure
Cargo description
Cargo quantity
Source: Trade Support Network, Multimodal
Manifest Committee.
JULY 2002
44
6/12/02, 1:51 PM
LOGISTICS
On a commercial level, AMS has helped
ocean carriers deliver containers more on a
just-in-time basis to their customers, which
in turn has allowed shippers to better plan
their manufacturing and sales schedules.
This saves both ocean carriers and shippers
millions of dollars annually in operations
costs.
In recent years, the EDI
similarities between
ocean and rail AMS has
allowed the modes to
work more closely on
intermodal container
moves. The link that
Graham
brings the two transport
modes together in AMS is the “secondary
notify” function. This allows a carrier to
share shipment status advice with up to two
other AMS carriers.
AMS data sharing has progressed along
the U.S./Canadian border. The reason is
that many large ocean carriers use Canada’s
seaports as their gateways into the U.S.
hinterland market.
Canada’s railroads, CN and Canadian
Pacific, regularly share AMS data with
ocean carriers, such as Orient Overseas
Container Lines, Atlantic Container Line,
Hapag Lloyd, Canada Maritime, Maersk
Sealand, P&O Nedlloyd, Zim-American
Israeli Shipping Co., and Evergreen
America Corp.
The air carriers were introduced to AMS
about 10 years ago. Except for JFK International Airport, the system has remained
largely underused at many U.S. airports.
Some of the first users of the system at JFK
were Japan Airlines, Federal Express and
Northwest Airlines.
Unlike Rail and Ocean AMS, Air AMS
stands alone because of its use of CargoIMP
EDI format. However, Air AMS has the
ability to drill down to the house waybill
data level. Ocean and Rail AMS require
data at the master bill of lading level. Air
AMS may serve as a model for Customs in
its pursuit of house-level manifest data in
all transport modes, such as air-freight consolidators and non-vesseloperating
common
carriers. Operating carriers have recommended to
Customs that house-level
manifest data be filed directly to the agency
through ACE.
White
“Customs is in essence
re-engineering AMS,” Podgurny said. “But
we expect most of the best AMS concepts to
be embodied in the future system.”
Transport providers are expected to make
some changes to their existing AMS systems to accommodate the multimodal mani-
fest format. “With a single system format, it
should reduce the overall cost to make
systems changes,” said Michael R. White,
managing director of cargo for the Air Transport Association and a Multimodal Manifest Committee member.
“What’s critical to an efficient implementation of the multimodal manifest is for
Customs to leverage the software industry
AMS expertise,” added Steven R. Graham,
vice president of Micro Software Services,
a provider of Air AMS software to airlines
and deconsolidators.
Customs is also considering the development of an Internet Web-based portal for
smaller carriers to submit their manifest
data to ACE.
Anti-Terrorism. Improvements to manifest filing remain high on Customs’ priority
list in the war against terrorism and other
criminal activities. Customs receives and
closely screens manifest data of the 5.7million cargo containers arriving in U.S.
seaports each year and identifies those shipments it considers “high risk.”
Customs Commissioner Robert Bonner
said his agency would consider implementing a program requiring pre-filing of cargo
manifests with information on the shipper,
consignee, and contents 24 hours before
lading at a foreign port.
This effort, Bonner said, could be part of
a Customs’ post-Sept. 11 security program,
the Container Security Initiative, which calls
for pre-screening of containers before arrival at a U.S. port.
Advanced transmissions would not be
the “panacea” for improved container security, Bonner said. However, it would allow
Customs to better target high-risk shipments for inspection.
Customs receives advanced transmissions with information on some shipments
prior to arrival at American ports.
º“In many instances it is not accurate, it
is not complete, and it is not as timely as we
need,” Bonner told executives at a Joint
Industry Group meeting in Washington in
May.
Bonner addressed one attendee’s concern that such transmissions, if made public, could be used as a competitive weapon.
Customs would consider accepting direct
filings of NVOCCs’ manifests, he said.
Bonner added that, since coming to Customs in September, the agency has had to
assume a security role, in addition to enforcing compliance with trade laws. He
asked for the industry’s cooperation and
patience. “If you were in my shoes, you
would know how important this is.”
■
AMERICAN SHIPPER:
40_45AS07
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6/12/02, 1:51 PM
JULY 2002
45
LOGISTICS
Baby … or the bathwater?
U.S. spurs UNCITRAL bid for harmonized cargo regime.
BY ROBERT MOTTLEY
‘D
on’t throw out the baby with the
bathwater,” an old wives’ admonition for centuries, is also
good counsel for those who have outsourced,
of necessity, the shaping of a prime maritime
tenet to international hands.
Over the last several years, American
Shipper has reported on the long gestation
of legislation to update the 1936 Carriage
of Goods by Sea Act (COGSA), which is
one of the twin pillars — along with the
Ocean Shipping Reform Act — of maritime commerce in the United States.
A revised version of COGSA has been
launched under American auspices into a
foreign sphere, possibly to return to these
shores as an international convention that
would streamline the carriage of goods by
sea.
To that end, the United States has effectively given over its COGSA proposal to
the United Nations Commission on International Trade Law (UNCITRAL) and the
Comite
Maritime
International,
UNCITRAL’s advisory entity.
The handover to UNCITRAL was based
on an understanding that negotiations for a
harmonized cargo regime would follow a
firm time track — astonishing of itself,
given the Comite’s penchant for delay.
Yet after all of the talk and horse-trading, which has only just begun, UNCITRAL
is expected to complete its international
convention by 2004 — or face the threat of
the United States going its own way with
domestic COGSA legislation.
There are perils to this sort of midwifery, not least that the American proposal would be altered to the point of being
unacceptable to three groups most responsible for its current momentum: The Maritime Law Association of the United States
(MLA), the World Shipping Council
(WSC), and the National Industrial Transportation League.
The result, should that happen, is likely
to be the introduction of strong domestic
COGSA legislation which, with the continued backing of the NIT League and
WSC, could become law as OSRA did, the
product of a “big tent’ push by many hands
across the industry.
46_50AS07
First Talk-Through. UNCITRAL has
assigned its COGSA deliberations to an
internal Working Group III, meeting under
the broad rubric of ‘transport law.’ Participants in the Working Group are drawn
from UNCITRAL, the Comite, UN representatives from individual nations, and invited observers from non-governmental
organizations.
For its present deliberations, Working
Group III elected Rafael Illescas, from
Spain, as its chairman. Illescas and the
group then convened a joint UNCITRALComite session in at United Nations headquarters in New York to talk through the
proposed working draft.
“We want to go through this verbally,”
Illescas said at the session in mid-April, “to
acquire a sense of the text that can be
formalized in writing in the fall,” when
UNCITRAL and the Comite meet in
Vienna, Sept. 16-19.
At that session, delegates will get down
to the real dicing and shaping of the proposed convention. They are expected to
follow the outlines of discussions held in
New York.
Delegates At Hand. As the shaping an
international cargo regime continues,
UNCITRAL member-states participating
in the discussions for a new international
cargo convention include Austria, Benin,
Brazil, Burkina Faso, Cameroon, Canada,
China, Colombia, Fiji, France, Germany,
Honduras, Hungary, India, Iran, Italy, Japan, Kenya, Lithuania, Macedonia,
Mexico, Morocco, Paraguay, Romania,
Russian Federation, Rwanda, Sierra Leone,
Singapore, Spain, Sudan Sweden, Thailand, Uganda, United Kingdom, and the
United States.
Nations acting as observer states include Australia, Belarus, Chile, Cote
D’Ivoire, Croatia, Cuba, Cyprus, Czech
Republic, Denmark, Ecuador, Finland,
Guatemala, Indonesia, Iraq, Israel, Jordan,
Lebanon, the Netherlands, Peru, Philippines, Portugal, Republic of Korea, Saudi
Arabia, Senegal, Switzerland, Tunisia and
Venezuela.
There were also representatives from
two UN organizations, the United Nations
Conference on Trade and Development
(UNCTAD), and the United Nations Economic Commission for Europe.
The Comite Maritime International, represented by Alexander von Ziegler, from
Switzerland, was the ranking non-governmental member invited by UNCITRAL to
the session in New York.
Other guest observers included the International Chamber of Shipping, the International Federation of Freight
Forwarders Association, the International
Group of P&I Clubs, the International
Multimodal Transport Association, the
International Union of Marine Insurance,
and the Transportation Intermediaries Association, from Washington, D.C., represented by Robert A. Voltmann, TIA’s
executive director.
Equal Time For All. The working
group’s chairman has real power in shaping the text of the convention. Illescas,
courtly in manner and careful in the extreme that every plausible view be heard,
allowed all invited attendees at the UN
session to speak whenever they wanted on
the portions of the proposed convention
that were being discussed. Still, he surprised most observers by the brisk pace he
set in going through the material at hand.
These blocs and people appeared to have
the strongest voices in staking out positions at the spring session:
• The U.S. delegation, headed by Mary
Helen Carlson, an attorney from the office
of the assistant legal adviser for private
international law, part of the Office of the
Legal Adviser for the Department of State.
Other government figures in the U.S. delegation included Stephen M. Miller, from
the State Department’s office of maritime
and land transportation; Edmund Sommer,
Jr., from the U.S. Maritime Administration, and Carolyn Willson, legal adviser to
the permanent U.S. mission to the United
Nations.
Advising the U.S. delegation from the
private sector were Karyn A. Booth and
Nicholas J. Di Michael, attorneys with
Thompson Hine LLP in Washington, D.C.;
George Chandler, an attorney with Hill
Rivkins and Hayden LLP, in New York;
Vincent De Orchis, an attorney with De
Orchis, Walker and Corsa, in New York;
and Peter Gatti, vice president of international relations for the NIT League.
Other advisers from the private sector
included Alicia Fagen, from the University
of Michigan; Chester D. Hooper, an attorney with Holland and Knight, in New York;
Donald L. O’Hare, vice president of the
WSC, and Michael Sturley, a professor of
JULY 2002
46
6/12/02, 1:56 PM
15259.amer.ship.4c.fp.getconnec
5/20/02
12:17 PM
Page 1
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LOGISTICS
law at the University of Texas. Sturley who
had drafted the common law portion of the
proposed convention.
The U.S. delegation was careful of not
seeming to be the 800-pound gorilla at the
party.
• Philippe DeLebecque, delegate from
France, professor at the Universite Pantheon-Sorbonne.
• Francesco Berlingieri, delegate from
Italy, from the Italian Ministry of Foreign
Affairs; also a long-time presence within
the Comite Maritime International.
• Beate Czerwenka, delegate from Germany, ministerial counselor in the German
Federal Ministry of Justice.
• Kaare Christoffersen, delegate from
Denmark, head of section in the Danish
Maritime Authority.
• Gertjan van der Ziel, delegate from
the Netherlands, from the Dutch Ministry
of Justice.
• Sergei N. Lebedev, delegate from the
Russian Federation, from the Moscow Institute of International relations, also president of the Maritime Arbitration
Commission.
Immediate Froth. In the U.S.
delegation’s opening statement, Carlson
said, “we look forward … into the future
(not too distant, we hope) to complete our
work on issues of transport law, and adopt
a new instrument governing the international multimodal transport of cargo.”
Immediately, there was a stir among delegates. The word “multimodal,” the synonym preferred internationally for
“intermodal” had upset some of those
present.
From comments later, it appears that the
conference split early between those who
wanted an intermodal, door-to-door range
for the proposed international convention,
and those who wanted a much narrower,
port-to-port range.
Illescas is expected to make a choice
between the two options later in June. He is
believed to endorse the Comite Maritime’s
position, which was that the UN session
“had to go back to the roots of contract of
carriage” in writing a uniform international
conventional. “Broad is better,” the chairman has told colleagues.
The more limited port-to-port convention came from conservative delegates who
said that current UNCTAD/ICC rules covering intermodal shipments are adequate
for the foreseeable future, and that the session should limit itself to a narrow rephrasing of maritime rules that would not apply
beyond the ocean carriage of cargo.
Among the noted strong-voiced players,
delegates from Canada and Germany spoke
46_50AS07
government, of working toward multilateral cargo liability reform,” it noted.
This was the best face one could put on a
cobbled-together grid of strong-to-lukewarm support by “commercial parties.”
Much of the “considerable effort” lies in the
newfound rapport between the NIT League
and WSC; not all “differences” have been
resolved even in these amendable camps.
“This delegation will be supporting the
development of a fault-based regime with
fair and balanced burdens of proof for all
parties. We will be seeking fair and reasonable limits of liability, and we will protect
the freedom of contract for our shippers and
carriers, the statement said.”
With that, more heads went up. It seems
that “freedom of contract” is a phrase with
very different meanings around the trading
world.
There are presently two proposals
for revising the Carriage of Goods by
Sea Act.
To review the latest draft of the
version that remains the most recent
U.S. stance, go to www.mlaus.org,
the Web site of the Maritime Law
Association, click on “committees,”
then on the MLA’s “carriage of
goods” panel, then scroll down to
the last committee document, labeled “draft COGSA revision,” dated
Sept. 24, 1999.
To review the text of UNCITRAL’s
Working Group III’s proposed international convention as it presently
stands, go to www.uncitral.org, click
on your language of choice, then on
“working group III, transport law,”
and then on “add 1” of the working
draft (the full notation for the download is A/CN.9/WGIII/WP.21/add1).
From a comparison reading, it’s
obvious that much of UNCITRAL’s
text has been adapted from the MLA’s
proposed COGSA revision. The reason is that Michael Sturley, the law
professor at the University of Texas,
was asked by the Comite to help draft
the text of UNCITRAL’s convention.
with the most passion for port to port, and
the U.S., Denmark and France delegates
spoke for door to door.
A late draft of the Working Group’s
proposal said, “it would be useful to continue its discussions under the provisional
working assumption that it would cover
door-to-door transport operations” — the
clearest sign yet of the chairman’s thinking.
Freedom Of Contract. The rest of the
U.S. delegation’s opening statement was
less provocative, with one exception:
“Unlike most of the delegations here, the
U.S. law governing cargo loss or damage in
international ocean commerce is based
solely on the Hague Rules of 1924, and we
find that certain aspects of that statute are in
need of reform. We also believe that advances in technology and current trade practices warrant careful review of all of the
existing international cargo liability regimes,” the statement said.
“We have made several attempts in the
U.S. to amend and update our Carriage of
Goods by Sea Act, but in each instance, the
commercial parties were unable to agree on
many cargo liability reform issues … those
parties have, with considerable effort over
the past year, resolved most of their differences and are fully supportive, as is this
Third-Party Roles. Although many
nations have their own internal equivalents
of OSRA, which permits confidential service contracts between shippers and carriers, one thorny issue for the UNCITAL
delegates was the leeway an international
covenant would give to contracts with third
parties, including considerations of liability.
Delegates from France and Spain noted
that under civil law — as opposed to common law — contracts of carriage differ
from contracts of affreightment.
Contracts of carriage, generally negotiated between shippers and liner companies,
are formal and regulated under civil law.
Contracts of affreightment, generally
made between shippers and tramp carriers,
are more loosely interpreted.
Those delegates proposed a similar degree of distinction in dealing with third
parties in the proposed draft for a binding
international covenant.
Defining The Basics. As discussions
at the UN continued, it also became apparent that there is no ready consensus internationally about the definitions of the most
common shipping terms.
“We first must have a consensus about
such terms,” said Germany’s Beate
Czerwenka, who appeared hostile to the
proposed convention, tearing methodically
at weak points. “From that consensus, we
can progress to have precision, as in an
exact definition.”
A number of delegates agreed with her
that no one has ever been able adequately to
define “charter party.” “We should not persist in this vagueness,” Czerwenka scolded.
“We must work from specifics, not generalities.”
Illescas then asked the U.S. delegation,
JULY 2002
48
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6/4/02, 10:50 AM
LOGISTICS
in the course of a short break, to come up
with more specific phrasing for contract
terms. After a huddle in the upper balcony
of the conference chamber, Carlson and
her peers returned with a proposal that
three types of contracts be included in the
final draft.
• “Bill of lading contracts” that would
be entirely subject to the proposed convention.
• “Charter parties” (their definition
would be determined in Vienna) would be
recognized but not covered by the convention, unless participants wanted such coverage.
• “Volume contracts” would be subject
to the proposed covenant as far as their
principals went, but not any third-party
participants — unless the third parties
agreed to inclusion.
There was a general feeling that the
United States had to sharpen its definition
of a “performing party” before the matter
came up again in Vienna.
Fear Of Monopoly. Delegates frequently made some eye-opening points in
the context of the current shipping market.
Gertjan van der Ziel, from the Netherlands,
who also drafted the civil law portion of the
proposed convention for the Comite, raised
some Anglo-American eyebrows when he
said that, “in carrier-shipper negotiations,
it is generally given that rules must protect
the shipper as the weaker party.
“Despite one-sided markets that appear
to favor shippers, we must remember that
liner operators, in particular, have behaved
as a virtual monopoly whenever they have
had the upper hand economically,” van der
Ziel said.
Shippers’ Obligations. At the conclusion of the UNCITRAL session, Illescas
seemed in a broadly expansive mode, not
to say door to door, in incorporating comments made from the floor.
Although Czerwenka from Germany insisted throughout the Working Group document that phrases such as “it was observed”
be changed to “it was suggested,” and that
“was” generally be altered to “should be,”
such syntactic watering-down did not
scuttle a number of strong provisions
The full document is available on the
UNCITRAL Web site (see box). The following excerpts of text, none of it set in
stone, give some insights into the delegates’ thinking.
Pertaining to obligations of a shipper,
the Working Group’s text said “it was
observed that the prime obligation of the
shipper was to pay freight, with secondary
obligations being to bring the cargo into
46_50AS07
the custody of the carrier and provide the
carrier with goods in such a condition that
they would withstand the intended carriage. These obligations are reflected in
many national law and business practices.”
“As currently drafted, the obligations
placed on the shipper might not be in total
balance with those imposed upon the carrier. It was agreed that, whilst the obligations of the shipper and carrier should be
properly balanced, this balance should be
assessed from a global perspective rather
than by … an obligation-by-obligation
analysis.”
Hot Potato. Some of the difficulties
coming up in Vienna were foretold by the
Working Group’s treatment of the exemption from liability for errors in navigation.
“As currently drafted,
the obligations placed
on the shipper might not be
in total balance with those
imposed upon the carrier.”
“A strong argument was made that, given
that a central aim of the draft instrument
was modernization, the exemption … was
out of date, particularly in the light of other
conventions dealing with other modes of
carriage which did not includes such an
exemption. However, in opposition to such
a deletion, a view was that marine transport
did raise unique concerns, and that the
defense should be retained because it was
not appropriate to compare sea with road,
rail and air transport.”
Omitting an exemption for liability for
errors of navigation is an essential piece of
the U.S.’s COGSA revision, on which the
MLA is not likely to back down. The
United States will likely win on this point;
after arm-twisting and reciprocal concessions, an exemption from liability for errors in navigation is not likely to be part of
an international cargo regime.
Expandable Terms. The Working
Group draft noted that “carrier” should be
more clearly defined to cover parties that
carried out multiple functions involving
cargo. In particular, “the position of freight
forwarders under the draft instrument was
not entirely clear, as these parties were
arguably covered by the definition of carrier.”
“Another question was raised as to
whether the draft definition of “consignee”
was to be interpreted as making it impossible for the consignee, as defined, to delegate the exercise of its right to take delivery
of goods to another person.”
Even the word “container” was considered too broad by some delegates, and
clearly confused by others with “package”
and “shipping unit.”
The session asked Illescas to prepare a
“revised definition with possible variants,”
an assignment that deserves the deepest
sympathy.
As for the touchy matter of how payments should be made for freight, a fairly
bitter dispute broke out over the words
“earned upon delivery.” “This was said to
mean that the claim existed at the time of
delivery,” the Working Group emendations noted, “but it was suggested that the
provision should more clearly distinguish
between when a claim arose and when it
was earned.”
The following comment was particularly striking: “It was observed that, should
the draft instrument govern non-maritime
transport in the context of door-to-door
contracts of carriage, particular attention
would need to be given to the interaction
and possible conflict between the maritime
regime under which freight remained payable even if the goods were lost and other
unimodal transport regimes such as that
established by the CMR (on European
roads), where the carrier had an obligation
to refund freight if the goods were lost.”
Present conventions covering non-ocean
carriage on a multimodal routing will likely
be accommodated in any eventual international ocean covenant.
As for the liability of a carrier, the Working Group’s draft noted “there was strong
support for the view that the basis for
liability should be the fault committed by
the carrier rather than a strict liability.”
The Way Ahead. What will the United
States get back for having passed its intent
to update COGSA to UNCITRAL and the
Comite?
Will it be a new COGSA baby with
international genes — or the bathwater, in
the U.S.’s face?
All parties and interests will have to wait
until after the Vienna meeting, and most
probably, the next Working Group session
in the spring of 2003, which will be held
again in New York.
By then, much will be clearer. In a sense,
the new international convention gives
UNCITRAL — the originator two decades
ago of the Hamburg Rules, loved only by
the Third World — an opportunity to let the
Hamburg Rules die quietly, replaced by a
regime with much broader support.
■
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management system, that used the Internet
as a deployment model,” Parsons said.
Elogex’s application costs about
$250,000 to $500,000 a year. Customers
pay a subscription fee, and then are charged
based on the number of users in a network,
the number of transactions done through
the system, and the implementation model
chosen.
“We’re also doing tie-ins … allowing
people to purchase appointment scheduling, on a standalone basis. That would be
priced lower,” Buelow said.
For that fee, “we manage all of a
customer’s IT arrangements, and they don’t
have to hire consultants to adjust or tweak
the services we provide,” he said.
Knowing which niche to scratch
Collaborative logistics software provider
Elogex maintains customer focus.
BY ROBERT MOTTLEY
T
he market for collaborative logistics software providers is dismal.
Revenues have flat-lined, and most
business comes from existing customers
buying upgrades.
Yet there are companies that have managed to thrive.
For Travis Parsons, chief executive officer
of Charlotte, N.C.-based Elogex Inc., survival has meant “staying focused on one
particular business problem, so you develop
a solution that will exceed the requirements
of a customer within a particular area.”
Elogex makes and markets a collaborative logistics platform serving companies
in the food, grocery and consumer products industries.
“That market has been our primary focus,” said Todd Buelow, product manager
at Elogex. “The food and grocery industry
were not hit that hard last year by the
economy. People still had to eat and drink.”
“After targeting a plausible market,”
Parsons said, “the next step was to concentrate on a mode of delivery for which we
could provide service.
“As a practical matter, most of the dollars spent for logistics in North America
are spent on trucking. Surveys have shown
that 85 percent of cargo moves by truck,”
he said. “For that reason, we’ve focused
principally on North American trucking.
We have become very effective at building
networks within supply chains for a particular vertical market.”
“We sell to retailers, raw material providers and manufacturers within such markets. We focus on one vertical at a time,
moving to the next only after we’ve gotten
traction in the first one,” he said. “That’s a
tight focus, and we’re not loosening it. We
are very cautious of any business in today’s
climate that would move us off-focus.”
“It’s very difficult to develop a
multimodal geographic software model.
You inevitably have troubles delivering on
customer requirements, and also in implementing so broad a solution,” Parsons said.
Internet Deployment. Elogex’s software application allows companies to man-
52_53AS07
“We thought there was
really an opportunity
for a next-generation
transportation
management system,
that used the Internet
as a deployment model.”
Travis Parsons
chief executive officer,
Elogex Inc.
age their inbound and outbound transportation across multiple business units on a
single platform.
“If you look around the market, you’ll
see other providers offering products that
focus on managing a client’s outbound
transportation processes, those from a distribution center outward. There was a big
gap on the inbound side,” Buelow said.
“Our software allows subsidiary units to
see product across every company sector.”
“We thought there was really an opportunity for a next-generation transportation
Using The System. Trucking companies especially have used visibility from
Elogex’s application to leverage their assets with other transport providers.
“We’re not a public exchange,” Buelow
said. “Customers can go on managing their
transportation processes internally as they
would like. Yet we’re deployed in a way so
that a company can share assets with a
strategic network.”
“Let’s say that Company A uses our
platform, and also Company B. If A has a
shipment going to Florida, B can see they
have a truck in Florida and move it to
where A can use it,” he explained.
“They do that by using the multi-enterprise piece of our application,” Parsons
said. “A shipper can select carriers, and
monitor and manage inventory, supply
chain events, contracting, and rates. Our
system also stores contracts.”
Clients can use the Elogex platform to
set up an in-house logistics network between vendors and production plants.
Elogex has a grocery customer — sources
outside Elogex identified it as Kroger —
which has two business units: manufacturing, and retail, “that act as almost separate
entities, but they fall under the same umbrella,” Buelow said. “Both are on our
network, and the company also shares assets between those two divisions.
“If a customer wants to drop a vendor —
if both of them are on the Elogex network
— the customer would have control of
eliminating the access to our platform from
that vendor,” he explained. The vendor
could still do business with other parties on
the system, but “would be blocked from
having anything to do with the first party
that had dropped its services,” Buelow said.
Automatic Updates. Elogex advises
its customers “according to business rules
they define,” Buelow said. “We don’t cross
that line of being a provider of third-party
JULY 2002
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LOGISTICS
logistics services, as opposed to software
solutions.”
“We do have a consulting service that
helps companies identify shared lanes
across companies that are using our application. The idea is that if they are sharing
lanes and have common traffic flows, then
opportunities exist to create continuous
moves.”
Elogex produces its software in-house.
“Customers automatically receive every
upgrade we do, because everyone is accessing the same software platform,”
Buelow said. “All you need to access our
system is a browser.”
The application resides at Elogex’s hosting facility, provided by Digex, in Bethesda,
Md. “We have bunker-type security, with
firewalls,” Buelow said.
“KPMG Consulting put us through the
requirements for Systrust, which tests the
security of software companies and has
verified Elogex’s protections,” he said.
“The only data shared is data that a user
of Elogex’s network wants to have shared,”
Parsons said. In today’s security-conscious
milieu, some would-be users are spooked
by the thought of sharing any data from
their own companies with outsiders, even
for strategic advantage.
“That’s why the reins are totally in the
hands of our clients,” Buelow said. “What
they share, and to what degree, is up to
them.”
Clients. “We’re using the Elogex solution to bridge the procurement and transportation silos across our global operation
to drive real-time decision making,” said
Brad Morris, vice president of logistics for
Nu Skin, a direct selling company for personal care products, based in Provo, Utah.
“By sharing real-time information on logistics activities across our entire enterprise, we will achieve greater control of
our supply chain.”
Nu Skin’s second goal is to collaborate
on a global basis with suppliers and local
offices in more than 30 markets around the
world.
“At the end of this implementation, Nu
Skin will use the Elogex system across all
of our divisions,” Morris said. Then, to
complete the cycle, Elogex’s platform will
be integrated with Nu Skin’s SAP client
server system to receive orders and return
freight payment information for settlement.
Mike Griswold, director of transportation for Shaw’s — a chain of 185 supermarkets in New England, based in West
Brightwater, Mass. — said his company
“is in the pilot-testing phase for Elogex’s
software. We’ve done our first loads, and it
looks very good.”
Rick Zaffarano, director of supply chain
at Hannaford, a retail grocer chain based in
Scarborough, Maine, said, “we are in the
final phase of installation. The Elogex systems should exceed expectations once it’s
implemented.”
Company Profile. Parsons and Charles
Schmidly founded Elogex in December
1999. Parsons said his role was “to put
some capital around the deal — I came
from the venture community in Charlotte.”
Schmidly, a veteran of the less-thantruckload business, provided counsel and
remains an investor, without having a dayto-day role in Elogex.
The company obtained a number of its
sustaining personnel from Metasys, a software provider in Charlotte, after Metasys
had been acquired by Optum. Of the approximately 70 people on Elogex’s payroll, 70 percent work in development and
30 percent in sales and marketing.
“We started with a set of angel investors,
which led to two subsequent rounds of
venture funding,” Buelow said. Elogex has
11 revenue-paying clients.
“We expect to be profitable by the beginning of 2003,” Parsons said.
■
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LOGISTICS
Theodore Prince
E-mail: [email protected]
Merger mayhem
According to a recent Lehman Brothers study, the global downturn of the last year has led to a sharp slowdown in merger and
acquisition (M&A) activity. The value of total global M&A peaked
at $1.1 trillion in 2000, but amounted to only $476 billion last year,
a level last seen in 1997.
M&A results have been a favorite topic in the news — and most
of the news has been bad. Bernard J. Ebbers abruptly departed as
president and chief executive officer of WorldCom, a telecommunications giant formed from 75 acquisitions over two decades.
Qwest Communications International, another telecommunications giant formed by mergers and acquisitions, recently reported
a $698-million loss in its first quarter.
M&A failures were not limited to the United States. Vivendi
Universal CEO Jean-Marie Messier survived a hostile annual meeting and obtained a board vote of confidence — only to see the
company’s stock continue to plummet. In Japan, the world’s largest
bank, Mizuho Holdings (which merged three major banks) disrupted
business throughout Japan when the merged computer systems
failed.
Even successfully completed mergers came under scrutiny. General Electric and Tyco International saw their share price savaged by
suspicions about M&A accounting. And a report recently surfaced
that Boeing misled investors in 1997 about the scope of their
production problems to prevent the decline of their stock price prior
to the closing of their intended merger with McDonnell Douglas.
The HP-Compaq combination (the computer industry’s largest
merger ever) eventually was resolved when a Delaware court
dismissed a lawsuit by Walter B. Hewlett. This transaction will
provide an instructive case study, as most technology mergers have
failed. In fact, a recent study conducted by A.T. Kearney estimates
that 70 percent of deals — when measured by change in shareholder value and combined profitability — fail.
Industry consolidation is usually no substitute for innovation
and speed to market. Successful technology transactions have been
those in which large companies acquired easily absorbed businesses to fulfill specific niches. Cisco Systems is often cited as a
leading example of this approach. In fact, for years Cisco refused
to acquire any company located more than 30 miles from its San
Jose headquarters.
The largest transportation mergers of the past decade have
involved railroads. In the past decade four major U.S. railroad
systems endured a series of mergers — and the consequent trauma.
The seemingly inevitable march to two transcontinental systems
was halted — at least for now — by regulatory work arising from
the intended merger of the Burlington Northern and Santa Fe and
Canadian National.
One reaction has been an increase in marketing alliances between railroads. These arrangements offer single-source customer
solutions without actual unified ownership. Some feel these offer
a viable alternative to merger. Others consider it an attempt by the
industry to overcome an obstacle imposed by the Surface Transportation Board — and that mergers will follow once railroads fail
to demonstrate sufficient earnings.
The logistics industry also has seen its share of mergers and
54_55AS07
acquisitions. Companies such as FedEx, UPS, and Deutsche Post
have grown by aggressively pursuing acquisitions, most of which
have been focused on filling a specific product and/or geographical
niche. These companies are all global transportation and logistics
multinationals with a core business serving as a platform for growth
–- the Cisco model.
Companies smaller than the global titans have not fared well.
Last year, UPS bought Fritz Cos. for $450 million. Over a five-year
period starting in the late 1980s, Fritz grew from a customshouse
broker to a global logistics provider. Wall Street encouraged this
strategy and the market valued the company with a strong multiple.
Using stock as currency, Fritz grew rapidly, making over 50
acquisitions. The strategy worked until its acquisition of Intertrans
(and associated accounting problems) brought the growth to a
standstill. Once burned, the market penalized the stock valuation
and the only exit strategy was acquisition by a larger company.
Eagle Global Logistics (EGL) may be following a similar path.
This company had a very successful domestic operation, but felt
the need to expand internationally. That ultimately led to a $543million acquisition of the troubled Circle International — whose
problems seem contagious. (It is interesting to note that one of the
most profitable global logistics companies has been Expeditors
International, which has an iconoclastic culture of internal growth
and eschewing mergers.)
The transportation industry has also seen roll-ups — a specific
type of merger activity. Roll-ups buy up numerous small companies in a fragmented industry seeking economies of scale, but
whose track record may not be stellar. Boom-and-bust results have
often wiped out investors — including the “mom-and-pops,” who
sold their companies in exchange for shares. It often seems that
deal-making skill did not equate to operating expertise.
The intermodal industry awaits its first roll-up success. Late last
year, one of the early intermodal roll-ups, RISS/USSI (of WorldPoint
Logistics) declared bankruptcy. Final determination is still pending
on two other roll-ups: RoadLink USA and Pacer Global Logistics.
RoadLink was formed from seven regional drayage companies
after much turmoil and several fitful starts at financing. Opportunities abound for a national drayage company. The company seeks
to create superior customer value by “blending the synergies of an
integrated, national network with local market experience.” But
two years after the company was announced, some operations are
still being run as discrete units — perhaps because combining
insurance coverage presents an insurmountable challenge.
Pacer International Inc. was a roll-up of numerous intermodal
marketing companies, trucking operations and the former APL
Stacktrain Services. With almost $400 million in debt, the company is seeking an initial public offering that will repay more than
half the debt and allow some participants to cash out.
One common problem with M&A transactions is rampant overpayment. Some industry experts feel that Pacer might have done
this in their rush to grow. Furthermore, Pacer’s purchase of
RailVan generates questions because RailVan’s business model
(scrupulously fixed customer fee) differs sharply from that of other
Pacer-owned intermodal marketing companies (arbitrage — and
retain — increased customer margins).
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LOGISTICS
If the Pacer IPO fails to raise sufficient funds, the outlook for
Pacer may be dismal. Because it is so large, it may fall to their
underlying railroad carriers to pick up the pieces. Ironically, the
railroad(s) could merge it with some of their other business lines to
achieve the synergies that eluded Pacer.
We may be entering a period of reduced M&A activity. Past
results have been somewhat disappointing. Companies today seek
to conserve cash and stock valuations have been reduced. Survival
is the priority in today’s business environment. Acquisition most
likely awaits those companies not strong enough to survive.
Theodore Prince is senior vice president of marketing and sales
for Optimization Alternatives Ltd. Inc.
Kuehne & Nagel starts 4PL
USCO to assist with Lead Logistics, which
has signed contract with Nortel Networks.
JERSEY CITY, N.J.
Kuehne & Nagel International AG, the
global logistics provider and freight forwarding company based in Schindellegi,
Switzerland, sees merit in the concept of a
fourth-party provider — or 4PL — basically, a reforming hand brought in to make
a network of 3PLs more efficient.
Once a company has outsourced “a significant amount of work to a network of
3PLs, the challenge is to integrate the activities of those 3PLs,” said Robert R. Auray Jr.,
president and chief executive officer of USCO
Logistics, which Kuehne & Nagel acquired
last year.
“The 3PLs in harness often function at
cross-purposes. An astute 4PL can weed out
redundancies and prune costs,” Auray said.
One of USCO’s current tasks is to assist
a new Kuehne & Nagel division called
Lead Logistics, which has just signed a
contract as a 4PL for Nortel Networks.
“This is Kuehne & Nagel’s first client for
4PL services,” Auray said. “If Lead Logistics can save Nortel substantial costs, the
word will go out very fast.”
Kuehne & Nagel has lost no time in using
USCO as a catalyst to create a strong and
versatile worldwide network for supply
chain management.
“The floors of our new logistics house
are going up one level at a time,” said Klaus
Herms, chief executive officer of Kuehne
& Nagel International, during an interview
in the Jersey City, N.J., offices of the Swiss
provider’s U.S. division. “We will need
about a year before we have the roof on.”
Kuehne & Nagel paid more than $300
million for USCO. Asked if he had gotten
his money’s worth, Herms replied, “I think
so. USCO has brought its warehousing and
distribution strengths to us, and also given
us very good counsel about our European
activities in those areas.”
“We have the benefits of USCO overlapping with other cultures in our company.
For us, they are ‘pure American,’ ” he said.
“Before we bought USCO, there were two
ways for us to go,” Herms said. “We could
essentially forget about warehousing, in particular, or increase our presence by acquiring
a player with a strong hand there.”
USCO had been an attractive possibility
because the company was efficient and profitable, consistently earning 20-percent margins, which made it a standout in the U.S.
logistics market, as well as in Europe, where
margins range from 2 to 5 percent, Herms
noted.
“We had explored the possibility of an
alliance with Kuehne & Nagel as far back as
the spring of 1999,” Auray said. “USCO was
reaching out globally, as much as we could at
that time. Then, things took the turn they did,
and now we have a much wider reach as a
member of the Kuehne & Nagel Group.”
“Whenever a company is acquired, the
immediate concern is to retain key personnel,” Auray explained. Out of USCO’s 170
top managers, only one has left since USCO
has been part of Kuehne & Nagel.
While USCO is likely to remain the parent company’s major U.S. logistics component, “we’re not ruling out the possibility of
buying a small niche company that’s prof-
itable and would bring some specific value,”
said Rolf Altorfer, president of Kuehne &
Nagel Inc., a U.S. division that has 1,070
employees in 44 offices nationwide.
“We intend to expand our logistics network on all continents, including South
America and Africa,” Herms said. “We
also want to extend our global sea and airfreight businesses, and integrate them with
our logistics services.”
To that end, Kuehne & Nagel has developed one integrated information technology system worldwide. The customer
portion is hosted by CIEL in the United
Kingdom. Another part of the system
handles all of Kuehne & Nagel’s administrative activities, and was expanded inhouse from a data network first developed
in Hong Kong.
In recent strategy meetings, Kuehne &
Nagel’s executives have discussed a number of issues peculiar to 2002. The company
has prepared scenarios of how to expedite
its customers’ shipments after a terrorist
attack, if normal air, rail and sea routes are
intermittently blocked or congested.
“We are not alarmists, and we are optimistic in our frame of mind,” Altorfer said.
“Yet we must be prepared.”
Another factor to plan for is the arrival in
the near future of newly built containerships,
“too many to handle the business out there,”
Altorfer explained. “In our view, a lot of
services are going to be consolidated.” ■
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55
Shippers’ Case Law
Abstracts by Robert Mottley, [email protected]
Hazmat shippers held to strict accountability
On April 28, 1994, the Tokyo Senator, operated by Senator Linie
GMBH & Co. KG, headed toward the coast of Norfolk, Va., bound
from Pusan, Korea, where the vessel had taken on 300 drums of
thiourea dioxide originally exported from China. The master of the
ship observed heat, smoke and chemical residue coming from a
hold in which a container of thiourea dioxide had been stowed.
After the fire had been brought under control, a fire expert, upon
discovering that a number of drums were charred, concluded that
the fire had broken out within that particular container. According
to court papers, “at least one of the thiourea dioxide drums
spontaneously ignited. Other containers then caught fire.”
Thiourea dioxide is a white, odorless powder used as a reducing
agent and in the bleaching of protein fibers, such as paper, paper
pulp and textiles. At the time of this shipment, thiourea dioxide was
considered to be a stable cargo. In the years since, it has been listed
as a hazardous or dangerous cargo, both in the International
Maritime Dangerous Goods (IMDG) Code and in the U.S. Code of
Federal Regulations.
During a subsequent trial in federal court in the Southern District
of New York, in which Senator Linie proved damages to the vessel
and other cargo in the amount of $439,785.88, U.S. District Judge
Miriam Goldman Cedarbaum decided in favor of the shipper defendants, China National Chemicals Import & Export Co., Sunway Line
Inc., and Zen Continental Co. Inc. In her ruling, she wrote that in order
for liability to be imposed on a shipper of inherently dangerous cargo
under Section 4(6) of the U.S. Carriage of Goods by Sea Act [46
U.S.C. 1304(6)], the shipper must have had pre-shipment knowledge
of the danger. Senator Linie appealed the lower court’s decision to the
Second Circuit U.S. Court of Appeals.
Noting that this was a rare case of “first impression,” meaning
the first time an issue was to be decided in the United States, the
appellate panel wrote that “we must address, as a threshold matter,
the parties’ contentions regarding what was known or knowable
about thiourea dioxide at the time of the shipment.”
No document in the appeals brief indicated that “the maritime
industry in April 1994 considered thiourea dioxide to be an
inherently dangerous chemical capable of spontaneous exothermic
reaction or combustion,” the appeals court said.
The appellate judges wrote that “the history of COGSA and the
Hague Rules tells us little about the kind of liability that legislators
and drafters thought they were adopting” in COGSA and its earlier
versions. “Legislative silence can be made to tell many stories, and
we decline to force any specific conclusions from such a record. On
the whole, however, it appears to us that Congress was chiefly
concerned with preserving intact the hard-won international consensus reflected in the language of the Hague Rules, and securing
the agreement of American shipper and carrier interests to that
language. We would be surprised to learn that these legislators
simultaneously sought to square each COGSA provision with
particular features of general maritime law in the U.S.”
In a decision that will shape case law that follows, the Second
Circuit appeals court held that Section 4(6) of COGSA imposes strict
liability on shippers for damages and expenses arising out of the
shipment of hazardous or dangerous goods, even if neither the carrier
nor the shipper knew of the inherent nature of the shipped goods.
In overturning the lower court’s decision favoring the shipper
defendants, the appeals court reasoned, “that a strict-liability con56 AMERICAN SHIPPER:
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struction of Section 1304(6) will foster fairness and efficiency in the
dealings of commercial maritime actors. In contrast to a carrier,
which typically is in the position of taking aboard its vessel a large
quantity and variety of cargoes, a shipper can be expected to have
greater access to, and familiarity with, goods and their manufacturers
before those goods are placed in maritime commerce. If an unwitting
party must suffer, it should be the one that is in a better position to
ascertain ahead of time the dangerous nature of shipped goods. That
party in many cases will be the shipper.”
[Senator Linie GMBH & Co. KG, a/k/a Senator Lines, v. Sunway
Line Inc., and Zen Continental Co. Inc.; U.S. Court of Appeals,
Second Circuit; Docket No. 01-7374; Dating of ruling: May 17]
Court allows Maersk to scrutinize USSM’s profitability
In 1999, A.P. Moller purchased Sea-Land’s interest in 19 U.S.flag container vessels. As part of the transaction, 15 of those ships
were then enrolled in operating agreements pursuant to the Maritime Security Program of the U.S. Maritime Administration.
Because Moller’s ocean carrier subsidiary, Maersk, was a foreign
corporation — only qualified U.S. citizens are eligible for enrollment in the MSP — U.S. Ship Management Inc. was formed as a
separate U.S. operating company.
When USSM subsequently entered into 19 time-charter agreements with Maersk, a provision in the time charters bound the
parties to submit any dispute to arbitration.
Article 33 in the time charters obligated USSM to provide
Maersk with periodic reports containing certain financial statements regarding USSM’s business. In May 2001, a dispute arose
between the parties. USSM had given Maersk information that
included expenses of the 19 vessels and direct operational income
to USSM. But Maersk said USSM’s data had not complied with a
financial disclosure requirement in Article 33, and asked for
additional material regarding USSM’s profitability and executive
compensation. When USSM refused that request, the matter was
referred to a three-member arbitration panel, comprising Emery
W. Harper, for Maersk; Peter J. Finnerty, for USSM; and A.J.
Siciliano, chairman of the panel.
After the arbitrators determined that Maersk was entitled to
additional financial statements, USSM refused to comply. With a
letter from a MarAd official in hand saying that “disclosing overall
financial statements of USSM to Maersk would jeopardize USSM’s
status as a U.S. citizen,” USSM sued in federal court to vacate the
arbitration award. But U.S. District Judge Victor Marrero upheld
the arbitrators’ ruling, noting that “there is no evidence, as the panel
concluded, that furnishing the disputed information would, of
itself, result in Maersk attaining or exercising control of USSM.”
The court ruled that MarAd’s letter was an “opinion,” not an
authoritative “ruling.” Marrero also rejected a contention from
USSM that Harper, Maersk’s arbitrator, was unqualified. USSM
had argued that an arbitrator’s “relevant expertise must be acquired
while actually serving as a commercial person in the industry and
not while working as a lawyer.” The court determined that it does
not matter if an arbitrator’s experience comes from “non-legal
work in the industry” or “from practicing as an attorney….so long
as (such experience) is relevant and sufficient.”
[U.S. Ship Management Inc., v. Maersk Line, Ltd; U.S. District
Court, Southern District of New York; Docket No. 01 Civ 9689
(VM); Date of ruling: Feb. 13]
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6/12/02, 2:10 PM
Brokers, Forwarders & NVOs
By Chris Gillis, [email protected]
The 2-percent inspection question
U.S. Customs Commissioner Robert Bonner continues to defend the agency’s 2-percent inspection rate of the 5 million seagoing containers that enter the United States each year.
Bonner, speaking at a recent press conference in Washington,
said the agency uses several layers of security before containers
arrive at U.S. ports and land borders. Measures, such as prescreening at the point of origin and advanced transmission of cargo
manifests through Customs’ Automated Manifest System, help to
narrow the field of “high-risk” containers, he said.
Bonner has repeatedly warned since taking over as commissioner of Customs in September that terrorists may attempt to insert
weapons of mass destruction into the supply chain.
The inspection of all containers to secure the supply chain,
however, would choke off the flow of legitimate commerce,
causing global backup of containers seaports and land-border
ports, he said.
“We don’t want to waste our time with 100 percent,” said Bonner
about inspecting all containers arriving in the United States.
Tischler retires from U.S. Customs
Bonnie G. Tischler, assistant commissioner for U.S. Customs’
Office of Field Operations, will retire from the agency, effective
June 29, and continue her career in the private
sector.
On July 3, 2000, Tischler became the first
woman to serve as head of the Office of Field
Operations, the largest division in Customs with
12,500 employees and a $1 billion annual budget. In this role, she was responsible for antiterrorism (border security), trade compliance,
Tischler
antismuggling, outbound and passenger operations, 20 Customs Management Centers and 301 ports of entry.
Prior to this appointment, Tischler served as the agency’s
assistant commissioner of the Office of Investigations. Again, she
was the first woman to hold this senior management position at
Customs.
Tischler began her career at Customs 30 years ago. She became
a Customs security officer (sky marshal) in 1971. In 1977, she was
promoted to special agent. In 1980, she participated in Operation
Greenback, a successful pilot anti-money laundering project created by the Treasury Department. Three years later, she was
appointed to branch chief of Customs’ Financial Investigations
Division, which was reorganized in 1986 as the Smuggling Investigations Division.Throughout much of the late 1980s and early
1990s, she served as special agent in charge of Customs in North
and South Florida.
Customs described Tischler as an “accomplished public speaker,”
who has testified numerous times before Congress and has addressed many industry and public interest groups about border
security, money laundering, narcotics interdiction, intellectual
property rights investigations and trade issues.
NACA installs FCL contract management system
NACA Logistics Group has completed the installation of an
Internet-based system to manage its full-containerload contracts
worldwide.
NACA, the Southern California-based parent corporation of
non-vessel-operating common carriers Direct Container Line,
Brennen International Transport and Conterm Consolidation Services, bought the Tariff-Trek! system from Freightgate, an Internet
applications developer for the freight services industry based in
Huntington Beach, Calif.
“We had been reviewing and testing other systems,” said Michael
Dye, senior vice president of global sales and service for NACA.
“In the end, we decided to capitalize on the expertise and experience of the Freightgate team. Now with the implementation phase
done, we are confident we made the right decision.”
Dye also said the system is flexible enough for NACA to
customize as it sees fit.
“By replacing countless pages of inconsistent and difficult-tounderstand rates with an interactive, searchable and user-friendly
Web-enabled solution, users gain a whole new level of productivity,”
Freightgate said. “Tariff-Trek! offers customers specific rates and
unique FAK (freight-all-kinds) commodity exception handling.”
Freightgate executives also said the system includes modules for
multi-container quoting and contract archive management. For
more information about Freightgate’s Tariff-Trek! or other applications, access the company’s Web site (www.freightgate.com).
BAX offers online LCL pricing tool
BAX Global has launched a new instant online rate quote system
for shippers and freight forwarders with less-than-containerload
cargoes destined to anywhere in the world.
Over the past year, the Irvine, Calif.-based company has been
expanding its ocean services. BAX said the LCL rate quote system
(www.baxglobal.com/ocean) would be the first of several ocean
services enhancements to come this year.
“It further demonstrates the global scope of our ocean services
capabilities,” said Peter Gruettner, vice president of BAX Ocean
Services.
The LCL rate quote system allows customers to receive detailed
price quotes directly from BAX by e-mail for review. The system
also ties into BAX’s online sailing schedules and weekly LCL
consolidation services to Latin America, Asia-Pacific, AustraliaNew Zealand, Europe, the Middle East and Africa. BAX Ocean
Services provides a range of freight handling services: project
cargo, import/export services and consolidation.
Winwood joins Sandler & Travis
Former U.S. Customs Deputy Commissioner Charles Winwood
has been named senior vice president of border security for Sandler
& Travis Trade Advisory Services, a Washington-based provider
of customs and international consulting services.
Winwood, who started his career at Customs in South Florida 30
years ago, held numerous senior management positions, including
assistant commissioner under three separate administrations, and
deputy commissioner under two. He most recently served as acting
commissioner for eight months, prior to the arrival of Commissioner Robert C. Bonner, late last year.
Winwood worked extensively on Customs modernization initiatives, and worked with the shipping industry on Customs-related
issues. He resigned from the agency in March.
At Sandler & Travis, Winwood joins other former senior Customs officials, including three other past deputy commissioners —
Samuel Banks, Michael Lane and Alfred De Angelus.
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FORWARDING / NVOs
participants passed the year mark in the
program in January and February.
The agency has started to run compliance checks of the data entry centers, especially among the NVOs, to ensure they’ve
reached the 95-percent pre-departure filing
rate. Census will issue compliance warnings only twice in a 60-day period of starting its evaluations. If there’s no
improvement, Census will consider the revocation of the company’s data entry center
filing privileges.
Customs, Census step up
export data enforcement
Agencies need accurate shipment data
for trade statistics and security purposes.
BY CHRIS GILLIS
W
ith increased pressure from Congress and the public to know
what goods are leaving the country, the U.S. Customs Service and Census
Bureau have stepped up their efforts to
ensure the filing of accurate and timely
export data by the shipping industry.
The agencies acknowledge that the
government’s Automated Export System
has significantly improved export data quality in recent years, but clerical errors and
the possibility for illegal activity exist.
Customs and Census have started to clamp
down on these problems.
“Every month, we want to step our compliance initiatives up a notch,” said Adam
Wysocki, program officer with Customs’
Outbound Programs Office in Washington,
at a recent industry meeting. “As filers
become compliant, we can take them out of
the pool of enforcement initiatives.”
Export data in AES is important for Customs in its efforts to target high-risk shipments before they leave the country. Census
uses the data generated in the system to
compile the nation’s trade statistics.
Currently, 81.5 percent, or more than 1
million export transactions, are filed
monthly through AES. The overall error
rate for automated filings is about 6 percent,
compared to 50 percent with the filings of
paper shipper’s export declarations. “We
want to focus our attention on that 6 percent,” said Gerard J. Horner, chief of Census’ AES Branch, based in Suitland, Md.
About 90 percent of the 6-percent error
rate in AES is export shipments reported by
filers after departure. Customs detects these
errors by comparing the departure date of
the external transaction number (XTN), or
AES exemption statement, on randomly
selected rail and ocean bills of lading and
air waybills with the actual filing time recorded in AES. “We’ll work with Customs
to crack down on late filers,” Horner said.
In addition, there’s concern that some
filers may attempt to enter numbers in AES
until they find ones that the system would
58_59AS07
Adam Wysocki
program officer,
Outbound Programs
Office, U.S. Customs
“Every month, we want
to step up our compliance
initiatives up a notch.
As filers become compliant,
we can take them out
of the pool of enforcement
initiatives.”
accept. The agencies are also closely monitoring the use of license numbers for exports regulated by the Commerce Control
List and the State Department’s U.S. Munitions List.
Compliance of data entry centers is another concern for the agencies. In December 2000, Census created the program to
allow transportation providers to operate in
the capacity of data entry centers for their
exporter and freight forwarder clients, while
encouraging these same clients to directly
file export data in AES or via a free Internet
link, AESDirect.
By far the biggest group of transport
providers to sign up to become data centers
were the non-vessel-operating common
carriers with more than 700 firms registered with Census. The rest of the modes,
ocean and air couriers, has less than a dozen
each enrolled in the program.
After a year in the program, Census said
participants must file 95 percent of their
export data pre-departure and the remaining 5 percent within 24 hours. Most of
Report Cards. Since 1999, many exporters and forwarders have switched from
paper filing to using AES. To make it even
easier and cheaper for the shipping industry
to use the system, Census and Internet applications provider Flagship Customs Services developed AESDirect.
Census continues to aggressively market
AES and AESDirect to the shipping industry through workshops held around the country. However, Census continues to find
heavy use of paper export declarations.
Since February, Census began keeping
charts on the percentage of AES filings at
each of the 301 Customs ports. “These
charts help us to identify which Customs
ports are behind on getting the filers on to
AES,” Horner said.
There are still about 200,000 paper export
declarations filed per month by the industry
to the government. Census’ records show
that the top paper-filing port is JFK Airport,
followed by Los Angeles Airport; Laredo,
Texas; San Francisco; and Chicago.
Census, with help from Customs, plans
to focus more attention on paper export
declaration filers on the coming months.
“We’re reaching out to paper filers and in
some cases we’re conducting paper blitzes,”
Wysocki said.
Both agencies have found paper blitzes to
be an effective way to lower paper filing
levels in ports. Until early last year, Laredo
was the nation’s top user of paper export
declarations, with more than 55,000 documents filed per month. Census officials made
numerous visits to forwarders in Laredo from
May to August last year. While more work is
still needed, Laredo has dropped to the thirdlargest paper-filing port.
Census recently conducted paper blitzes
in JFK, San Francisco and Chicago. Another is scheduled for Washington/Dulles
Airport in July.
To further improve communications between Census and Customs on export data
management, a major design effort is underway in the AES commodity module.
“Compliance alerts” will be generated internally between the agencies regarding
filer errors, misuses of export licenses and
JULY 2002
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FORWARDING / NVOs
Manifest privacy fight continues
Gerard J. Horner
chief of Automated
Export System Branch,
U.S. Census Bureau
Schumer maritime security bill opens
possibility to amend 1930 Tariff Act.
NEW YORK
“We’re already preparing
our staff for what is expected
to become a reality soon.”
late filings, which will be compiled in the
form of filer “report cards.” In addition,
edits will be tightened up in the system.
These modifications should be completed
by August 2003.
“This will give us a better snapshot of
what’s going on,” Horner said. “We will
have more internal messages going back
and forth between Census and Customs
about who is in or out of compliance.”
Mandatory AES. The export enforcement powers of Customs and Census continues to increase with the implementation
of the 1999 Proliferation Prevention Enhancement Act, which mandates full automated filing of data for exports regulated
and licensed under the Commodity Control
List and U.S. Munitions List. The agencies
expect full implementation of the regulations by early 2003.
“If your clients have commodities that
are on the CCL or USML, your client should
provide you with an exemption statement
indicating that their shipments have been
filed through the AES,” said Census in a
recent memo to the data entry centers. “As
a data entry center, you cannot file CCL and
USML shipments for your clients unless
your company has power of attorney from
the USPPI (U.S. principal party in interest
or exporter) or you are an authorized agent
for the USPPI.”
Soon, however, Congress is expected to
mandate that all export data must be filed
through AES. Three bills on Capitol Hill
contain nearly identical mandatory AES
language. The government has stepped up
its call for automated data from the shipping industry since the Sept. 11 terrorist
attacks on the United States.
Census and Customs said they are ready
to move forward with mandatory AES filing when Congress makes it law. “We’re
already preparing our staff for what is expected to become a reality soon,” Horner
said.
■
U.S. non-vessel-operating common carriers support the improvement to maritime
security, but want commercial information
shared with the federal government to remain confidential.
Since the mid-1980s, ocean freight information contained on manifests and bills
of lading has been available for public sale
through private sector reporting services.
NVOs believe this practice must be stopped
to keep detailed manifest data out of the
hands of competitors, as well as terrorist
and criminal organizations.
“If we supply information to the government for security purposes, then we should
not be subject to potential commercial harm,”
said Alan E. Baer, president of New York-based
Ocean World Line, and
chairman of the NVOCCGovernment Affairs
Conference.
Baer
Various security bills
on Capitol Hill would require NVOs to
provide shipper and consignee information on their manifests to the government.
Traditionally, NVOs have listed themselves
or their agents as shipper and consignee to
shield this information from ocean carriers
and competing NVOs.
The NVO-GAC was formed in December after Customs in the port area of Houston-Galveston threatened to require NVOs
to hand over their shipper and consignee
information to ocean carriers for manifest
purposes.
Many NVO executives believe the industry is prepared to provide more in-depth
manifest data through
Customs’ Automated
Manifest System, but
they are hesitant to proceed without confidentiality measures in place,
said Carlos Rodriguez, Rodriguez
counsel to the NVO-GAC and New York/
New Jersey Foreign Freight Forwarders &
Brokers Association.
Both the NVO-GAC and the New York/
New Jersey forwarders association have
voiced this concern in recent months to
officials at Customs, Treasury, the Trans-
portation Security Agency and the National Infrastructure Security Committee.
However, a recent maritime security bill
drafted by Sen. Charles E. Schumer, DN.Y., could offer the best window of opportunity for NVOs to ensure manifest
data confidentiality.
Schumer’s bill, the Port Terrorism Prevention Act of 2002, would increase maritime security by amending the 1930 Tariff
Act.
In 1984, the Journal of Commerce and
its subsidiary PIERS took legal action,
which resulted in Customs amending its
regulations under the 1930 Tariff Act to
provide broader access to manifest information. This gave the newspaper and reporting services, such as Trade Reporting
and Data Exchange, the right to copy and
publish all information on cargo declarations.
The NVO-GAC and New York/New
Jersey forwarders association provided
Schumer with sample data generated by
Trade Reporting and Data Exchange. “The
information provided is extremely sensitive commercial information from every
industry segment,” the groups told
Schumer. “Buyers and sellers are made
public; carriers are named; customshouse
brokers are identified; bills of lading and
container numbers are provided; commodity descriptions are detailed; and so forth
… This information is currently electronically available to the public even before a
vessel pulls into a port for discharge of
cargo.”
“The data which Customs is relying on
to provide guidance for further inspection
is data that should be protected,” Rodriguez
said. “It’s just common sense.”
Importers have the right to request confidential treatment of its name. But according to the NVO-GAC and New York/New
Jersey forwarders association, only 15 percent of importers request confidentiality of
information.
The groups believe that importer customers are either ignorant of the confidentiality provision or believe it’s too
burdensome to pursue.
“There shouldn’t even be the option because of the commercial sensitivity and
security implications regarding this information,” Rodriguez said.
■
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IANVOCC reborn
Once industry leader attempts to make
a comeback in Washington.
BY CHRIS GILLIS
T
he International Association of
NVOCCs has been reborn.
The IANVOCC, once considered the voice of the U.S. non-vessel-operating common carriers on Capitol Hill, was
abandoned by its membership five years
ago. But the determination of a Washington attorney and a handful of NVO executives could once again raise the group’s
prominence.
“This group has sprung back to life,”
said David Street, general counsel for the
IANVOCC. “The NVOs have a large commercial interest in the ocean transportation
scene and need a presence in Washington
to match.”
From the NVO industry, executives John
Abisch, president of Miami-based
Econocaribe Consolidators, and Howard Leff,
president and founder of
7M Transport in Houston, will serve as co-directors of the IANVOCC.
The group claims to already have about 10 comAbisch
pany members.
Washington attorney
Raymond P. DeMember
started the IANVOCC in
1972. Some of the early
members were Carolina
Freight Carriers, Audnel
American International,
European Container SerLeff
vice, Trans Freight Lines,
Econocaribe, Distribution Services Ltd.,
ABC Freight International, Brennan International Transport and Direct Container
Line.
During the 1970s, the survival of the
NVO industry was threatened by the International Longshoremen’s Association’s socalled “50-mile rule,” which required that
all mixed shipments within 50 miles of a
U.S. seaport to be stripped by union labor.
Some NVOs found ways around the rule,
but the business largely suffered.
The IANVOCC fought the 50-mile rule,
which was eventually struck down by the
60AS07
David Street
general counsel,
International Association
of NVOCC
“We’ll be a Washingtonbased organization that
works hard to get Congress
and regulatory agencies
to see the NVOs’ way.”
U.S. Supreme Court in the late 1980s.
DeMember next worked to get the banks
to recognize NVO bills of lading in their
letters of credit, and helped to shape the
language that would define the industry for
the first time in the 1984 Shipping Act. The
IANVOCC also helped to seek the passage
of the Non-Vessel-Operating Common
Carrier Amendments of 1990, which contained the NVO bonding requirements.
At its peak, the IANVOCC had about
100 members and an established identity in
Washington politics and industry issues.
After DeMember died in early 1992, the
IANVOCC began a downward spiral of
dwindling membership and infighting.
The IANVOCC management attempted
to save the association by expanding its
services to include education seminars,
such as an introduction to industry practices and hazardous materials handling.
There was also an attempt to create regional groups within the IANVOCC. These
efforts ultimately failed.
In addition, the IANVOCC failed to step
forward during the drafting of the 1998
Ocean Shipping Reform Act, leaving the
NVOs largely stuck under the regulatory
confines of the 1984 Shipping Act.
Street, who became general counsel for
the IANVOCC after DeMember’s death,
will get back to the roots that gave the
group its impetus. “We’ll be a Washington-based organization that works hard to
get Congress and regulatory agencies to
see the NVOs’ way,” he said.
DeMember’s success at running the
IANVOCC was largely credited to his ability to keep the members focused on legislative issues that impact their bottom lines
and not allow competitive issues to enter
the group’s affairs.
Street’s desire to return the group’s to its
lobbying roots garners support from its
fledgling membership.
“I’ve had the pleasure of working with
David Street and he’s knowledgeable of
the NVO industry and Washington politics,” Abisch said.
The IANVOCC will also receive some
administrative support from the Washington-based National Customs Brokers and
Forwarders Association of America. “We
have a strategic alliance with the NCBFAA
to take advantage of each other’s strengths,”
Street said.
“There will be some synergy with the
NCBFAA, but some issues will be unique
to the neutral NVOs,” Abisch added. Neutral NVOs buy space from ocean carriers at
wholesale and retail it to freight forwarders
with less-than-containerloads and fullcontainerload shipments.
In a first sign of this alliance between the
IANVOCC and NCBFAA, the groups
jointly petitioned the U.S. Federal Maritime Commission to investigate allegations of discriminatory practices against
NVOs by the carriers of the Transpacific
Stabilization Agreement during the 2002
service contract negotiation period (see
related story page 15).
Later this year, the IANVOCC plans to
hold its first annual meeting in Washington
to solidify its legislative agenda.
But rebuilding an association with a
fragmented, cost-conscious industry will
make this endeavor difficult. The new membership will have to agree to a dues structure to cover its administrative and legal
costs.
The IANVOCC is also not the only
group today that represents the interest of
NVOs in Washington. The NVOCC-Government Affairs Conference, which was
formed late last year, represents about 15
firms and has recently become a noted
proponent for NVOs in the national debate
over increased maritime security rules.
(February American Shipper, pages 4246).
Asked if there’s room for two NVO associations in Washington: “I guess we’ll find
out,” Street said.
■
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Canada, U.K. to share
shipment data
Countries develop systems to take advantage
of G7-based customs data exchanges.
BY CHRIS GILLIS
T
he world’s biggest trading nations
have agreed to a set of data standards to satisfy their customs clearance requirements, and Canada and the
United Kingdom will soon put the concept
to the test.
Five years ago, the Group of Seven countries — the United States, United Kingdom, Canada, France, Italy, Germany and
Japan — began the difficult task of standardizing and simplifying their customs
data requirements and fitting them into a
common electronic-data-interchange format. The goal is to improve cross-border
trade, reduce costs to shippers and governments, and promote economic growth.
Under the G7’s Customs Data Harmonization Initiative, one country’s import data
should satisfy another country’s export information requirements. Import data would
be presented in a “two-step” process, in
which customs releases goods on an initial
simplified declaration. Additional information and payment of duties and taxes
would be provided to the individual governments by shippers after cargo release. A
similar two-step process has been outlined
by the G7 for export data filing.
The customs administrations of Canada
and the United Kingdom plan to conduct a
year-long G7-based electronic exchange
of import/export data, starting in the spring
of 2003. The Canadian G7 implementation
and the U.K. G7 prototype remain separate
projects, but share common evaluation criteria.
Franco Germano, manager of international initiatives for Canada Customs and
Revenue Agency’s Risk Assessment Systems and International Initiatives Division,
said the two countries should be able to
prove the feasibility of “reusable, standardized data and EDI messages” through
the test. “The timing of the G7 data harmonization has coincided perfectly with efforts to re-engineer and modernize
Customs’ commercial processing,” he said.
Dietmar Jost
senior technical officer,
World Customs
Organization
The current momentum
of this initiative lives
and dies with actual and
final implementation.”
Canada Customs considered the G7’s
customs data standards in its “Action Plan”
to modernize its operations. “We wanted
to be sure as an organization, we were
proceeding with consistency and certainty
using established standards and common
data definitions,” Germano said.
Similarly, U.K. Customs included the
G7 customs data standards and testing
within the 15 recommendations of its future operations “blueprint,” which was recently approved by the U.K. government
ministers. The outcome of the tests will
help lay the groundwork for the agency’s
future import/export system, scheduled for
implementation in 2007, said Joe
O’Connor, senior customs policy specialist with U.K. Customs’ International Trade
Policy group.
The initial Canada/U.K. test is expected
to include five to 10 companies. Any business involved in trade between Canada and
the United Kingdom is welcome to participate. This includes importers, exporters,
customs brokers, and software providers.
Both customs administrations said they
have engaged in numerous consultations
with trade associations and interested companies.
Other tests are expected in the near future. Customs administrations in Australia, New Zealand and South Africa have
expressed interest in participating in the
Canada/U.K. Customs prototype.
The 21 Asia-Pacific Cooperation countries, of which Japan is a member, have
considered similar customs harmonization
and simplification projects in line with the
G7’s work. One of those tests involves the
South Korea-Malaysia Pilot Exchange.
Four G7 countries are members of the
European Union. The European Commission in Brussels has been involved in G7
discussions and has approved legislation
to allow EU member countries to conduct
automated customs harmonization and simplification data tests.
While the G7 agreed to a timetable to
achieve implementation of the customs
data standards by 2005, it’s uncertain
whether all the member countries will make
it.
Several years ago, U.S. and U.K. customs planned to test the G7 data standards,
a program known as the International Trade
Prototype. U.S. Customs scrapped the
project because of budget shortfalls. The
United States, however, encourages international shippers to participate in other G7
customs prototypes.
“It is important that the international
trade community participate in the pilots
and influence other customs administrations to harmonize and standardize their
requirements,” Germano said.
One of the recent arguments for a unified customs data standard involves the
war against international terrorism, resulting from the Sept. 11 terrorist attacks on
the United States. Governments believe
efficient access to customs data will help
detect future terrorist activities.
Earlier this year, the Brussels-based
World Customs Organization was given
the task to promote and further refine the
G7’s work. The G7’s Customs Data Harmonization Initiative has now become the
WCO Customs Data Model Version 1
(April American Shipper, pages 52-54).
The WCO is encouraged by the initiative by Canada and U.K. customs to use the
data model in their future systems and
policy development. The outcome of the
Canada/U.K. customs prototype will help
the WCO develop Version 2 of the data
model.
“Without final implementation of the G7
results into their operational systems, the
G7 initiative will remain a nice idea or
concept,” said Dietmar Jost, senior technical officer at the WCO. “The current momentum of this initiative lives and dies with
actual and final implementation.”
■
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Faster Russian
Customs clearance
AmeRussia Shipping helps develop Russian
government-backed import program.
BY CHRIS GILLIS
S
hipping executive Richard Shannon
knows more than most U.S. businessmen about what it takes to move
cargo into Russia, but his knowledge and
skills are about to be put to the test.
The Russian government has asked
Shannon’s firm, AmeRussia Shipping Co.,
to help it develop a customs program to preclear imports for certain approved Western
shippers. The program, Transatlantic
Streamline, is expected to start with a test in
early July.
“With the Russian national economy
steadily growing these last years, Russia is
entering into a new stage of economic development,” Shannon said. “In order to
expedite cargo from ports and border crossings in Russia, new systems must be initiated to promote trade and ease the problems
experienced in the past decade for cargo
entering, being cleared through customs
and delivered in Russia.”
Shannon, who has more than 30 years
experience in the ocean carrier industry,
was president from 1995 to 2000 of Atlantic Ro-Ro Carriers, a roll-on/roll-off liner
carrier operating between the U.S. East and
Gulf coasts and St. Petersburg, Russia.
In the early 1990s, Shannon also created
AmeRussia Shipping with offices in Rutherford, N.J. and St. Petersburg, to serve as
an agent to Baltic Shipping Co. and many
Russian shippers and freight forwarders.
Over the years, Shannon saw many business ventures in Russia crumble or put on
hold because of the country’s cumbersome
customs clearance procedures and susceptibility to corruption.
Last year, AmeRussia developed a plan
to speed up import clearances and, at the
same time, give Russian Customs more
control over the process. The plan was
presented to Mikhail Vanin, chairman of
Russia’s State Customs Committee in Moscow, who approved it on April 30.
Since the mid-1990s, Russia has made
efforts to develop economic policies to satisfy its entry into the World Trade Organi-
62AS07
“With the Russian national
economy steadily growing
these last years, Russia
is entering into a new stage
of economic development.”
Richard Shannon
president,
AmeRussia Shipping Co.
zation and meet International Monetary
Fund requirements.
“Transatlantic Streamline is a major step
by the Russian government and customs to
collect proper duties in a uniform manner
without discrimination and with full transparency and timeliness,” Shannon said. “It
will allow vessel operators to cut down on
the time their ships remain in port for discharge; allow shippers, consignees and logistics companies to pay their duties in
advance of ship arrival, when duties are
applicable; and order the rail equipment
with assurance that their cargo will not be
unnecessarily delayed for customs issues.”
AmeRussia Shipping will help the Russian State Customs Committee develop temporary guidelines for the Transatlantic
Streamline test. “We are in the process of
putting together, evaluating, and fine-tuning all necessary procedures within this
innovative and important program,” Shannon said.
While systems will be important to the
success of Transatlantic Streamline, Russian Customs and AmeRussia Shipping have
decided to use current systems and paperbased methods to get the program started.
Program managers said better technology
systems would be integrated into Transatlantic Streamline over time.
In addition, AmeRussia Shipping hired
the law firm of Rodriguez O’Donnell Fuerst
Gonzalez & Williams in Washington and
Houston to ensure that the program conforms to shipping and customs regulations
of both the United States and Russia.
During the rollout of Transatlantic
Streamline, Shannon will continue to divide his time between AmeRussia
Shipping’s offices in St. Petersburg and
Rutherford.
AmeRussia Shipping has held numerous
meetings with American shippers and forwarders to draw interest in the Russian preclearance program. Shannon said that while
Transatlantic Streamline has generated interest from a number of companies, the program
would begin with one large U.S. shipper to
ensure the “bugs are worked out.”
Several years ago, another U.S.-led program to improve customs clearance conditions in Russia was started. The Customs
Link Entry/Exit American Russian-Pacific,
or Clear-Pac, involves Seattle-based Foundation for Russian American Economic
Cooperation, a U.S. Commerce Department-backed program; Russian Customs’
Far East operations; Vladivostok-based
Scientific Research Center Computer Technologies; and Flagship Customs Services
of Silver Spring, Md.
Last spring, Computer Technologies
completed the development of the first
module of its Automated System of Preliminary Electronic Customs Clearance.
Field tests of the module were conducted in
Vladivostok in May and June. Russian Far
East Customs was able to clear and release
freight to importers within 30 minutes to
two hours after its arrival in port.
Last July, Russian Far East Customs
began using the Clear-Pac software for dayto-day operations in Vladivostok, and has
since recommended expanding the PCbased system to other agency posts in the
region.
According to Clear-Pac’s managers, Russian State Customs Committee reviewed
the program in September and found it to be
consistent with its plans to introduce preliminary electronic notification and preclearance procedures to improve control of
the country’s customs operations (January
American Shipper, page 53).
How far Clear-Pac will expand depends
on the U.S. government’s continued support and the economic conditions of the
Russian Far East. The foundation said its
ultimate goal is to make Clear-Pac a
standalone operation, generating revenue
from processing and other service fees.
Shannon believes Transatlantic Streamline may have a slight edge over Clear-Pac
in the long run. “Our customs program is
driven from the top” of the Russian government, he said.
■
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FORWARDING / NVOs
Peter Baish
E-mail: [email protected]
agency, the INS.
The border security agency
Besides the opposition of the
Despite strong Congressional
During a national address on the evening of June 6, 2002,
department secretaries and the
calls for a Cabinet level Office
President Bush proposed a cabinet-level level agency that
attorney general, other obof Homeland Security, Direcwould coordinate the national anti-terrorism effort.
stacles lie in wait for those who
tor Tom Ridge has strongly inIn his address, Bush outlined the most ambitious reorgasupport the border security
dicated that should the
nization of the federal government since the Truman adminagency: Congressional commitlegislation pass, President Bush
istration. The new Department of Homeland Security will
tees would lose their traditional
would veto it. The legislation
include a functional “Border Security Agency” as described
bailiwicks, as well as major recalls for a new mega-office that
in this column. In a previous American Shipper article
alignments of the jurisdiction
would include the Federal
(December 2001, page 51), Baish offered the following
of the federal employee unions
Emergency
Management
opinion:
would occur. (The federal
Agency; Coast Guard; Cus“Folding Customs, the Border Patrol arm of INS and the
unions can be just as aggressive
toms; Immigration and NatuCoast Guard makes a lot of sense to me … Ridge has a tough
about membership issues as are
ralization Service enforcement,
job in a period of historic danger and threats to public
the longshoremen unions and
including the Border Patrol, as
welfare. Maybe the most important benefit would be to give
the Teamsters). Additionally, a
well as parts of the FBI and
him the impetus and critical mass of a large agency to fulfill
degree of uncertainty would
Agriculture.
his vital mission. Also, perhaps the different reports and
arise among some members of
Despite this splash of cold
associated debates will provide Ridge and the president a
Customs trade community if the
water, both the House and the
basis to articulate their desires on the combined agency.”
new federal
Senate bills are alive and solborder agency
diering through Congressional
mark ups. Congress is giving this effort a big push because the were to be placed under the Department of
agencies combined account for nearly $38 billion that Con- Justice, rather than to become an independent
gress has approved for homeland security. In addition, they agency. The “facilitation vs. enforcement”
believe that a full-fledged cabinet-level office would give debate would once again rage even in this
post-Sept. 11 world.
Ridge the impetus to prevail in the inevitable turf wars.
Further shedding some light on this issue,
If the mega-office Department of Homeland Security is
Bonner
unworkable, the idea of a federal border agency proposed by at a recent trade meeting, Customs CommisRidge remains viable. Six cabinet agencies (Treasury, Trans- sioner Robert Bonner was asked if he thought that a “border
portation, Justice, State, Agriculture, and Defense) share juris- management agency” was possible. The commissioner, who
diction of the air, land and seaports. Several month’s ago, has been doing a masterful job leading Customs through these
Ridge’s proposal to merge some of their components met with difficult times, answered that major government reorganizaa predictable amount of resistance when
he suggested combining the principal
functions into a single border security
agency.
I think the resistance of the cabinet
secretaries is predictable, but unhelpful
to fighting terrorism with a strong commitment at the nation’s ports. Loss of all
or part of the border agencies would
hardly be a crippling event to any of the
departments mentioned. I remember the
words of a former assistant Treasury
secretary who oversaw my former
agency, U.S. Customs. He described
Treasury’s financial and banking functions as being the ”real Treasury” and
that all the other functions including
Customs and the other Treasury enforcement agencies as being a side show to
Treasury’s “minister of finance’ responsibilities. Also, I can hardly imagine the
attorney general knocking himself out to
retain control of that basket case of an
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tions are complicated and “fairly unlikely” in recognition of
• Revitalize INS by giving that demoralized agency an opporthe obstacles such as those listed above.
tunity to rebuild with a renewed purpose and new leadership.
Bonner also mentioned that the idea of a single “border
• Allow the Border Patrol, Coast Guard and Customs Investimanagement agency” dated back to the Nixon era and had been gations to better coordinate and plan “between the land border
proposed at least seven times before, principally as a means to ports” enforcement as well as improve air/marine interdiction.
better combat drug trafficking. As a former administrator of the
• Achieve economies of scale in procurement, data systems
Drug Enforcement Agency and federal judge, you have to respect and in the deployment of other law enforcement assets
his opinion.
President Bush’s chief of staff, Andrew Card has been assigned
With all due respect to the commissioner, I hope he’s wrong this the task of examining the future shape of the nation’s homeland
time.
security efforts including a federal border
The number of commercial trucks, planes
agency. This hot potato could not have been
“I don’t think the issue handed to a better person. We’re fast apand containers has been increasing exponentially for years. Also, passenger traffic
the 10th anniversary of the devascould be in better hands proaching
doubles every three to five years. Through
tation of Hurricane Andrew. In August 1992,
this curtain of huge cargo and passenger
he was detailed from his post as Transportathan Andrew Card’s.”
volumes, we rely on the border agencies to
tion secretary in an unusual move to rescue
give us a perimeter defense to bar entry of
a disorganized and unresponsive disaster
terrorists and their weapons/hazardous substances that they will relief effort. He pulled the operation together and became a
use to attack us.
national hero for his achievement. Frankly, I don’t think the issue
If a merger of agencies performing essentially similar activities could be in better hands than Andrew Card’s.
and functions made sense in the drug war, it certainly is justified
Although the outcome is not certain, I hope that the conclusion
in terms of border security and the war on terrorism. An indepen- is to reorganize the separate border agencies into an independent
dent border agency would:
Border Security Agency. And I also hope that the highly regarded
• Ensure better coordination of port activities and enforce- and respected Bonner becomes the new agency’s first chief
executive.
ment operations.
Peter Baish is director, product management with ClearCross,
• Provide better dissemination of intelligence because looka Reston, Va.-based software firm specializing in international
out and targeting systems would be integrated.
trade logistics and materials compliance. Baish is a former
• Eliminate duplication of effort, equipment and facilities.
• Provide port executive management with a larger law en- Customs executive who was Customs Area Director for New York/
forcement officer pool to concentrate on specific threats or vul- New Jersey as well as being Customs first Export Director with
leadership responsibilities for Customs port antiterrorism program.
nerabilities.
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Transport / Ocean
By Philip Damas, [email protected]
U.S.-flag shipping associations in opposing the Fair Market AntiSurprising carrier partnerships
Ten years ago, a cooperative agreement between Evergreen and trust Immunity Reform (FAIR) Act of 2001 (H.R. 1253).
Maersk or between Evergreen and APL would have been unthinkJumping trade barriers
able.
The main car-carrier shipping trades — those from Japan and
But both partnerships have recently been announced, through
slot-exchange agreements, to the surprise of many in the industry. Korea — are notoriously closed to competition from international
Maersk Sealand and Evergreen Marine Corp. will cooperate in shipping companies. Japanese and Korean car-carrier trades are
the Asia/North America trade in their first cooperative agreement said to be virtually impossible to penetrate, unless a shipping
company is owned by a local car manufacturing group.
in any major trade route.
Therefore, the plan by the Scandinavian shipping groups Wilh.
Under the “Maersk Sealand/Evergreen Slot Exchange Agreement,” filed with the U.S. Federal Maritime Commission, Maersk Wilhelmsen ASA and Wallenius Lines AB to acquire the car
Sealand will charter slots on Evergreen’s WAE service from East division of Hyundai Merchant Marine and sign long-term contracts
with Hyundai group-affiliated car manufacturers is a brilliant way
Asia to Tacoma and Vancouver.
In return, Evergreen will take slots from India and Sri Lanka to the to jump a trade barrier.
Wilhelmsen and Wallenius have agreed
U.S. East Coast on Maersk Sealand’s direct
with Hyundai Motor Co. and Kia Motors
Indian Subcontinent/Middle East/East Coast
It is clear that ocean
Corp. to form a strategic partnership to proof North America service via the Suez Canal.
“The efficient use of oceanborne tonnage carriers are more willing vide long-term car shipping services. Hyundai
Motor Co. and Kia Motors Corp. are part of
and cooperation between carriers will proto make tactical
the Hyundai industrial conglomerate, which
vide built-in economies that will best serve
also includes Hyundai Merchant Marine.
our customers,” said Arnold Wang, execucompromises with
Wallenius and Wilhelmsen will, together,
tive vice president of the corporate business
own 80.1 percent of the new joint venture,
division at Evergreen.
competitors that result
while Hyundai Motor and Kia Motors will
Last year, Evergreen started its first transin overall cost cuts and own the remaining 19.9 percent.
pacific slot-exchange agreement with New
The newly formed company will have a
World Alliance members APL, Hyundai
service improvements.
five-year contract with Hyundai Motor and
Merchant Marine and MOL. APL, Hyundai
Kia Motors to ship their ocean-going export
and MOL take space on the transpacific leg
volumes, with provision for contract extensions.
of Evergreen’s WAE service.
Should container carriers consider doing the same sort of deals
It is clear that ocean carriers are more willing to make tactical
compromises with competitors that result in overall cost cuts and with local partners to increase their presence in the — still —
protected Chinese export container trade?
service improvements.
Of course, such partnerships also blur the differences between
carriers’ services, at least as far as the port-to-port portion of their Maersk’s next series of ships?
Maersk Sealand will receive later this year the 25th postoperations is concerned.
Although relatively new to slot-exchange agreements in the Panamax containership of more than 6,000 TEU capacity.
In May, A.P. Moller, the parent company of Maersk Sealand,
major east/west trades, Evergreen has already been taking space
from Maersk Sealand and other carriers in the trade between North named another large post-Panamax containership, the Cornelia
Maersk. The ship is the 23rd Maersk Sealand post-Panamax ship
America and the East Coast of South America.
Evergreen and Mediterranean Shipping Co. are the last two of more than 6,000 TEUs, which started with the Regina Maersk in
major east/west carriers that had, until now, refused to join global 1996.
The last two ship in the series will be delivered in August and in
alliances and cooperative agreements
October-November.
A.P. Moller said the Cornelia Maersk has a capacity of approxiRepeal of carrier antitrust immunity ... not just now
Following the House Judiciary Committee hearing in Washing- mately 6,600 TEUs, but industry databases rate the estimated capacton to consider legislation to repeal the antitrust immunity of ocean ity of Maersk Sealand’s “S-class” mega-ships at about 7,400 TEUs.
The question on the lips of many container ports and of ocean
carriers, it is unlikely that such a change will happen this year.
Although opponents of the immunity now include the Interna- carrier competitors of Maersk Sealand is: What’s next at Maersk
tional Brotherhood of Teamsters (see story, page 6), unions are still Sealand?
Maersk Sealand is rumored to have ordered six new large vessels
divided over this issue.
And while the Justice Department supports ending the immunity of 7,600 TEU due to be delivered at the end of this year and in 2003.
The Danish shipping group has declined to confirm or deny the
of carriers, the U.S. administration as a whole is also split.
In the industry, the traditional divide continues between sup- reputed order.
Keeping with its tradition of saying as little as possible for as
porters of the immunity (ocean carriers and the Federal Maritime
Commission) and opponents (intermediaries), while the National long as possible, Maersk Sealand has kept the industry guessing.
But it is hoped that the Danish mega-carrier will disclose the
Industrial Transportation League is sitting on the fence.
The liner carriers also gained support from maritime unions and dimensions of the new ships at the end of this year.
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The Midnight Sun will be employed in the U.S. Pacific Northwest/Alaska trade
TOTE looks ahead
Jones Act carrier considers expansion to foreign
markets after new ships arrive.
BY CHRIS GILLIS
W
ith two new vessels soon to
enter service, Totem Ocean
Trailer Express is preparing to
expand its business.
The U.S.-flag carrier, more simply known
as TOTE, plans to receive two newly built
roll-on/roll-off vessels from the National Steel
and Shipbuilding Co., the first in November,
followed by the second ship in May 2003.
The Midnight Sun and North Star, which
will be employed full-time in the U.S. Pacific Northwest/Alaska trade, will also increase TOTE’s fleet to five ro/ro ships.
“The two new ships will free up two of
our older ships, which we will use to explore other markets” said Robert P. Magee,
president and chief executive officer of
TOTE, based in Federal Way, Wash., near
Tacoma.
For more than 25 years, TOTE has operated two U.S.-flag vessels in the Pacific
Northwest/Alaska trade, and added a third
ro/ro vessel to its fleet in 1994. Ocean
transportation in the Pacific Northwest/
Alaska trade is tightly regulated under the
1920 Merchant Marine Act or Jones Act.
But that doesn’t mean the carrier hasn’t
looked to maritime business beyond its
long-time niche. TOTE’s parent company
66_67AS07
Robert P. Magee
president & CEO,
Totem Ocean Trailer
Express
“The two new ships will
free up two of our older
ships, which we will use
to explore other markets.”
SaltChuk Resources bought San Franciscobased tug-and-barge operators Foss Maritime in 1987 and Ugland Management Corp.
of Philadelphia in 1989.
SaltChuk is also a joint owner of Sea Star
Line, which operates carrier services in the
U.S./Puerto Rico/Virgin Islands trade. Other
Sea Star owners include Matson Navigation and Taino Star Investment. Sea Star
recently acquired Navieras, a competitor in
the U.S./Puerto Rico trade.
Magee believes that new business opportunities will also be found in the international trades for two of TOTE’s ro/ro vessels.
TOTE is no stranger to international waters. The company has occasionally chartered its ro/ro vessels for overseas moves
during the slow shipping season in the Pacific Northwest/Alaska trade, from October to March. In 1996, for example, one of
its ro/ro vessels transported wheeled equipment from Savannah, Ga., to the Ukrainian
port of Odessa and Russia’s Novorossiysk
seaport in the Black Sea. On the return
voyage, the vessel picked up a load of U.S.
military equipment from Izmir, Turkey.
Although TOTE’s three older vessels —
the Great Land, Westward Venture, and
Northern Lights — were built in the mid1970s, they each underwent $10-million
enhancements in the early 1990s. The vessels are expected to remain in service until
2010, Magee said.
The U.S. Maritime Administration
praised TOTE’s consideration to use two of
its U.S.-flag vessels in the international
trades. “From a national security point of
view, the Maritime Administration welcomes the addition of new military-useful
ro/ro tonnage that could be used in times of
national emergency,” said Maritime Administrator William G. Schubert.
TOTE’s new vessels, which are the first
U.S.-built commercial ships in 10 years,
cost about $150 million apiece. The carrier’s
management believes it’s worth the investment, considering the rigors of both the
transport environment and economic needs
of the Pacific Northwest/Alaskan trade.
The new vessels must endure winter
storms that generate 60-foot waves, ice and
wind gusts of up to 75 knots. At the same
time, they must continue to maintain their
sailing schedules and safely deliver freight
for TOTE’s customers.
The Midnight Sun and North Star, designated Orca-class vessels, aren’t like traditional ro/ro ships found in the international
auto-transport business. TOTE’s new ships
will each have capacity for 600 trailers and
200 autos. Trailers make up a majority of
TOTE’s freight traffic.
The new vessels will also correct technical problems recognized in the three older
ships. The Midnight Sun and North Star
have larger overheads for bigger trailers,
ranging from 30 to 53 feet long. Watertight
holds will enclose up to 75 percent of the
cargo on board.
TOTE management considered increased
efficiency in the new vessels. The vessels
will be powered by twin-diesel electric propulsion plants, each with its own propeller
and rudder system, and will sail at speeds of
up to 24 knots between Tacoma and An-
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“It’s more than painting.
We’re remodeling
the entire terminal.”
Ed Engelhardt
senior director of trade
development, line business
leader for Alaska
Port of Tacoma
chorage.
Each vessel will also be equipped with an
improved internal ramp system to load and
unload freight in 12 hours or less. The older
vessels take 10 to 15 hours to load and
offload, and they carry two-thirds the freight
volume that the new ships will handle.
In addition, the new vessels require
changes to TOTE’s terminals in Tacoma
and Anchorage.
“It’s more than just painting,” said Ed
Engelhardt, Port of Tacoma’s senior director of trade development and line business
leader for Alaska. “We’re remodeling the
entire terminal.”
The $12.5-million terminal upgrade in
Tacoma includes a new 48-acre terminal
layout, equipment and systems to accommodate the increase in larger truck trailers,
auto volumes, and other freight. In addition, TOTE’s on-site administrative building will undergo renovation. The project is
expected to be completed by August 2003.
Similarly, the Port of Anchorage has
added a third, $2-million trestle and other
modifications at TOTE’s terminal.
“We’re working very closely with TOTE
to help them become more efficient with
their customers,” said Roger K. Graves, a
spokesman for the Port of Anchorage.
Both ports must also accommodate other
carrier investments. The trade has about $3
billion worth of new vessels under construction, such as the Philips/Arco and BP tankers;
rail and flat-deck barges for the Alaska Railroad/Alaska Marine Lines; and new ferries
for the Alaska Marine Highway System.
Through the years, Alaska has become
dependent on the timely delivery of freight
through TOTE and other carriers in the
trade. Most consumer goods go direct from
vessels to store shelves.
However, the Alaskan market has been
subject to occasional economic swings during the past 30 years. The last downturn in
the market occurred in the mid-1980s when
oil prices significantly eroded. Since the
late 1980s, however, the Alaskan trade has
seen a long period of steady growth of about
2 to 4 percent a year.
In 2001, TOTE moved about 50,000 40-
foot-equivalent units in the Pacific Northwest/Alaskan trade, up 3 percent over 2000.
While the freight handled by TOTE is
diverse, northbound volumes largely include groceries, department store merchandise, construction materials, household
moves, military equipment, and vehicles of
all types. Southbound volumes include some
of the same goods, in addition to fresh,
frozen and canned fish.
According to a 2001 study, the Port of
Tacoma estimated that the Alaskan trade
generated about $3.6 billion in trade for the
port. Alaskan cargo accounts for about 35
percent of Tacoma’s total annual container
traffic, said Doug Ljungren, business plan-
ning manager for the Port of Tacoma.
Carrier competition in the Pacific Northwest/Alaskan trade remains fierce. TOTE
and CSX Lines (formerly Sea-Land Service) provide scheduled liner service. There
are also rail and flat-deck barge services
offering transportation for less time-sensitive freight and truckers provide year-round
services to Alaska over the Alcan Highway.
Magee predicts TOTE will move about
the same amount of freight again this year
that it handled in 2001, largely due to the
economic slowdown following the Sept. 11
terrorist attacks against the United States.
“Flat is good under these economic conditions,” he said.
■
Matson adds containerships
Two new 2,600-TEU vessels join Jones Act
carrier’s fleet in 2003 and 2004.
SAN FRANCISCO
Matson Navigation Co. will add two new
2,600-TEU containerships to its fleet in late
2003 and 2004.
The vessels are part of the San Franciscobased U.S.-flag domestic ocean carrier’s
overall plan to modernize its fleet in the
U.S. West Coast/Hawaii trade.
“Matson historically has modified and
enhanced its fleet to meet
the changing needs of our
customers,” said C. Bradley Mulholland, president and chief executive
officer of Matson, a subsidiary of Alexander &
Baldwin. “The two new
ships will help ensure that Mulholland
Matson continues to provide Hawaii with
efficient, dependable ocean transportation
services of superior quality and value.”
The diesel-powered vessels, under construction in the Kvaerner Philadelphia Shipyard, will cost about $110 million each,
including owner’s costs. To finance the
purchase, Matson will tap its existing capital construction fund of $170 million,
supplemented with external borrowings of
about $50 million.
The new vessels will replace two 30year-old steam-powered vessels — the
Manulani and Manukai — each with a
capacity of 1,476 TEUs.
The new vessels are similar in size and
speed to Matson’s R.J. Pfeiffer, built in
1992. Mulholland said the vessels are designed to meet both current and future needs
of the Hawaiian ocean freight market, such
as bigger container sizes for both refrigerated and dry goods.
In addition to buying new ships, Matson
has modified some vessels in its fleet. The
Lurline and Matsonia received mid-body
replacements to increase their capacity, and
the Maui and Kauai were modified to opentop vessels. “These measures have allowed
Matson to maintain a high level of service
while concurrently maximizing the overall
value of these assets,” Mulholland said.
Matson operates 13 containerships: seven
to Hawaii, three in a joint service with APL
to Guam, and three in reserve status. The
company operated eight vessels in its Hawaiian service last year, but reduced it back
to seven vessels because of the downturn in
the Hawaiian economy after the Sept. 11
terrorist attacks against the United States.
Matson executives believe the Hawaiian
economy is now showing signs of recovery.
Both Matson’s Hawaii and Guam services are regulated under the 1920 Merchant Marine Act, known more commonly
as the Jones Act. Matson’s main competitor
in the Hawaiian container trade is CSX
Lines (formerly Sea-Land Service).
The Jones Act requires carriers in the
offshore domestic trade to build their vessels in U.S. shipyards. The new Matson
ships were a boost to Kvaerner Philadelphia Shipyard.
“The Kvaerner Philadelphia Shipyard
was built to provide U.S. shipowners with
robust ships at realistic prices for the dedicated trades of the U.S. Jones Act,” said
Ron McAlear, president and chief executive officer of the shipyard. “This contract
will be the first of many for those trades,
and proves the value of combining European shipbuilding technology with American management.”
■
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Do mega-ships save money?
Industry analysts consider whether a 5-percent reduction
in port-to-port vessel costs really is worth pursuing.
BY PHILIP DAMAS
S
avings achieved by very large
containerships are “hard to detect”
beyond vessel sizes of 8,000 TEUs,
and will only affect a small portion of the
costs of a container move, said Martin
Stopford, managing director of Clarkson
Research, the research arm of U.K.-based
shipbroker Clarkson.
“Not everyone agrees that mega-ships
are what the industry needs,” Stopford told
the CI Shipping Forecast Conference in
London.
“Beyond 5,000 TEUs, economies of scale
diminish very rapidly,” he said. A new
1,700-TEU containership costs about $12
million per 1,000 TEU of ship capacity,
whereas a 6,200-TEU ship costs about $10.3
million per 1,000 TEU, he said. Referring
to a recent study into a potential 18,000TEU “Malacca-max” containership by
Dutch academics, Stopford said such a ship
is estimated to cost $10 million per 1,000
TEU of ship capacity.
“Operating costs, which include crew,
insurance, stores, maintenance and administration, also offer less opportunity for
economies than appears at first sight,” he
said. Bunker expenses grow proportionately to the vessel size, he added.
Overall, increasing a ship size from 2,000
TEUs to 4,000 TEUs saves 20 percent of total
vessel unit costs. But increasing again from
4,000-TEU sizes to 6,000-TEU saves only 4
percent, Stopford estimated. “Beyond 8,000
TEUs, the economies are hard to detect.”
Jim Brennan, partner of the consultancy
firm Norbridge Inc., said large
containerships can achieve savings of 5 to
10 percent on water costs, but they impose
higher operational and infrastructure requirements from ports and port operators.
Brennan estimates that water costs account for less than 20 percent of a container
shipping line’s costs.
Stopford said the ship accounts for only
about 23 percent of through transport costs,
using the transatlantic container trade as an
example.
“If waterside costs now represent less
than 20 percent of a global carrier’s costs,
how do mega-ships affect the other 80 percent?” Brennan asked, referring to terminal
68_69AS07
Martin Stopford
managing director,
Clarkson Research
“If waterside costs now
represent less than 20
percent of a global carrier’s
costs, how do mega-ships
affect the other 80 percent?”
costs, inland, equipment and other costs.
“We should be aware that any savings
achieved by using bigger ships may be heavily
diluted by the time they reach the shipper,
especially if there are dis-economies in other
parts of the system,” Stopford said.
He also sees dis-economies of scale resulting from very large ships, such as deep
dredging costs for ports and additional feeder
services. “Those feeder costs dwarf the
savings on using bigger ships on the deepsea
leg,” he said.
Schubert. U.S. Maritime Administrator
William G. Schubert believes the cost-cutting benefits from adding larger ships to the
liner trades may have “run its course.”
“The benefits of size may diminish as
ships get bigger and the collateral landside
costs increase,” Schubert told a group of
shipping executives at the recent National
Industrial Transportation League’s meeting in Monterey, Calif. “With a new trend
towards smaller tankers already underway,
here’s a question for us to consider —
should bulk carriers and containerships stabilize in size or be eclipsed by megaships?”
The U.S. Transportation Department’s
Marine Transportation System initiative,
which is overseen by MarAd, is attempting
to address these questions. The initiative
found congestion in the country’s seaports
continues to increase, and the problem will
likely become further complicated by the
call for increased security in the container
shipping business.
“The challenge facing all of us — service
providers, users and government — is how
to address these twin goals of efficiency
and security simultaneously,” Schubert said.
“If anything, the pace of growth will not
only continue but accelerate,” he added.
“Over 2 billion tons of goods produced and
consumed in the United States move through
our nation’s ports and waterways each year,
and we expect a further doubling of cargo
trade volume over the next 20 years.”
Carriers Go Smaller. Other shipping
sectors have moved away from very large
ships. “For example, the average size of
crude oil tanker shot up in the 1970s, but is
smaller today than it was 20 years ago,”
Stopford said.
In container shipping, large container
carriers, such as China Shipping, have until
now postponed plans to build 10,000-TEU
containerships, with the possible exception
of Maersk Sealand, whose plans are kept
secret. The problem of vessel overcapacity
has also restrained potential orders of bigger containerships.
Brennan observed that the operator of a
weekly service with 10,000-TEU ships would
need to have a market share of more than 10
percent of the transpacific West Coast trade
to utilize the vessels at 90 percent. In the
smaller Far East/northern Europe trade, a
weekly service with the ships of that size
would require a market share of some 15
percent to utilize the vessels at 90-percent.
“I think liner operators are going to want
flexible ships — and what 18,000-TEU
ships don’t offer is flexibility,” Stopford
added.
“If we’re going to reach the economies of
scale of big ships, we need to turn the vessel
around (in port) in 24 hours or less,” Brennan
told the CI Shipping Forecast Conference.
This means investments in a large number
of quay container cranes and high productivity rates per crane, he added.
Brennan said that in a typical transpacific
service calling at a South Californian port, a
7,500-TEU ship will load or discharge 60 to
70 percent of its cargo at Los Angeles or
Long Beach — amounting to some 5,000
TEUs in and out for each vessel call.
Of this volume, about 50 to 55 percent go
by rail to and from the inland of the United
States — representing some 2,500 TEUs in
and out per vessel call. Brennan said this
volume translates into about five 400-TEU
double-stack container trains in and out for
each vessel call.
He described the substantial investment
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TRANSPORT / OCEAN
in both container terminal equipment and in
intermodal stack cars to handle the surge in
cargo volumes generated by a 7,500-TEU
containership.
On container terminal crane equipment,
Brennan said five to seven gantry cranes
have to be simultaneously assigned to a
single 7,500-TEU ships to turn the vessel in
22 working hours at a major port. And there
may be higher port and inland costs involved as a result of mega-ship operations,
as well as more complex operations.
“Marine terminals can and do support
mega-ship scale economies today,” he said.
U.S. West Coast terminals already handle
about one mega-ship service a week, but
this will increase to multiple mega-ship
services in the next few years, Brennan
predicted.
He defined mega-containerships as vessels with a capacity of 5,000 TEUs or more.
He said there are 158 such ships in operation today, representing 5.5 percent of the
total number of containerships. Another 94
such ships are on order.
He said a very large containership requires a draft of 52 feet (15.8 meters) in
port. Such deep-draft requirements have
led to complaints that shipping lines are
saddling ports and the taxpayer with huge
additional dredging costs (August 2001
William G. Schubert
U.S. Maritime
Administrator
“The challenge facing all
of us — service providers,
users and government —
is how to address these twin
goals of efficiency and
security simultaneously
American Shipper, page 12).
“The (ship) operators will be able to get
the 5- or 10-percent economies of scale, and
the terminal operators will be able to accommodate them — because they have no
choice,” Brennan said.
The DOT’s MTS initiative hopes to provide a framework to respond to terminal
and inland congestion issues related to the
larger vessels and burgeoning trade.
So far, the MTS initiative has considered
a number of maritime transportation improvements, such as short-sea shipping to
relieve road and rail congestion, additional
funding to maintain and improve inland
waterway transport, increased dredging
funds, and expansion of regional road and
rail intermodal connectors.
Some of these ideas are embodied in the
recent development of the $2.4-billion
Alameda Corridor project. The corridor
was opened for business in April to relieve
rail congestion from the southern California ports of Los Angeles and Long Beach
(April American Shipper, page 50).
“We believe this investment was smart
and necessary since about one-quarter of
all U.S. waterborne international trade depends on the ports of Long Beach and Los
Angeles to reach market,” Schubert said.
“I would conclude this topic by simply
raising this question for all of us to ponder
— how can we replicate successes like
Alameda Corridor in other areas of the
country that also face serious congestion
issues?”
The MTS initiative’s coverage includes
a review of about 1,000 harbor channels
and 25,000 miles of inland, intercoastal and
coastal waterways in the United States which
serve more than 300 ports.
■
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Transport / Air
By Mark McHugh, (202) 347-1678, FAX (202) 783-3919, e-mail [email protected]
U.S., Uganda reach open-skies agreement
The United States and Uganda reached an open-skied agreement
June 4 that, once formerly concluded, would remove all restrictions
on air services between and beyond each country.
The agreement was negotiated after one day of negotiations in
Washington, U.S. Transportation Secretary Norman Y. Mineta
said in an announcement.
The U.S.-Uganda agreement offers U.S. scheduled and charter
cargo carriers special benefits that extend aviation liberalization
beyond the standard open-skies provisions by permitting U.S.
airlines to fly cargo from Uganda to third countries without also
serving the United States, the Transportation Department said.
It is the fifth open-skies agreement reached by the Bush Administration — following Poland, France, Oman and Sri Lanka — and
the United States’ 57th agreement. It is also the 11th open skies
agreement with an African nation, following Tanzania, Namibia,
Burkina Faso, Ghana, The Gambia, Nigeria, Morocco, Rwanda,
Benin and Senegal.
IATA seeks solutions for war risk insurance problem
Airlines of the International Air Transport Association, facing a
four-fold increase in their insurance premiums for 2002 and
ensuing years, vowed to find a global solution to the problem.
The airlines, at IATA’s annual general meeting and World Air
Transport Summit in Shanghai June 4, voiced strong support for
the global war risk solution developed by the special group of the
International Civil Aviation Organization. The ICAO solution
proposes to set up a “not-for-profit” insurance company that would
seek finance from the world market and assume global risks.
The airlines asked ICAO to initiate measures to establish an
international convention to limit third-party war risk liability of
international airlines.
In a resolution, the IATA airlines asked states to ensure that
security measures are coordinated internationally, without disrupting air transport and recognizing that the cost of enhanced security
programs are a state responsibility.
Also at the general meeting, IATA’s Recommended Security
Standards were approved. The organization also asked all members
to ensure that effective airline security programs are in place, consistent with IATA standards and the ICAO Annex 17 requirements.
EEA: Governments should help with security costs
Governments should help industry shoulder costs to meet next
year’s European Union aviation security measures, said the chairman of the European Express Association Security Committee.
“The EEA fully supports the concept of air cargo security
regulation,” said John Goldsworthy, chairman of the EEA Security
committee. “However, it does not support the governmental view
that the costs of all security measures should be borne by industry.”
Goldsworthy, speaking at the World Mail & Express Europe
Conference, said the European Council of Ministers was to ratify
legislation covering new EU aviation security measures on May
24, with a section on cargo, express courier and mail activities to
become effective Jan. 1.
Goldsworthy pointed out some of the issues that will arise from
the rollout of the new security measures:
• EEA estimates show about 150,000 staff in Europe will
require formalized air cargo security training.
70AS07
• Physical security for sites, airports and planes and handling of
goods will have to be modified to comply with new security requirements.
• Smaller companies may not be able to complete with the
larger ones, and may have to outsource to third-party service
providers to implement screening with manpower and technology.
• Staff vetting for required or existing personnel will drive up
costs.
Goldsworthy added the measures would only provide a baselevel requirement, which is independent of any nations that will
add on their own requirements.
“So, we again get into the field of non-harmonization, with 15
regulated air cargo security programs throughout Europe,” he said.
“In the current aviation security programs in the U.S., the government is giving its own airlines billions of dollars. In the EU, it looks
like we will get nothing.”
Franchising, outsourcing has role in express services
A former postal executive said the day-definite or “economy”
international express market offers potential growth for franchising and outsourcing in the express services industry.
International traffic is likely to be switched to more economically priced options, rather than overnight, time-definite deliveries, said Ulf Dahlsten, former president and chief executive officer
of Sweden Post. This trend could make integrators vulnerable to
competition because of their high costs, he added.
“From a purely financial point of view, there ought to be an
opportunity in the economy express market, or whatever it is
called, for a franchise concept which could be very competitive
with the existing integrators,” said Dahlsten, speaking at the World
Mail & Express Europe Conference in Amsterdam.
Dahlsten said there are still independent local and regional
parcel companies, along with independent postal administrations,
who could be participants.
Another speaker at the conference, Simon Clayton, vice chairman and chief financial officer of DHL, said the express industry
should investigate the potential for franchising some operations.
Such an action has limits, however, he said.
“The franchising idea is a very sound one in theory,” Clayton said.
There are areas of activity where carriers can partner, but global
dynamics mean a pure franchise philosophy is difficult to apply.
DHL has started moving back from working with partners on a
“quasi-franchise” basis because it needed more control on the ground,
Clayton said. In certain Asian countries, for example, the companies
DHL had been working with lacked the investment capacity to keep
up with the integrator’s growing business demands, he said.
U.S. international air freight fell 2% in April
U.S. international air-freight and express traffic decreased by 2
percent in April, according to statistics issued by the U.S. Air
Transport Association.
International freight and express traffic carried by association
airline members fell to 894 million revenue ton-miles, from 911
million in April 2001.
International mail traffic was down by 12.8 percent during the
same period, to 36 million ton-miles. Total international cargo
traffic, including freight, express and mail, decreased 2.4 percent,
to 930 million ton-miles, from 953 million ton-miles.
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TRANSPORT / AIR
Model of efficiency
CLADEC wants Mexico customs to pilot
program aimed at customs uniformity.
BY MARK MCHUGH
C
onferencia Latino Americana de
Companias Express (CLADEC),
an express carrier industry group,
wants Mexico’s customs agency to pilot a
test modeled after Shanghai’s customs program.
While Mexico and Shanghai may not
share a wealth of common traits, their economies are intermingled as members of the
Asia-Pacific Economic Cooperation
(APEC). It was with that in mind that
CLADEC decided to approach Mexican
Customs and ask the agency to consider
implementing a project similar to the Shanghai Model Port Project (SMPP).
SMPP is a public-private partnership
based on the implementation of the APEC
Subcommittee on Customs Procedures’ Collective Action Plan, a 13-point regimen that
calls for, among other things, standards
pushing for customs uniformity (November 2001 American Shipper, pages 54-60).
Francisco Santeiro, vice president of
CLADEC, said Mexico,
under the new leadership
of President Vicente Fox,
is a country ripe for new
initiatives and reform.
“We are convinced that
it can be replicated beyond Shanghai in hopes
Santeiro
that Shanghai is not a onetime incident,” said Santeiro, who is also
managing director of global trade services
for FedEx’s Latin American and Caribbean
division.
CLADEC, which comprises seven air
carriers and 20 affiliate members, was
formed in 1991 to establish uniform customs processes in Latin America. APEC
was established in 1989 to promote economic integration around the Pacific Rim,
and to sustain economic growth. APEC,
which has 21 member economies, accounted
for 46 percent of global trade in 2000,
according to the United Nations.
Santeiro said improving interaction among
trade and customs agencies also improves
commerce, and allows trade a more active
role in security. “We need to be a key part in
the risk-assessment process,” he said.
CLADEC’s efforts may be aided by an
agreement signed May 23 between Argentine Customs and an express carrier industry group, the Camara Argentina de
Prestadores de Servicios Internacionales
Aeroexpresos (CAPSIA), an affiliate member of CLADEC.
The agreement calls for carriers to transmit advance information on a shipment
prior to customs clearance.
Pablo Pinson, vice president of legal and
regulatory affairs for Latin America of DHL
Worldwide Express, said the agreement
emphasizes the importance of express customs clearance through advance manifest
information transmission, and that such
actions ultimately enhance global trade by
bringing new countries into the fold.
“It streamlines the process,” said Pinson,
who is also a board member of CLADEC. “It
makes it easier for Customs to do their job,
and it helps countries because they are able to
enter into this globalization process.”
CLADEC said there has been a “high
level of communication” between itself and
Mexican Customs, along with the
Asociation Nacional Mexicana de Empresas
Courier (ANMEC), another CLADEC affiliate member. “Successful implementation of a Mexico Model Port Project would
further strengthen the constructive relationship that exists between Mexican Customs
and the private sector,” CLADEC said.
SMPP has roots dating back to 1998,
when leaders from APEC met that April to
improve China Customs operations.
Eventually, due to the work of that group,
the National Center for APEC adopted a
proposal based on input from several companies involved in promoting SMPP, basing it on four main elements:
• Training on advanced customs procedures.
• A major upgrade to Shanghai Customs’ information technology.
• An Intellectual Property Rights Information Center.
• A new express package facility at the
Pudong airport
CLADEC would eventually like to see
such a program, if applicable, be tested in
other cities in Mexico. The organization is
pressing for a pilot testing of an SMPP
model in Mexico before a meeting of APEC
ministers this October in Los Cabos,
Mexico.
“The project we have is doable, within
the time period we have available, and
could be showcased at the leaders’ meeting,” CLADEC said.
Ana Guevara, chairman of the CLADEC
Free Trade Agreement of the Americas
committee, chaired a working group on the
Mexico/Shanghai initiative. Guevara offered her confidence in the project. She said
that after Sept. 11, CLADEC and express
couriers want to move forward to see security and commerce work in tandem.
“Eventually, we could use Mexico as a
model,” she said. “We are express companies; we like to see things move fast.”
■
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TRANSPORT / INLAND
U.S. Customs builds CAFES
Land-border program uses 2-D barcodes
to ease paperwork burden.
BY CHRIS GILLIS
T
rucks move thousands of shipments
a day into the United States, but
delays are routine because Customs
inspectors must check information on paperwork against what’s previously processed in the agency’s system.
To ease some of this burden, the agency
has developed a barcode system to automate manifest-related information on inbond forms.
The application, Customs Automated
Forms Entry System or CAFES, uses a
redesigned in-bond form with a two-dimensional barcode (PDF-417). The barcode,
which resembles a checkerboard, contains
larger amounts of information than traditional vertical-lined barcodes used for other
land-border clearance documentation.
“The system provides more data and more
detailed information on inbond shipments transported by non-automated
carriers than Customs captures on those same movements, if the data input is
accomplished by online
keystroke input by CusSantos
toms staff,” said Kim G.
Santos, group leader for field systems at the
agency’s Office of Information and Technology in Newington, Va.
With more efficient access to in-bond
data in Customs’ Automated Commercial
System, truckers are able to improve their
delivery times to importers.
A study by Customs’ Houston office
found that a CAFES shipment destined to
locations within a several-hundred-mile radius of Laredo would be delivered to an
importer’s premises before non-CAFES
shipments crossing on the same day. The
biggest reason is because non-CAFES shipments often get stuck in Laredo’s import
lots.
“Financial benefits include the potential
to eliminate over 2 million hand-keyed, inbond transactions (a savings of more than
$566,000 per year), and freeing officers of
33,000 hours nationwide to perform more
important mission critical issues,” the
agency said.
During the agency’s annual awards cer72 AMERICAN SHIPPER:
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“There will always be small
to mid-sized carriers that
will have difficulty
becoming fully automated
under AMS and will need
a system like CAFES
to conduct their
trans-border operations.”
John Considine
director of commercial
processing, Office
of Field Operations
U.S. Customs
emony in late November, Customs Commissioner Robert C. Bonner praised CAFES for its ability to more efficiently manage
in-bond shipments entering the country.
The system was installed at the hightraffic land-border ports of Port Huron,
Mich., and Laredo, Texas, last year. Implementation of CAFES in Detroit was put on
hold, along with other field systems improvements and application expansions,
after the Sept. 11 terrorist attacks on the
United States.
Customs has decided to expand CAFES
to Buffalo, N.Y., in mid-July. John
Considine, director of commercial processing for Customs’ Office of Field Operations in Washington, said Buffalo is already
experienced with barcode-based clearance
systems and has much of the required equipment in place to handle CAFES. Other
land-border ports suited for CAFES have
yet to be determined.
Customs developed the CAFES program
so that U.S. customs brokers and shippers
in Mexico and Canada can download the
software for free from the agency’s Web
site (www.customs.gov) to produce the inbond forms (Customs Form 7512) with the
2-D barcodes.
Brokers praise CAFES for its easy use.
“We prepare the (barcoded) forms and e-
mail them to multiple Mexican brokers,
who in turn print them and give them to the
drivers,” said Alma Carrillo-Garza of M.J.
Carrillo Co., based in Laredo.
Truckers carry these forms with them as
they transport their shipments to the border.
When the drivers arrive at the designated
CAFES border ports, they hand the documents to the inspector in the “primary” booth.
The inspector scans the barcodes, which
uploads all the data required by the agency
and disperses in-bond data to other related
ACS applications, such as the Automated
Manifest System and Automated Broker Interface.
After a successful scan of the barcode,
the inspector has the option to endorse the
CAFES CF-7512 document with a “movement authorization” stamp from a slip
printer. The slip printer is used to endorse
the entry number on the invoice or other
commercial documents used in the agency’s
Border Release Advanced Screening System (BRASS), formerly Line Release. Otherwise, the truck is directed to “secondary”
for additional query or inspection.
In May, U.S. and Mexican customs started
an initiative at Laredo to mutually improve
decisions and assessments of cargo moving
in both directions across the border. Part of
this initiative involves the capture of the
Mexican entry number, known as the
Pedimento, on the U.S. in-bond document
or shipment exiting Laredo into Mexico.
“CAFES is playing an important role in
this process, since the U.S. customs broker
can include the Mexican Pedimento entry
number during the preparation of the CAFES
document,” Santos said. “By having the
Pedimento number in the CAFES document
and barcode allows U.S. Customs to fulfill its
responsibilities in this partnership agreement
without having to perform extra keystrokes
to capture the Pedimento number.”
It’s uncertain what will happen to CAFES as Customs moves toward a multimodal
manifest in its future umbrella system, the
Automated Commercial Environment.
While other transport modes, such as ocean
and rail, are well connected to Customs’
Automated Manifest System, the trucking
industry has been out of the loop. Customs
said it would be difficult to support the
trucking environment under the current electronic-data-interchange AMS system.
“For large carriers, CAFES may, indeed,
be a temporary system, because they would
get more bang for their buck by automating
their data through AMS,” Considine said.
“But there will always be small to midsized carriers that will have difficulty becoming fully automated under AMS and
will need a system like CAFES to conduct
their trans-border operations.”
■
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PORTS
Securing a port security bill
House, Senate conferees face challenge of creating
unified plan from a range of proposed legislation.
BY ROBERT MOTTLEY
S
eaport security has been the focus of
a number of legislative and regulatory initiatives since last fall’s terrorist attacks in New York and Washington, D.C. Here’s a scorecard of what’s been
done and left undone thus far.
H.R. 3983. On June 4, the House of
Representatives passed H.R. 3983, the
Maritime Transportation Antiterrorism Act
of 2002. The legislation includes provisions that would authorize $5.9 billion for
Coast Guard operations during fiscal year
2002.
It would also extend the jurisdiction of
the Coast Guard from three to 12 miles
from shore for security activities. A section of the bill would also require vessels
entering the 12-mile zone to provide 96
hours notice to the Coast Guard prior to
arrival in those waters, and it would also
allow for the deployment of trained Coast
Guard personnel or “sea marshals” on facilities and vessels to deter or respond to
acts of terrorism.
H.R. 3983 also authorizes $225 million
for federal grants to help ports enhance
seaport security.
“Port security is an essential piece of an
effective Homeland Security program,”
said Transportation Committee Chairman
Don Young, R-Alaska. Rep. Frank
LoBiondo, R-N.J., who introduced the bill
with Young, said the bill’s passage in the
House sends a message that Congress is
committed to protect America’s waterways
from terrorism.
“I hope that we can see the provisions of
this bill become law very soon because of
the tremendous importance of the maritime transportation system to our economy
and nation,” LoBiondo said.
The legislation has five internal titles,
dealing with maritime transportation security, maritime policy, U.S. Coast Guard
personnel, omnibus maritime improvements, and the authorization of appropriations fir the Coast Guard.
The House bill defined concerns that
have been in the public vernacular for
months. “The term ‘catastrophic emer-
gency’ means any event caused by a terrorist act in the U.S. or on a vessel on a voyage
to or from the U.S. that causes, or may
cause, substantial loss of human life or
major economic disruption in any particular area,” its text said.
The bill calls for the preparation of a
national maritime transportation antiterrorism plan “to deter and minimize damage from catastrophic emergencies,” to be
updated “at least every five years” by an
official to be called the Federal Maritime
Antiterrorism Coordinator, who reports to
the secretary of Transportation.
Vessels and vulnerable facilities, before
Jan. 1, must submit antiterrorism plans,
and may not operate without one after that
date. The Transportation secretary may
extend the time for compliance by one year
if the ship or facility owner or operator
certifies that it has contracted for deterrence of antiterrorism, which the bill does
not specifically define.
By June 30, 2003, the Under Secretary
of Transportation for Security must “develop and maintain an antiterrorism cargo
identification, tracking and screening system for containerized cargo shipped to and
from the U.S. either directly or via a foreign port, and develop performance standards to enhance the physical security of
shipping containers, including standards
for seals and locks.”
As for personnel on ships and in facilities, “an individual shall not enter an area
of a vessel or facility that is designated as
a secure area … unless the individual holds
a transportation security card,” or is accompanied by someone with such a card.
The transportation secretary will issue
security cards, but may deny them only to
convicted felons who could be security
risks; anyone denied admission to the
United States or removed from the United
States under the Immigration and Nationality Act, or to anyone who “otherwise
poses a terrorism security risk to the U.S.”
The House bill requires the transportation
secretary to establish “maritime antiterrorism teams to safeguard the public and protect
vessels, ports, facilities and cargo on waters
subject to the jurisdiction of the U.S.”
In general, pertaining to foreign ports,
the transportation secretary must assess
the “effectiveness of antiterrorism measures” in a particular port, notably looking
at the “screening of containerized and other
cargo and baggage” and “security measures to restrict access to cargo, vessels,
and dockside property to authorized personnel only.”
If the port does not meet the transportation secretary’s expectations, the secretary
“shall notify appropriate authorities” in the
government of the foreign country. Should
nothing happen after that, the secretary has
two options: (1) “prescribe conditions of
entry into the U.S. for any vessel arriving
from that port, or any vessel carrying cargo
originating from or transshipped through
that port,” and (2) “deny entry into the U.S.
to any vessel that does not meet such conditions.”
For each commercial vessel arriving in
the United States, “the operator … shall
provide to the Under Secretary of Transportation for Security, by electronic transmission, a passenger and crew manifest,”
which must include the full name of each
passenger and crew member; their dates of
birth and locale of citizenship; passport
numbers and countries of issuance for passports, or a U.S. visa number or resident
alien card number.
As for ships, considered as entities apart
from their passengers or crew, the House
bill requires “a commercial vessel entering
the territorial sea of the U.S.” to notify the
Transportation secretary with 96 hours of
entry, and provide the following information: the name of the vessel; its routing and
U.S. destination; time of entry into the
territorial sea; notice if the ship carries
dangerous cargo, a description of that cargo;
and a description of any hazardous conditions on the vessel.
Any violators are subject to civil fines of
$25,000 for each violation. The bill stipulates that “each day of a continuing violation shall constitute a separate violation.”
The House bill authorizes the Transportation secretary to “dispatch properly
trained and qualified armed Coast Guard
personnel on facilities or vessels to deter or
respond to acts of terrorism.” Such teams
could be comprised of “local government
personnel,” members of the Coast Guard,
or “documented U.S. merchant marine
personnel.”
H.R. 3983’s Title V’s authorization of
appropriations includes $4.21 billion for
overall maintenance of the Coast Guard,
$623.0 million for domestic maritime
homeland security, and $717.8 million for
“improving ships, aids to navigation, $15.5
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PORTS
million for “alternation or removal of
bridges over U.S. navigable waters, and
$16.9 million for environmental compliance and restoration.
S. 1214. The contents of H.R. 3983 will
have to be squared with those of S. 1214.
These bills share some common ground but
have significant differences:
The Senate bill addresses a broad range
of seaport crime, with a strong focus on
terrorism. H.R. 3983 has little to say about
non-terrorist crime.
S. 1214 creates the National Maritime
Security Advisory Committee as well as
local port security panels. It mandates port
security and vulnerability assessments. It calls
for controlled access to port facilities, and
enhanced cargo documentation procedures.
The Senate’s legislation also would use
sanctions to control foreign port security
procedures.
As for personnel, S. 1214 would require
employment investigations and criminal
background checks for individuals with
unrestricted access to secure areas on a
vessel or in a facility. Who would conduct
the investigations and background checks
is unclear at present.
The Senate bill speaks of a credentialing
requirement, but does not discuss a specific
type of credential, as H.R. 3983 does. It also
prohibits the export of improperly documented cargo.
The House bill would provide grants to
ports over three years totaling $249 million.
Out of this amount, $7.5 million will be
made available for reimbursement to ports
that have made security enhancements since
Sept. 11. The Senate bill, over a five-year
period, calls for $390 million in grants.
Both the Senate Appropriations Committee and the House have passed supplemental funding for fiscal year 2002, which
includes increases for port security grants.
The House version, passed May 24, provides $75 million in additional grants, while
the Senate committee includes $200 million for grants. The Senate bill may be taken
to the floor soon. Congress also appropriated $93.3 million for port security grants in
December.
S. 2329. Another pending Senate bill, S.
2329, the Ship, Seafarer and Container Security Act, is likely to be inserted as an
amendment to S. 1214.
This bill requires vessels to have transponders, calls for a uniform and comprehensive international system of
identification of seafarers, and stipulates a
greater transparency of ship registration, by
treaty initiative or legislative alternative.
S. 2329 also calls for an international
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agreement on container integrity and antitampering standards, and requires the Coast
Guard to develop risk-based analysis and a
security zone system for vessels.
Such zones would comprise ports, territorial waters and waterways. The bill endorses
the use of public-private partnerships to implement and enforce security within these zones,
and would authorize grants to pay for technology to provide the protection.
H.R. 3210. The Terrorism Risk Protection Act, passed in the House but then
stalled in the Senate. This bill finds that
uncertainty since the attacks on Sept. 11
threatens the continued availability of commercial property casualty insurance for
terrorism risk, and gravely undercuts the
ability to finance projects in capital markets.
The bill calls for developing risk-spread-
CSI program goes global
Le Havre, Singapore to participate in Customs
program to pre-screen U.S.-bound containers.
WASHINGTON
A supply chain security initiative originating at U.S. Customs in Washington is
expanding beyond American borders to
points in Europe and Asia.
The Container Security Initiative, a program launched by Customs commissioner
Robert Bonner in January, calls for prescreening of containers before coming to an
American port.
The initiative invites ports and authorities from other countries to work with U.S.
Customs to ensure that U.S.-bound cargo
has not been tampered with. Bonner has
said that terrorists may wish to smuggle a
weapon of mass destruction — or even
terrorists — into an American port by inserting them into the supply chain.
This March, teams of U.S. Customs inspectors were placed at the Canadian seaports of Montreal, Halifax, and Vancouver to
pre-screen cargo offloaded at those ports and
bound for the U.S. In turn, Canada has placed
its own inspectors at Seattle, Tacoma and
Newark to pre-screen cargo bound for Canada.
“This is part of Commissioner Bonner’s
initiative to establish a worldwide standard
for security,” said Kevin Bell, U.S. Customs spokesman in Washington. Bell added
that customs officials are speaking to authorities in Asia to see if they would get on
board with CSI. “The response is very positive,” he said of some Asian officials.
The government of Singapore recently
agreed to join CSI, becoming the first pilot
port in Asia.
Customs is developing the details of this
project with Singapore. Under the agreement, U.S. Customs inspectors would work
jointly with Singapore authorities in prescreening cargo containers bound for
America. The U.S. Customs inspectors
would observe physical examinations conducted on high-risk containers by their
Singaporean counterparts.
“This important first agreement in Asia
will provide a significant measure of security for Singapore and the United States,”
Bonner said. “This accord will also provide
a significant measure of security for the
global trading system as a whole.”
The port of Singapore ranks second to
Hong Kong in the volume of cargo containers handled. Approximately 80 percent of
the containers handled in Singapore are
transshipments. As such, it represents a key
chokepoint in global trading.
In Europe, two U.S. Customs officials
were to be sent to the port of Le Havre,
France, where they would be assigned. An
official there said the port had tightened its
security in the past to deal with stowaways.
The United States and Canada have already exchanged stationed security personnel at sites in the either country, at the ports
of Seattle, Newark, Halifax, Vancouver
and Montreal.
CSI, as well as the Customs-Trade Partnership Against Terrorism, are two Customs initiatives Customs has taken on to
guard American ports and the supply chain
from terrorist acts, while facilitating the
flow of legitimate trade.
Bonner said CSI would incorporate the
use of automated data to identify “highrisk” containers. Information on those containers meriting that classification would
alert Customs officials to inspect them before arrival at an American port.
In January, Bonner proposed that U.S.
Customs implement CSI at the biggest ports
in the world, the so-called “megaports” that
ship to the United States, such as Hong
Kong, Shanghai, Singapore, Rotterdam,
Pusan, Tokyo and Yantian. The Port of
Hong Kong alone moves about 350,000
containers a year to the United States.
Bonner said that CSI and CT-PAT could
assist in establishing establish global standards for supply chain security. He added
that a “predictable and uninterruptible”
border is the best device for global trade. ■
JULY 2002
74
6/12/02, 3:34 PM
PORTS
ing mechanisms, and the necessary insurance reserves to fund future losses.
Analysis. Immediately ahead in Washington D.C. are Senate-House conference
talks to iron out the differences between
H.R. 3983 and S. 1214.
“The question now is, ‘what stays and
what goes?’ Do you focus on seaport crime
and terrorism, or antiterrorism
credentialing?” asked Carol N. Lambos,
an attorney with Lambos and Junge in New
York. “If you pick credentialing, do you
screen for an enumerated list of crimes or
just terrorist threats?”
“My feeling is that compromise will
likely result in a less detailed bill, and that
outstanding issues will be left to regulations, which makes future planning very
difficult,” Lambos said.
“The ugliest scenario is that the government will implement ineffective sea security standards that will leave our nation
vulnerable,” she noted. “In that unfortunate
eventuality, you would have agencies using
their existing authority to act without coordinating activities or requirements — essentially, more bureaucracy without
attendant security enhancements, and inconsistency when consistency is most important,” Lambos said in an interview. ■
Le Havre to award
port concessions
Three major carriers are among bidders
to operate new container terminals.
BY PHILIP DAMAS
T
he port authority of Le Havre will
award concessions to operate a large
new container terminal complex this
summer.
Ten private-sector
shipping or port companies have sent formal “expressions of interest” to
run container terminals
under the Port 2000 expansion program, JeanLecomte
Pierre Lecomte, chairman
of Port Authority of Le Havre, told a press
conference in London.
The first phase of the Port 2000 plan,
already commenced, will add four container berths in 2004 and another two in
2006. The first phase of the program will
cost an estimated 900 million euro ($830
million). On completion of the entire project,
the facility will provide 12 container berths
along a quay stretching about 4,200 meters
(13,800 feet).
The port aims to double its traffic from
1.5 million in 2001 to 3 million TEUs in
four years’ time.
Bidders. Lecomte said Maersk Sealand,
Mediterranean Shipping Co. and CMA
CGM are among the 10 bidders to operate
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JULY 2002
75
PORTS
the new container terminals. He would not
disclose the identity of the seven other
interested companies, which did not provide “the same sort of proposals” as the
three carriers, he said.
The private-sector bidders for the container terminal concessions were asked to
provide guarantees of cargo volumes as part
of their bids, and will be expected to invest in
terminal equipment and computer systems.
The decision on the winning bidders could
be made as early as at the end of June, when
the port authority will have a board meeting. The port expects to give the future
terminal operators about two years between
the award of the concession and the opening of the terminals.
Work on the Port 2000 infrastructures
began in fall 2001. The future, large container terminal complex will be able to
accommodate the largest containerships
afloat, with drafts of up to 48 feet, and
without tidal constraints.
While working on the Project 2000
project, due to open in July 2004, the port of
Le Havre has also decided to expand some
of its existing container terminals.
A development plan to be carried out by
2004 will include the extension of the port’s
Americas Quay, and the addition of 74
acres of backup area.
Mediterranean Shipping Co. has been expanding its volumes substantially at the
French port. The port will dredge the
Bougainville Quay to allow the Swiss carrier’s
new 6,000-TEU containerships to call.
Labor Relations. With strong and militant unions representing dockworkers, French
ports have been seen as prone to strikes.
However, the port said labor strikes have
been rare in recent years. During 2001, port
“Before, we went on strike,
and then we talked to them
— now we talk to them first.”
Patrick Deshayes
secretary general,
CGT
labor went on strike for only one day, as part
of a European-wide dockworkers’ protest
against a European Commission port liberalization directive, according to unions at
the port.
Patrick Deshayes, secretary general of
the CGT workers’ union in Le Havre, said
relations with port management in Le Havre
are now much less confrontational than in
the past.
“Before, we went on strike, and then we
talked to them — now we talk to them first,”
he told American Shipper.
The union leader traveled overseas with
the management of the port to promote the
port of Le Havre, something he said would
have been unthinkable a few years ago.
The CGT union “has no problems” with
private-sector operators at the new Port
2000 container terminals, Deshayes said.
“We cooperate with the port authority,”
Deshayes said. “There is work done on
consultation.”
Security. U.S. Customs will deploy personnel in European ports, including Le
Havre, to enhance their international program to tighten security, senior executives
of the Port Authority of Le Havre said.
“They are considering having American
Mediterranean Shipping Co. has greatly expanded its volumes at Le Havre.
73_76AS07
representatives in European ports to have an
enhanced security system,” Lecomte said.
In late May, two U.S. Customs officials
were assigned to the port of Le Havre on a
long-term basis. A U.S. Customs delegation also visited the port in April to examine
how Le Havre controls access to its terminals and checks the contents of containers.
“Our cooperation with them is total,”
Lecomte said. “Security is a major issue for
us.”
Lecomte said the port of Le Havre tightened its security a few years ago to deal with
the problem of stowaways.
U.S. and Canadian Customs already have
a reciprocal security cooperation program
under which their staff works in the other
country’s ports.
Jean-Marc Lacave, managing director of
the Port Authority of Le
Havre, said there are still
discussions at the International Maritime Organization about maritime
security that will deal with
port security aspects.
“We are not at the final
Lacave
point on this,” he said.
He called for a degree of harmonization
of security measures among European ports.
“We have to have the same answer (to the
security problem) everywhere,” Lacave
said. “Otherwise, we’ll have a distortion of
competition based on security.”
“The cost of security is high,” he said.
The port of Le Havre said it was the first
European port to have introduced a container scanner, back in the mid-1990s.
In June, the French port introduced a
system requiring workers to carry a badge
to access the Atlantic Quay terminal. This
was the last container terminal at the port
that was not equipped with such a system.
Port officials admitted that, until then, access to the Atlantic Quay terminal was not
restricted.
Ro/ro Boost. The port of Le Havre is
also expanding its roll-in/roll-off terminal
facilities to accommodate rapid cargo
growth in this sector.
In 2001, the port handled 596,000 vehicles, 35 percent more than in 2000. Ro/ro
traffic accounted for 3.3 million metric tons
last year.
The port is investing 15 million euro ($14
million) in a 380-meter quay, a 13-hectare
backup storage area for parked light vehicles,
and a new rail spur to unload vehicles.
In 2001, the port of Le Havre handled
69.4 million metric tons of cargo, an increase of 2 percent over 2000. Container
traffic last year rose by 4 percent, to 1.52
million TEUs.
■
JULY 2002
76
6/12/02, 3:34 PM
Corporate Appointments
(800) 874-6422, FAX (904) 791-8836, e-mail [email protected]
Logistics
Con-Way Logistics
The business unit of Con-Way Transportation Services Inc. has promoted
Marcello Palazzo from controller to director of operations.
Vito Kavaliunas has been hired to replace Palazzo as controller, and Randy
Mutschler has been named director of customer solutions.
Palazzo has been with Con-Way Logistics since its founding. He has 12 years
experience in multi-client warehousing,
transportation and logistics.
Kavaliunas is a 10-year logistics veteran, with extensive financial experience
in physical inventory processes an control.
Mutschler joined Con-Way Logistics as
director of operations in 1998. He previously was with Menlo Worldwide Logistics and a European third-party logistics
provider.
FKI Logistex
The Emeryville, Calif.-based provider
of material flow solutions, including conveyors, sortation and palletizing equipment, has appointed Tom Williams as
director of strategic business development.
Williams was president of Professional
Services Inc., a consulting firm he founded.
Schenker Inc.
Oliver Bohm has been named vice president of global sales development.
Bohm, who led Schenker’s work with
the Olympics in Salt Lake City, joined the
company in Hamburg, Germany, in 1989.
He became U.K. project manager in 1991,
and moved to Australia in 1993 as project
manager and route development manager
for Europe.
Forwarding
Famous Pacific Shipping
The freight services provider and nonvessel-operating common carrier has appointed Cindy Ko as group administrator in
its Hong Kong hub office.
The company also said its secretary-gen-
SOUTH'S LARGEST
MARINE STORE
eral, Steve Chang, has transferred to FPS’s
office in Los Angeles, where he will develop business between the United States
and other trade zones.
Air
Air Jamaica
Christopher Zacca has been promoted to
deputy chairman and chief executive officer, and Bruce Nobles has been named
president and chief operating office.
Gordon “Butch” Stewart, Air Jamaica’s
chairman, said Zacca, who has served as
president since 1998, has turned around
the airline’s operations. During his tenure,
revenues have grown 85 percent and costs
have been cut 70 percent, Stewart said.
Nobles, a 34-year aviation industry veteran, was president of Hawaiian Airlines.
He previously held executive positions with
Republic Airlines, Pan Am Shuttle, Continental and Trump Shuttle.
Inland
Kansas City Southern
Ronald G. Russ will take over as senior
vice president and chief financial officer
July 1, replacing Robert H. Berry who will
retire July 31.
Russ, a 25-year industry veteran, joins
KCS from Wisconsin Central, where he
was executive vice president and CFO. He
joined Wisconsin Central in 1987 as treasurer, and served as executive manager
and CFO of Tranz Rail Holdings Ltd., a
Wisconsin Central affiliate based in
Wellington, New Zealand. He also held
various positions with Soo Line Railroad
and The Chicago, Milwaukee, St. Paul and
Pacific Railroad Co.
Berry served as senior vice president
and CFO of KCS for five years. Michael R.
Haverty, KCS chairman, president and chief
executive officer, said Barry was “instrumental in the spin-off of Stilwell Financial
from Kansas City Southern Industries into
another separate company and the organization of KCS as a stand-alone transportation company.”
The primary holding of KCS, based in
Kansas City, Mo., is the Kansas City Southern Railway.
Ports
Associated British Ports
Philip Holliday has been named marine
manager for the U.K. ports group’s South
Wales ports — Newport, Cardiff, Barry,
Swansea and Port Talbot.
Holliday joined ABP in 1998 as marine
assistant at the port of Southampton, where
he was promoted to assistant marine advisor.
P&O Steam Navigation Co.
U.K.-based Peninsular and Oriental
Steam Navigation Co. said it has made
changes to its board of directors and senior
executives at its port arm, P&O Ports.
Douglas Anderson, managing director
of P&O Ports, will leave the group’s board
and return to Australia, following the relocation of P&O Ports’ head office from
Sydney to London.
Robert Woods, a P&O board director,
has been appointed executive chairman of
P&O Ports. He will continue in his role as
group managing director of P&O Nedlloyd.
Alistair Baillie, deputy managing director of P&O Ports, has been appointed as its
chief operating officer. Tom Boardley,
European trades director of P&O Nedlloyd,
has been appointed to the new post of commercial director of P&O Ports.
Port of Beaumont
Chris Fisher has been named executive
port director of the Port of Beaumont, after
serving as interim director since January.
Fisher, 39, joined the port in 1981, serving most recently as manager of finance and
administration and assistant secretary-treasurer to the board of commissioners.
Port of Long Beach
Arthur H. Fry has been appointed the
port’s marketing manager.
Before joining the port, Fry worked for
15 years as sales and customer service manager in Long Beach for Foss Maritime Co.,
a marine transportation company. He also
worked as a sales representative in Long
Beach for Interocean Steamship Corp and
Tricom Shipping Agencies Inc., booking
cargo for Neptune Orient Lines, Ivaran
Lines, Polynesian Line and Italian Lines.
PIER 17 MARINE
4619 ROOSEVELT BLVD.
JACKSONVILLE, FL 32210
(904) 387-4669 • 1-800-332-1072
CHARTS & PUBLICATIONS
AMERICAN SHIPPER:
77AS07
77
6/12/02, 3:42 PM
JULY 2002
77
Service Announcements
(800) 874-6422, FAX (904) 791-8836, e-mail [email protected]
Sinotrans, Hasco swap slots
Sinotrans Container Lines and fellow Chinese shipping line
Shanghai Hai Hua Shipping Co. Ltd., also known as HASCO, plan
to exchange space in the transpacific trade.
Under their proposed “SNL/HASCO Cross
Space Charter and Sailing Agreement,” filed
with the U.S. Federal Maritime Commission, the carriers will charter vessel space to
each other in the trade between China, Korea, and Japan, and the U.S. Pacific Coast.
Sinotrans plans to launch its first independent transpacific
container service on June 29. The carrier’s China America Service
will call at Huangpu, Hong Kong, Chiwan, Shanghai, Pusan,
Long Beach or Los Angeles, and Oakland. The new service will
add about 130,000 TEUs in one-way capacity to the transpacific
market.
At the same time, Sinotrans will end its participation in the
CAX and PDS container services of Hanjin Shipping and the other
members of the CKYHS alliance.
without any slot charter agreements.
The addition of COSCO’s service will increase transpacific
capacity by about 90,000 TEUs a year in each direction.
Norasia, CMA CGM, Hanjin extend ‘Galex’
Norasia Container Lines, CMA CGM, Hanjin Shipping and
Laurel Navigation are extending their joint Southeast Asia/Indian
Subcontinent/Middle East “Galex” service to include calls at ports
of East Asia and North Asia.
Effective July 5, the revised “Super Galex” service will have a
rotation of Shanghai, Qingdao, Xingang, Busan, Chiwan, Singapore,
Port Kelang, Mumbai (Nhava Sheva), Jebel Ali, Khor Fakkan,
Karachi, Mumbai, Tuticorin, Port Kelang, Singapore and Shanghai.
The joint service will use six ships of 2,400-TEU capacity
sailing at 21 knots.
Norasia said the China/Indian Subcontinent/Middle East Gulf
trade is expected to grow.
COSCO reports shortage, changes service
WTSA seeks to raise fruit rates
Container shipping lines in the Westbound Transpacific Stabilization Agreement said they will raise rates for citrus fruits and
mixed loads of vegetables by $100 per 40-foot-container, effective July 1.
The 13 WTSA lines also announced add-ons to previously
established apple rates of $500 per FEU over South Asia rates for
Vietnam, and $1,300 per FEU over South Asia rates from Cambodia. Those increases also start July 1.
“Some shippers of melons will see increases in their service
contract rates, as carriers establish a recommended guideline floor
on rates that will vary from North Asia, South Asia, and mainland
China. In all cases, the new rate levels will additionally be subject
to applicable destination terminal handling, fuel, documentation,
and rail-related charges,” WTSA said in a statement.
WTSA said its members were seeking to “better recover the
high costs of specialized refrigeration equipment and commodity
handling ... after more than a year of steadily falling freight rates.”
The carriers of WTSA are APL, China Ocean Shipping Co.,
Evergreen Marine Corp., Hanjin Shipping, Hapag-Lloyd, Hyundai
Merchant Marine, “K” Line, Maersk Sealand, MOL, NYK, Orient
Overseas Container Line, P&O Nedlloyd and Yang Ming.
COSCO adds Asia/PNW link
COSCO Container Lines has introduced an extra weekly container service between Asia and Pacific Northwest ports of Canada
and the United States.
The Pacific Northwest service calls at Shanghai, Chiwan, Hong
Kong, Yokohama, Vancouver, Seattle and Shanghai.
In a related change, COSCO is revising its existing “SEA”
transpacific service, by dropping eastbound calls at Chiwan and
Yokohama. Those calls form part of the new Pacific Northwest
service.
The new operation utilizes vessels of about 1,700 TEUs capacity. Some of the vessels come from COSCO’s discontinued
Mediterranean/New York/Halifax “Genyex” service.
An executive of COSCO Container Lines in Shanghai said
COSCO will operate the Pacific Northwest service on its own,
78_79AS07
COSCO Container Lines said it has concentrated one of its
transpacific services on fewer port calls because of a severe space
shortage on one service.
The Chinese carrier has stopped calls at Kobe on its CES
transpacific service. The service now calls at Xiamen, Ningbo,
Shanghai, Yokohama, Long Beach, Oakland and Xiamen.
“K” Line, Yang Ming, Hanjin Shipping and Senator Lines also
take space on COSCO’s ships in the CES service as part of their
global alliance.
To compensate for the ending of Kobe calls on this service,
COSCO said it has agreed with “K” Line and Yang Ming to take
more space on “K” Line’s PSW3 transpacific service. The PSW3
loop includes calls at Kobe, Long Beach and Oakland.
Asia/Europe carriers plan rate increase
The carriers of the Asia Westbound Rate Agreement and Mediterranean Rate Agreement, two groups of Asia/Europe shipping
lines that belong to the Far Eastern Freight Conference, said they
plan a westbound rate increase on July 1.
The increase will be the third this year for shippers of containerized cargoes in the Asia-to-Europe trade, following the FEFC’s
Jan. 1 and April 1 increases.
The FEFC carriers said they will implement a rate restoration of
$250 per TEU on July 1. In addition, the tariff applicable to Nordic
areas will be further increased by $50 per TEU, and the high-cube
surcharge will be raised to $200 per container, effective July 1.
“Following a long period of decline, overall cargo volumes in
the westbound trade have begun to recover and lines have seen a
market growth of around 4 percent during the first quarter of 2002,”
the conference said.
Despite what the FEFC described as “a recent modest increase
in conference tariff rates,” the carrier group that freight rates are
still not compensatory for carriers.
The FEFC carriers are APL, CMA CGM, Egyptian International
Shipping Co., Hapag-Lloyd, Hyundai Merchant Marine, “K” Line,
Maersk Sealand, Malaysia International Shipping Corp., MOL,
Nippon Yusen Kaisha, Orient Overseas Container Line, P&O
Nedlloyd Container Line and Yang Ming Marine Transport.
JULY 2002
78
6/12/02, 3:44 PM
U.S./Med carriers raise bunker charge
Evergreen starts U.S./Haiti service
The carriers of the United States South Europe Conference said
that they will increase their bunker adjustment factor, effective
July 1.
The eastbound and westbound bunker
charges will increase from $107 to $130 per
00-foot container and from $204 to $260 per
40-foot container.
For other cargo, the bunker charge will be
set at 11 percent of the freight rate.
The carriers of the United States South Europe Conference are
Maersk Sealand, Hapag-Lloyd Container Line and P&O Nedlloyd.
Evergreen Marine Corp. (Taiwan), has appointed R. Sassine Co.
SA as its agent in Haiti and announced the commencement of a
twice-weekly service calling at the Caribbean country.
Evergreen has added a call at Port au Prince, Haiti, to its twiceweekly service from Port Everglades, Fla. The service calls at Port
Everglades every Wednesday and Saturday.
Carriers warn of war risk surcharge
The India Pakistan Bangladesh Ceylon Conferences, a group of
shipping lines in the Europe/Indian subcontinent trade, warned of
the possibility of extra risk insurance charges
because of the risk of war between India and
Pakistan.
“In the light of escalating recent tension
between India and Pakistan, member lines
(of the conference) are being advised by their
insurance underwriters that additional war
risk insurance costs may be reviewed for vessels calling or
transiting certain specified ports/areas in the region,” the carrier
group said.
The conference, which comprises most of the carriers in the
Europe/Indian subcontinent trade, said that precise details of
terms and extra costs involved are not currently available. The
conference said that its member carriers “would have no option
but to on pass these war risk insurance and other related costs to
customers” if the insurers of the carriers raise their war risk
insurance premiums.
The India Pakistan Bangladesh Ceylon Conferences carriers
include Pakistan National Shipping Corp., CMA CGM, P&O
Nedlloyd, Evergreen Marine Corp., Shipping Corporation of
India, Hapag-Lloyd, “K” Line, Yang Ming, Maersk Sealand, Zim
Israel Navigation Co. and other shipping lines.
Bertling Line adds Tampa, Philadelphia links
Bertling Line, a division of F.H. Bertling Logistics GmbH, has
begun shipping service between the Port of Tampa and Peru and
Chile through the Panama Canal.
The Hamburg, Germany-based line has
also started providing regular vessel calls at
the 96-acre Marine Terminal in Northeast
Philadelphia.
On the Tampa service, two vessels, the
Normandie and the Algarve share the monthly
rotation, carrying mostly forest products from Chile and breakbulk
and containerized cargo booth northbound and southbound.
Bertling’s client base includes multinational oil companies,
construction groups and motor vehicle manufacturers, traders and
clearing houses.
The Philadelphia service presently consists of a monthly ship
call and a two-vessel rotation.
An upgrade to a three-vessel rotation and a service of every 20days is a strong possibility, said James T. McDermott, Jr., executive director of the Philadelphia Regional Port Authority.
The new service brings dry hardwoods, finished moldings and
wood pulp from Argentina and Chile into U.S. markets through
Philadelphia. Future calls will also include newsprint from South
America.
Industrial Maritime, Nordana to cooperate
Industrial Maritime Carriers and Nordana Line are planning to
cooperate in the trade between U.S. Gulf ports and ports in
Colombia and Venezuela. Under the slot charter and sailing
agreement, Industrial Maritime will make space available to
Nordana on its vessels operating in the trade.
INTERNET INDEX
OF ADVERTISERS
Check out these locations on the World Wide Web
American Shipper www.AmericanShipper.com
ComPairData www.compairdata.com
A.N. Deringer www.anderinger.com
Amsterdam Port Authority www.amsterdamports.nl
Atlantic Container Line www.ACLcargo.com
C.H. Robinson www.chrobinson.com
Canada Maritime www.canadamaritime.com
Cast www.cast.com
Columbus Line www.columbusline.com
Contship Containerlines www.contship.com
COSCO www.cosco-usa.com
Council of Logistics Management www.clm1.org
Evergreen America Corp.
www.evergreen-america.com
Georgia Ports Authority www.gaports.com
Hyundai American Shipping Agency Inc.
www.hmm21.com
Intercontainer-Interfrigo www.icfonline.com
Intermarine Inc. www.intermarineusa.com
Lloyd Triestino www.lloydtriestino.it
Log.Net.com www.LOG-NET.com
Maryland Port Administration www.mpa.state.md.us
Mediterranean Shipping Co. USA Inc.
www.mscgva.ch
MOL (America) Inc. www.molpower.com
North Carolina State Ports Authority
www.ncports.com
OOCL (USA) Inc. www.oocl.com
P&O Nedlloyd (USA) www.ponl.com
P&O Ports North America www.poportsna.com
Port Everglades Authority
www.co.broward.fl.us/port.htm
Seaboard Marine Inc. www.seaboardmarine.com
Shipco Transport Inc. www.shipco.com
Vancouver Port Corp.
www.portvancouver.com/access_usa
Waterman Steamship Corp.
www.waterman-steamship.com
Yang Ming Line www.yml.com.tw
Zim-American Israeli Shipping www.zim.co.il
AMERICAN SHIPPER:
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A duty to keep transpacific competition fair
It isn’t the first time that users of transpacific maritime
services have run to the U.S. Federal Maritime Commission to
complain about alleged misconduct by ocean carriers.
The National Customs Brokers and Forwarders Association
of America and the International Association of NVOCCs
alleged that carriers of the Transpacific Stabilization Agreement have discriminated against ocean transportation intermediaries as a class of shippers (see story, page 15).
Their complaint raises two questions that the FMC needs to
heed:
(1) Do the intermediaries have a case in their allegations of
anticompetitive abuses by carriers?
(2) Is it the job of the FMC to intervene in contractual issues
in the current post-Ocean Shipping Reform Act?
On the first question, disturbingly, the associations of ocean
transportation intermediaries appear to have no real substantive
evidence to back their allegations of discrimination concerning
rates and surcharges by Transpacific Stabilization Agreement
carriers. All they have is complaints from NCBFAA and
IANVOCC members.
But saying that the absence of evidence such as detailed,
comparable service contracts does not justify an investigation
by the FMC into alleged discrimination is disingenuous. Of
course, industry organizations don’t have detailed knowledge
of the rates paid by direct shippers and by OTIs! Everybody
knows that these are now confidential. And the allegations
against the carriers are serious. The FMC is the only entity that
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has copies of all service contracts.
On the second question, the issue is whether the problem
raised by the intermediaries is about one-on-one private contractual dealings (that should not involve industry regulators) or
about wider competition aspects linked to groups of carriers
that enjoy an antitrust immunity.
If all carriers of the Transpacific Stabilization Agreement have
charged peak season surcharges and rate increases to OTIs, but not
to direct shippers, this is a potential collective abuse of the antitrust
immunity of carriers. This would warrant FMC intervention.
The FMC should at least look at a sample of (confidential)
service contracts of shippers and OTIs to see whether there are
initial causes for concern. The agency should look at the facts
and make a reasoned, initial decision on how to proceed.
As Peter Gatti, vice president of the National Industrial
Transportation League, said, it is “the proper role of government to oversee the immunity privilege of carriers.” If carriers
were not allowed to meet and talk about service contract rates
and conditions with their customers, there would be no potential
for abuses of their immunity.
Deregulation efforts under OSRA did not mean allowing
potential abuses of fair competition.
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Antitrust foes harden battle lines 6 Will FMC

Transcription

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