From field to dinner plate 30 USPS`s regulatory

Transcription

APRIL 2004
The
Latin trade
Tango
www.americanshipper.com
C1AS04.indd 100
From field to dinner plate
30
USPS’s regulatory shackles?
44
P&O Nedlloyd, APL recover
62
Caught in the middle of port security 70
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Vol. 46, No. 4
LOGISTICS
WCO widens security scope
Delay in enforcing ‘shipper’ definition
Chinese base for Zim Logistics
Sierra Leone rebuilds customs
April 2004
6
34
36
38
39
FORWARDING/NVOs
40
‘End game’ is here
40
Bush ends GSP for 10 nations
42
Kuehne & Nagel unit takes in USCO 42
CaroTrans rolls out online booking
42
Tibbett & Britten to test RFID
42
TRANSPORT/INTEGRATORS
Partial to parcel
44
50
TRANSPORT/AIR
Customs helps itself on Air AMS
56
56
TRANSPORT/OCEAN
58
COSCO-style cooperation
58
China warms to stock market
58
Panama Canal gathers more data
60
62
Playing a ‘cooperative game’
64
Keeping ‘outsiders’ out of Jones Act 65
Product tank vessels for U.S. security 66
TRANSPORT/INLAND
Mexico rail, truck freight at risk
NTSB faults CP, FRA for derailment
68
68
69
PORTS
‘Zero tolerance
Matter of preference
70
72
74
SERVICE ANNOUNCEMENTS
TACA lines reaffirm westbound rate hikes ...
COSCO adds Shanghai/Long Beach shuttle
... Yang Ming, ‘K’ Line, Hanjin add Pacific
link ... Med Shipping adds 4th Asia/Europe
loop ... P&O Nedlloyd to exit Europe/East
Med service ... Norasia targets Asia/Med with
link ... New U.S./India discussion agreement
... Africa/South America service added ...
CaroTrans expands South Africa service
DEPARTMENTS
Comments & Letters
Shippers’ Case Law
Corporate Appointments
Service Announcements
Editorial
2
76
77
78
80
On the Cover
The Latin trade tango
6
Western hemisphere politicians are working
on a grand plan for a free-trade agreement
of the Americas that could materialize in several
years. But the reality of doing business in the
region today is complicated and problematic.
American Shipper examines the factors driving
exports, imports and ocean shipping in the U.S./
Central America and U.S./South America trades.
30
These days when a cow gets sick the entire meat industry
goes to the infirmary. This was certainly the case when
the U.S. government acknowledged Dec. 23 that a single
cow tested positive for “mad cow” disease. While livestock
diseases continue sending ripples through the marketplace, more meat shippers and technologists look to better
supply chain tracking systems on a global level to improve
food safety and help avoid wide-scale import bans.
USPS tries to shake regulatory shackles 44
A confluence of bad circumstances has members of U.S.
Congress, the General Accounting Office, postal officials,
customers, private sector competitors and others warning
of further rate increases and service interuptions unless
the U.S. Postal Service’s charter is modernized. Yet while
the USPS’s free market approach opens doors to new business, the government agency encroaches on the turf
of integrators such as FedEx and UPS.
Caught in the middle
70
Carriers and shippers will likely suffer the consequences
when ports don’t comply with the July 1 deadline for
implementation of the International Ship and Port Facility
(ISPS) Code of the International Maritime Organization.
As government and industry reports say carriers as well
as ports lag in complying with the ISPS Code, ports
in developing countries will also be at risk because they
lack the funds to make necessary security improvements.
Subscribe online at www.americanshipper.com
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01_04AS04.indd 1
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Guarding sensitive U.S. shipper data
Before the U.S. government decides to feed commercial shipper information to a foreign government in the name of security,
it should first listen to what the industry has to say.
The Department of Homeland Security has recently approached
the Census Bureau about sharing shipper’s export declaration
information contained in the Automated Export System with
some of its overseas government counterparts. The belief is that
sharing this type of information could help the United States and
its allies in the war against terrorism to better target “high risk”
shipments moving through the global supply chain.
However, many industries, especially U.S. agriculture, have
lots to lose if their key commercial information should fall into the
hands of zealous overseas trade policymakers and shippers.
“As agriculture remains the largest U.S. export and thus the
largest contributor to the positive U.S. balance of trade, any
interruption or burden to the export process can quickly result
in the loss of hundreds of millions of dollars of U.S. exports as
foreign buyers seek alternative supplies,” warned Peter Friedmann, executive director of the Agriculture Ocean Transportation
Coalition, in a recent letter to Census Bureau officials.
Friedmann’s letter cited the terrible impact of naturally occurring diseases alone on U.S. agricultural trade, such as the recent
overseas import bans due to a bovine spongiform encephalopathy
case and avian influenza outbreak in the poultry sector.
“Thus our government must be extremely cautious before
imposing any new requirements that could increase the costs
for U.S. exports or create an unfavorable export environment,”
he said.
Vol. 46 No. 4
April 2004
In the case of agriculture, foreign governments often protect
their farmers from outside competition through tariff and nontariff barriers.
Shipper’s export declarations contain confidential and proprietary information, such as the U.S. principal party in interest’s
identification details and shipment values.
“While we see no problem in providing aggregate (Harmonized Tariff) Schedule B value data to foreign governments,
we do not believe that the U.S. government should provide
foreign governments with the value of specific shipments,”
Friedmann said.
It’s uncertain whether the U.S. government is weighing these
considerations carefully. A Census Bureau spokesman said the
agency has no comment on the issue at this time. (Chris Gillis)
Security rhetoric
International trade issues are gaining more prominence in
the U.S. presidential campaign. Outsourcing of jobs to foreign
sources where there is cheaper labor was a hot topic during the
primaries. Recently, Democratic presidential candidate John
Kerry injected the issue of cargo security into the national debate when he accused President Bush of failing to do enough
to protect airports and seaports from terrorist attacks.
“We will reduce the spread of nuclear and biological and chemical weapons and better guard our ports,” Kerry promised.
Kerry’s comments raise the visibility of port security issues
in the eye of the general public, which has been focused on
airport security since the Sept. 11, 2001 terrorist attacks. His
brief comments were part of a broader critique on homeland
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Hayes H. Howard
Jacksonville [email protected]
Editorial
David A. Howard, Editor
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Christopher Gillis, Deputy Editor
Washington
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New York
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2004
3/18/04 2:57:07 PM
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security that the senator delivered to the International Association of Fire Fighters legislative conference.
His campaign also released a summary of his positions on
homeland security, in which he says air travel is still not safe
in part because most cargo on passenger planes is not screened
for explosives, and there are no requirements for criminal background checks for cargo handlers. Kerry’s homeland security
plan calls for investing in technology to track the movement and
scan the contents of containers, determine whether they contain
radioactive material or hazardous chemicals, develop security
standards for ports and hire more Customs inspectors.
Several Democratic lawmakers have repeatedly claimed during the last year that there is a large gap between the amount of
funding requested by the Bush administration and legislative
mandates to protect the nation’s port infrastructure and vessels.
The administration has said it is being careful not to waste
money, and that private industry should foot much of the bill
for protecting maritime commerce.
House Minority Leader Nancy Pelosi, D-Calif., cited the
need for inspecting 100 percent of inbound cargo containers
during the Democratic response to the president’s State of the
Union message in January. Most experts say it is unrealistic to
physically inspect the majority of containers without stopping
the flow of transportation and crippling the economy.
Rep. Edward Markey and some fellow House Democrats
have railed about the need for screening all cargo on passenger
planes rather than relying on the “known shipper” program that
essentially allows cargo on planes without a physical or X-ray
search if it comes from a trusted shipper that has met government
security requirements. But here too, experts say, searching every
piece of cargo would be cost-prohibitive and essentially kill air
transport as a viable way to move parcels and freight.
The trouble with political rhetoric is that it is too simplified.
Kerry and the Democrats make it sound like they would start
container and port security programs from scratch, where none
existed before.
Has the Bush administration done enough on the homeland
security front, especially in the area of freight transportation?
Probably not.
The U.S. Coast Guard says it will take at least $5 billion during the next 10 years to meet the infrastructure, technology and
personnel requirements set up in the Maritime Transportation
Security Act of 2002 to protect the nation’s seaports from a terrorist attack. In the last couple of years, the Bush administration
and the Republican-controlled Congress have provided about
$300 million in security grants to ports and port users.
And the TSA has lagged in developing a strengthened security
program for air cargo security. On the other hand, the Bureau of
Customs and Border Protection has been very aggressive about
instituting end-to-end supply chain security programs that deal with
ensuring the integrity of containers before and during transit.
So Kerry needs to be more specific in his criticism. When
he says he will invest in a system of container security that
will track containers and determine if their cargo is risky, he
should know that the Container Security Initiative, Operation
Safe Commerce, and the Customs-Trade Partnership Against
Terrorism are already in place and growing.
The question is whether the relatively paltry sums the Bush
administration is giving the Customs is adequate to really
provide meaningful security as fast as needed. An extra $12
4
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APRIL
million here or there for CSI or C-TPAT is really chump change,
because it is going to take a whole lot more than a few million
dollars to protect a nation with so many ports participating in
international trade.
The debate needs to focus on whether the Bush administration
is providing token or meaningful support to existing programs.
(Eric Kulisch)
No fish story
Fish is often referred to as health food, but is it?
If you read the U.S. General Accounting Office’s recent report
evaluating the Food and Drug Administration’s inspection of
seafood imports, you may want to put down your fork.
More than 80 percent of the seafood consumed by Americans
today is imported. The FDA is supposed to ensure that the public
health and safety of these imports is upheld.
The GAO’s report, released in early March, faulted the FDA
for not implementing its recommendations from 2001 to improve
seafood import oversight in the United States.
Specifically, the GAO said the FDA failed to implement
recommended “equivalence agreements” with seafood export
countries. “Equivalence agreements that commit U.S. trading
partners to maintain comparable food safety systems are an efficient way to ensure imported seafood safety,” the GAO said.
Unlike the FDA, the U.S. Department of Agriculture certifies
that countries exporting food products to the United States have
equivalent food safety systems. The GAO said, “establishing
these types of agreements would shift some of FDA’s burden
for ensuring seafood safety to foreign governments” and “would
allow FDA to focus its limited resources on seafood products
from countries with less advanced food safety systems.”
The GAO also criticized the FDA for failing to communicate
serious product deficiencies found during inspections so that
potentially contaminated seafood imports are examined before
they enter the country.
In addition, the GAO said the FDA continues to experience long
delays between finding deficiencies and taking action. The GAO
found in its review of foreign firm inspection records that it took
about 348 days for FDA to alert staff at the ports of entry about
serious safety problems identified at six overseas firms.
The GAO said this problem stems from the FDA’s failure
to prioritize its enforcement actions when violations occur, a
problem compounded by the agency’s lack of systems to track
the time involved in documenting, reviewing, and processing
enforcement actions.
The GAO recommended several specific actions the FDA could
take to improve its inspection of seafood imports, including:
• Commissioning seafood inspectors from the National
Oceanic and Atmospheric Administration’s Seafood Inspection
Program.
• Using state regulatory laboratories and/or private laboratories to augment FDA’s testing of seafood imports.
• Developing a program to use third-party inspectors to
augment its program.
The FDA acknowledged some of the problems identified
in the GAO’s report, but emphasized its limited inspection
resources and competing priorities, such as implementation of
the 2002 Bioterrorism Act.
It sounds like the GAO may have to recycle this report in
another two years. (Chris Gillis)
2004
3/18/04 2:57:46 PM
YourDoorway-AmShipper
3/8/04
10:18 AM
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No matter what.
The
Latin trade
Tango
Economic, regulatory
moves further
complicate markets
for exporters,
importers, transport
providers.
06_29AS04.indd 6
3/18/04 11:28:04 AM
W
estern Hemisphere politicians are working
on a grand plan for a free-trade agreement
of the Americas that could materialize in
several years.
But the reality of doing business internationally in the
region, today, is complicated and problematic for exporters,
importers and their transport providers, with little growth in
most markets.
South America’s chronic economic instability, including
recession in some cases, has afflicted several countries, notably Venezuela. There are also unsettling prospects of change
in the U.S. preference programs with Central America, and
the impact of ending textile quotas in the United States. Add
to this environment the global competition for access to the
U.S. market between low-cost Asian exporters and Central
American exporters.
For the many carriers active in the inter-American trades,
the region is characterized by intense competition, port strikes
and labor problems in South America, rising vessel and inland
costs on all routes, and widening cargo imbalances on several
South American routes.
Optimism of the benefits that could be gained through
creation of the Free Trade Association of the Americas must
be tempered with the complicated prospect of melding some
20 disparate trade agreements into a single bloc.
American Shipper examines the factors driving exports,
imports and ocean shipping in the U.S./Central America and
U.S./South America trades.
06_29AS04.indd 7
2004 7
3/18/04 2:40:39 PM
LOGISTICS
Central American shifts
Local exporters look to free-trade pact
to gain bigger share of U.S. market.
BY PHILIP DAMS
T
he two-way trade in goods between
the United States and Central
America will be affected by regulatory and economic forces.
Traditionally, Central America has been
important to the United States in the chemical and apparel industries and agriculture.
Complex production patterns that involve
yarn production in the United States and final
assembly in Central America for re-export
to the United States became well-established
under the former “807” trade program and
successor preference programs.
But these arrangement are questioned by
three structural shifts:
• Asian competition has undermined
the ability of Central American exporters of
manufactured goods and apparel to retain
their customers in the United States.
• The United States will remove its
textile and apparel quotas on Jan. 1.
• The United States is negotiating the
Central American Free Trade Agreement
(CAFTA) with Costa Rica, El Salvador,
Guatemala, Honduras and Nicaragua. The
Bush administration also intends to include
the Dominican Republic in the agreement.
In a report published in December, a
division of the law and trade advice firm
Sandler, Travis & Rosenberg P.A. said
the end of textile and apparel quotas “will
have a dramatic effect on Central American
production since the protection offered by
quota will be removed.”
The law firm said CAFTA “represents
probably the last opportunity to ensure that
regional textile and apparel production will
be able to compete, and therefore survive,
in a quota-free world after 2004.”
Commenting on the introduction of the
Caribbean Basin Trade Partnership Act
(CBTPA) in 2000, Sandler, Travis & Rosenberg said, “apparel entering under CBTPA
has largely replaced imports previously
made under the 807 and 807-a programs,
but has not itself emerged as a source of
growth for the region.”
Rinus Schepen, senior vice president and
general manager, Latin America services for
Crowley Liner Services said the carrier’s
customers in Central America are “very
enthusiastic” about CAFTA taking place.
8
AMERICAN SHIPPER:
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“Import duties will change,” Schepen
noted. “That can only enhance, in both
directions, the cargo flows.”
He hopes the free-trade agreement will
help Central American exporters compete
against Far Eastern exporters. Asian manufacturers have had the advantage of lower
labor costs, but the disadvantage of long
transit times to ship goods to the United
States, he said.
“Transit times favor Latin America,”
Schepen said, noting average transit of two
to three days. By contrast, Asia-to-U.S.
transit times range between 24 and 29 days,
according to Crowley. “There is a timing
difference in the transportation of the goods,
but it is hard for Central American countries
to compete,” he said.
He also stressed the link between Central
America’s export earnings and its resulting
purchasing power. If trade volumes from
Central America to the United States rise,
they will consequently also increase in the
southbound direction, Schepen said.
Apparel companies are following the
CAFTA discussions very closely. The apparel and chemical industries are among the
largest in Central America, he said.
Schepen believes Nicaragua could be the
Central American country to benefit most
from a future CAFTA trade pact. Nicaragua
exports only about $801 million a year of
goods to the United States, according to
2003 statistics from the U.S. Census Bureau
(see table 1).
“There is a lot of uncertainty about what
is going to happen,” said Craig Mygatt,
director of Central American and Caribbean
services at Maersk Sealand.
Mygatt expects that China, with its
lower manufacturing costs, will continue
to increase its share of U.S. textile imports.
“Central America cannot compete against
Chinese costs,” he said.
On the other hand, “there are some customers that are scared of putting all their
eggs in one basket,” Mygatt noted. This
policy, combined with proximity to the U.S.
market, could help keep textile businesses
in Central America.
Mygatt also believes the free-trade
agreement will boost Central America’s
agricultural exports, such as melons, to the
United States.
Ocean carriers provide frequent service
connecting ports in Florida, the U.S. Gulf and
Table No. 1
Trade in goods U.S./Latin America countries
(In $millions)
U.S. exports (FAS basis)
2002
2003
%
chng
South America
Argentina
Brazil
Chile
Colombia
Ecuador
Peru
Uruguay
Venezuela
Central America
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
U.S. imports (CIF basis)
2002
2003
%
chng
$1,585.4
$12,376.0
$2,609.0
$3,582.5
$1,605.7
$1,562.5
$208.6
$4,429.7
$2,435.4
$11,218.3
$2,719.3
$3,754.7
$1,448.4
$1,706.8
$326.8
$2,839.5
54%
(9%)
4%
5%
(10%)
9%
57%
(36%)
$3,434.1
$16,690.2
$4,353.7
$5,933.4
$2,388.4
$2,084.5
$202.9
$15,813.3
$3,435.0
$18,964.7
$4,323.3
$6,790.0
$3,030.3
$2,572.4
$271.1
$18,074.3
0%
14%
(1%)
14%
27%
23%
34%
14%
$3,116.5
$1,664.1
$2,044.4
$2,571.1
$437.0
$1,406.7
$3,414.2
$1,823.8
$2,273.6
$2,844.9
$502.8
$1,848.0
10%
10%
11%
11%
15%
31%
$3,339.3
$2,038.4
$2,972.2
$3,393.6
$707.3
$321.0
$3,581.7
$2,076.7
$3,151.0
$3,453.8
$801.1
$318.6
7%
2%
6%
2%
13%
(1%)
Total 14 countries $39,199.2 $39,156.5
0
$63,672.3 $70,844.0 11%
For the purpose of this analysis, Mexico and Spanish-speaking Caribbean countries are
excluded from the list of Latin countries.
Source: U.S. Census Bureau.
2004
3/18/04 11:21:26 AM
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main port destinations in Central America.
Schepen said that on this trade route Crowley runs three sailings a week from Florida
and another three from the U.S. Gulf.
Maersk Sealand also runs multiple services from the Florida and the U.S. Gulf to
Central America. To reflect the importance
of apparel shipments, the carrier has called
its Florida/Guatemala/Honduras services
Fashion Express 1 and Fashion Express 2.
Crowley Maritime Corp., the parent company of Crowley Liner Services, reported
that freight rates in its Latin American
services decreased 1 percent in the third
quarter of 2003 “due to competitive pressures and declining economic conditions in
Latin America.”
The large number of ocean carriers operating in the U.S./Latin trades provides another
measurement of competition among carriers
(see table 2). Crowley, Maersk Sealand,
Seaboard and APL are believed to be the
largest ocean carriers in the U.S./Central
America trade.
But carriers are seeking to raise rates in
the U.S./Central America trades. Carrier
members of the Central American Discussion Agreement are considering potential
increases in ocean freight rates. Discussion
agreement members are APL, Caribbean
American Line, Crowley Liner Services,
Dole Ocean Cargo Express, King Ocean,
Great White Fleet, Lykes Lines, Maersk
Sealand and Seaboard Marine.
“We, as carriers, are looking at rate stability and rate recovery,” Schepen said.
It’s getting increasingly difficult for
shipping lines to operate in the U.S./Central America trade because of the steady
increases in vessel charter rates.
Mygatt estimates the cost of chartering a
typical ship with limited intake in this trade
has soared 70 to 80 percent over the past
year, from about $7,000 to $12,000-13,000 a
day. Higher charter rates are “99 percent of
the reason” why the carriers in the Central
American Discussion Agreement are considering price increases, Mygatt said.
“Cost for carriers have increased,”
including fuel and inland transport costs,
Schepen said.
Last year, Crowley Logistics acquired
Apparel Transportation Inc., a Miami-based
apparel transportation services provider.
Apparel Transportation provides air, ocean
and inland transportation services to apparel
and textile customers throughout the United
States and Central America.
Crowley also has a license to ship
medicines, medical equipment, food and
charitable goods from the United States to
Cuba. It resumed its U.S./Cuba service in
2001, but is only allowed to ship cargoes
southbound. “Our volumes are steadily
10
AMERICAN SHIPPER:
06_29AS04.indd 10
APRIL
Table 2
Carriers providing direct
U.S./Latin America liner services
East Coast of South America
Brazil
Alianca, APL, Bossclip, Clipper Interamerican Carriers, CMA CGM, CSAV,
Evergreen, Hamburg Sud, Hanjin, Intermarine, Libra, Lykes Lines, Maersk
Sealand, Mediterranean Shipping Co., Montemar, P&O Nedlloyd,
Safmarine, TMM Lines, Wallenius Wilhelmsen, Zim
Argentina
Alianca, APL, CMA CGM, CSAV, Evergreen, Hamburg Sud, Hanjin,
Intermarine, Libra, Lykes, Maersk Sealand, Mediterranean Shipping Co.
Montemar,P&O Nedlloyd, Safmarine, TMM, Zim
Uruguay
CMA CGM, Hanjin, Montemar, Zim
North Coast of South America
Venezuela
Alianca, APL, Associated Transport Line, Bossclip, CCNI, Crowley Liner
Services, CSAV, Evergreen, Hamburg Sud, Intermarine, King Ocean, Libra,
Lykes, Maersk Sealand,Mediterranean Shipping Co., MOL, Nordana Line,
P&O Nedlloyd, Safmarine, Seaboard, SeaFreight, TMM
Colombia
Alianca, APL, Associated Transport Line, CCNI, CLAN, CMA CGM,
Contship, Crowley Liner Services, CSAV, Dole, Frontier, Hamburg Sud,
Intermarine, Isabella Shipping, Italia, King Ocean, Libra, Lykes, Maruba,
Mediterranean Shipping Co., MOL, Nordana, P&O Nedlloyd, Seaboard,
Smith & Johnson Carriers, TMM, Wallenius Wilhelmsen
West Coast of South America
Colombia (Pacific)
APL, CCNI, CMA CGM, Hamburg Sud, Interocean, Mediterranean
Shipping Co., NYK, Trinity Shipping.
Ecuador
APL, Associated Transport Line, CCNI, CMA CGM, CSAV, Dole, Ecuadorian,
GGE Express, Hamburg Sud, Intermarine, Interocean, Mediterranean
Shipping Co., Network Shipping, Trinity Shipping, Wallenius Wilhelmsen
Peru
APL, Associated Transport Line, CCNI, CLAN, CMA CGM, CSAV, Dole,
GGE Express, Hamburg Sud, Intermarine, Interocean, Maruba, Maersk
Sealand, Mediterranean Shipping Co., Seaboard, Trinity Shipping
Chile
APL, CCNI, CLAN, CMA CGM, CSAV, Hamburg Sud, Maruba, Maersk
Sealand, Mediterranean Shipping Co., Seaboard, Wallenius Wilhelmsen
Central America
Guatemala
APL, CCNI, CLAN, Contship, Crowley Liner Services, Dole, Great White
Fleet, Hamburg Sud, Italia, “K” Line, Lykes, Maersk Sealand, Maruba,
Nordana, NYK, Seaboard, TMM, Wing Bridge
El Salvador (Pacific)* APL, Maersk Sealand, NYK
Costa Rica
Alianca, APL, CCNI, CLAN, Crowley Liner Services, CSAV, Dole, Great
White Fleet, Isabella Shipping, King Ocean, “K” Line, Libra, Lykes, Maersk
Sealand, Maruba, MOL, Nordana, NYK, Seaboard, TMM, Wing Bridge
Honduras
APL, CCNI, Crowley Liner Services, CSAV, Dole, Great White Fleet, King
Ocean, “K” Line, Libra, Lykes, Maersk Sealand, MOL, Nordana, Seaboard,
TMM, Wing Bridge
Nicaragua
Bernuth Lines, NYK
Panama
APL, CCNI, China Shipping Container Lines, CLAN, CMA CGM, Contship,
Crowley Liner Services, CSAV, Evergreen, Hamburg Sud, Hapag-Lloyd,
Hatsu Marine, Hyundai Merchant Marine, Interocean, Italia, “K” Line, Lloyd
Triestino, Libra, Lykes, Maersk Sealand, Marfret, Maruba, MOL, Nordana,
NYK, OOCL, P&O Nedlloyd, Seaboard, TMM, Trinity Shipping, Wallenius
Wilhelmsen, Zim
*Carriers also generally provide service to and from El Salvador overland via Honduras on the
Caribbean coast.
Notes: Carriers providing only transshipment services to and from a particular country are not
listed above.
For the purpose of this analysis, Mexico and Spanish-speaking Caribbean countries are excluded
from the list of Latin countries.
Abbreviations: CCNI = Compania Chilena de Navegacion Interoceanica
CSAV = Compania Sud Americana de Vapores;
Source: ComPair Data, the global liner-shipping database.
2004
3/18/04 11:21:53 AM
ABK/338/OnCourse/AmerShipper
1/28/04
2:42 PM
Page 1
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LOGISTICS
Less instability
in South America?
Venezuelan imports from U.S. have collapsed, but rest
of South America does not suffer to the same degree.
BY PHILIP DAMAS
T
he port of Miami, the main hub of the
U.S./Latin America trade, has seen
South American cargo volumes lag,
when compared to volumes from Asia.
For the port’s fiscal year ended Sept. 30,
2003, “South America as a region continued
to decline ... 13.23 percent; Venezuela specifically dropped approximately 49 percent
and the outlook there is still one of concern,”
said Andria Muniz, seaport public affairs
officer at the port of Miami.
By contrast, Asia cargo volumes posted
“very strong growth figures” with an increase of about 23 percent.
Venezuelan cargoes shipped to and from
the port of Miami declined to 220,000 tons
in the port’s fiscal year ended Sept. 30. “It’s
changed drastically last year,” Muniz said.
Venezuela used to be one of the top five
countries in cargo volumes at the port of
Miami, but dropped to sixth last year.
The port said the North Coast of South
America in general is still in the recovery
phase, with Colombia the only market in
that region posting a modest gain in cargo
volumes, and that the West Coast of South
America “posted negative growth” in cargo
volumes at the port.
But Central America posted 3.17-percent
growth in the latest fiscal year, and countries
on the East Coast of South America also
generated increased volumes.
“The southern cone markets of Brazil
(up 47.58 percent), Uruguay (up 24.04
percent) and Argentina (up 8.19 percent)...
posted positive growth and that trend should
continue,” Muniz said.
Venezuelan Instability. Venezuela,
once a dynamic, oil-rich economy, has still
not recovered from its crisis of economic and
political instability begun in 2002.
U.S.-to-Venezuela cargo volume “is probably still down by 60 or 65 percent” from
its former level before the downturn, said
Rinus Schepen, senior vice president and
general manager, Latin America services
at Crowley Liner Services. “We at Crowley
12
AMERICAN SHIPPER:
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are following this very closely.”
“Venezuela continues to provide major
challenges for shippers due to ongoing economic and political instability, high unemployment and a significant loss of consumer
buying power,” said Frank Larkin, senior
vice president, Latin American services, for
Hamburg Sud North America. In January, the
Hamburg Sud carrier
name replaced those
of Columbus Lines
and Crowley American
Transport in the interAmerican trades.
Cargo volumes
from the United States
to Venezuela dropped
Larkin
about 38 percent in
2003 to 56,000 TEUs from 90,000 for 2002,
according to Hamburg Sud.
Some believe the worst is over for
Venezuela’s economy.
“Venezuela was terrible in 2003,” said
Craig Mygatt, director of Central American
and Caribbean services at Maersk Sealand.
The country is “now looking stronger,” but
Mygatt cautioned the country is beset by
other problems.
Maersk Sealand reported in early March
that a new major strike of workers has started
in Venezuela. “Basically, no one is working
now,” Mygatt said.
“The market does
appear to be showing
some early signs of recovery,” Larkin said.
“The current GDP
is showing a growth
Schepen
rate of about 7 percent
against a double-digit decline a year ago.
Vehicle sales are starting to recover, and
there is hope that a roughly 20-percent devaluation of the Bolivar may help stimulate
exports,” he added.
However, currency controls in Venezuela,
designed to control potential capital flight
from the country, “make it a very challeng-
ing environment in terms of processing
business transactions,” the Hamburg Sud
executive said.
U.S./Venezuela Impact. Hamburg
Sud has continued to provide fixed-day
weekly service to and from Venezuela, but
has rationalized its services in coordination
with service partners to reduce the number
of ships used.
Seaboard Marine, one of the largest carriers in the U.S./Venezuela trade, has seen
its operating income decline for a second
year in a row, reaching $5.8 million last year
as compared to $16.6 million in 2002. This
was largely due to the unstable political and
economic situation of Venezuela.
“Operating income was significantly
lower in 2003 because of continuing economic disruption in Venezuela,” said H.H.
Bresky, chairman, president and chief
executive officer of Seaboard Corp., the
parent company of Seaboard Marine. “In
addition, higher fuel and charter hire costs
affected earnings.”
Seaboard Marine experienced a decrease
in average cargo rates and “a significant
decline” in volumes in the Venezuelan and
related markets, the company said. The
carrier’s average operating profit margin
declined to 1.4 percent of revenue in 2003
from 4.3 percent in 2002.
However, Seaboard Marine increased
its operating income in the fourth quarter
of 2003 compared to 2002, a change that
prompted the company to say this may be
“potentially indicating better future operating results.”
Seaboard warned, though, that the
duration and extent of reduced shipping
demand attributed to the economic contraction in Venezuela “will continue to affect
future results while shipping demand for
affected South American routes remains
depressed.”
Commercial activity in Venezuela has
not yet recovered from the general strike
that began in December 2002 and ended in
February 2003, Seaboard reported.
Port Problems. Brazilian ports are
notorious for their chronic strikes. Hamburg Sud said the region’s additional costs
include “strikes which have been sporadic
but persistent in Brazil and in Peru.”
“These have included work stoppages
by Brazilian customs officials and health
inspectors and Peruvian stevedores,” Larkin said.
Venezuelan port problems have also disrupted liner services and added costs.
In a recent report, Ocean Shipping Consultants said capacity is “likely to be most
constrained at ports in South America — on
2004
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LOGISTICS
both seaboards, but especially the Pacific
— and on North America’s Northeast and
Mexican Gulf ranges.”
Over 1995-2002, South American container port throughput increased 87 percent
to 7.69 million TEUs, according to the
report, Containerization in the Americas to
2015. The report noted the “stalling privatization” and resulting investment pressures
at ports in South America.
Argentina, Brazil Recovery. Vincent
Clerc, director of South America services at
Maersk Sealand, sees a tentative recovery of
the southbound trade from the United States
to the East Coast of South America.
He said the appreciation of the Brazilian
currency, the real, against the dollar is helping U.S. exports. This marks the start of a
reversal after the previous depreciation of
the real against the dollar.
There has been a somewhat “erratic recovery” of southbound cargo volumes over
the past three months, but it is too soon to
say whether this is the beginning of a trend,
Clerc said.
But the revival of the U.S.-to-Brazil trade
has not spread to Argentina.
“We’re still far from where we were before
the (Argentinian) crisis,” Clerc said.
Ocean carriers are facing an acute imbalance between northbound and southbound
full container volumes, with a ratio of 2-1,
Clerc said. The southbound trade “really
plummeted after Argentina went down.”
In recent years, northbound volumes
from the East Coast of South America to the
United States have continued to increase.
Larkin said the export market from Brazil
“continues very strong northbound.”
“The da Silva government has proven to be
skilled managers of the economy and there
has been robust growth,” he added.
Larkin believes the Argentina economy
is showing continued signs of slow but
steady recovery.
“Estimates are for a GDP growth this year
of over 4 percent, which is very heartening
given the tremendous problems facing the
country over the past two years, and up about
a percentage point from estimates earlier in
the year,” he said.
“Exports are starting to pick up and
equally encouraging is that imports of the
raw materials used in manufacturing are also
starting to rise as well,” Larkin added.
Clerc said Maersk Sealand has been rolling cargo over to the next sailings due to
strong traffic volumes for the past five to
six weeks. This trend occurred during the
slack period, which takes place in the first
four months of the calendar year.
“Supply and demand is going to push
rates up,” Clerc said.
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AMERICAN SHIPPER:
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Hamburg Sud, Maersk Sealand and other
carriers operate a major vessel-sharing and
slot-charter agreement in the U.S. East
Coast/East Coast of South America trade
that utilizes ships of 2,500 to 3,800 TEUs
(see table 3, page 16).
Maersk Sealand provides a dense network
of Latin American services covering all
coasts of the United States and of South and
Central America in different combinations.
Its operates direct all-water services from:
• The U.S. East Coast to all coasts of
South America and the East Coast of Central America.
• The U.S. Gulf Coast to the East and
North coasts of South America and the East
Coast of Central America.
• The U.S. West Coast to the West coasts
of South and Central America.
“We’re still far from where
we were before
the (Argentinian) crisis.”
Vincent Clerc
director of South
America services,
Maersk Sealand
The carrier also serves complementary
trades, such as the U.S. West Coast to the
East coasts of South and Central America,
by transshipment over Panama.
“Overall, the trade is highly imbalanced
although the trade for dry containers is
fairly balanced,” Clerc said of the U.S./West
Coast of South America market. “There is
some growth expected southbound, but it
is limited.”
Clerc sees more potential for growth in
the Far East/Chile trade than in the U.S./
Chile market.
Larkin said Chile’s recent signing of a
free-trade agreement with the United States
“holds good prospects for across-the-board
growth in trade volumes with North America
in the months ahead.”
Chile already has a free-trade agreement
with Canada, and recently signed a similar
agreement with the European Union.
“As with the East Coast, northbound
trade volumes from Chile and other West
Coast nations have been positive, while
southbound shipments have lagged,” Larkin said. “Redressing resulting equipment
imbalances on both coasts is a continuing
challenge and an added cost of doing business in the current economic climate.”
Vessel Routing Changes. In the trade
between the West coasts of North and South
America, several carriers had adopted a
vessel routing of Asia/West Coast of North
America/West Coast of South America/West
Coast of North America/Asia.
But while this routing was believed to
save costs for carriers, it caused compliance complications due to U.S. Bureau of
Customs and Border Protection rules on
cargo declarations, and has now become
unpopular.
In February, Hamburg Sud and Compania Chilena de Navegacion Interoceanica
(CCNI) said they would stop calling at the
port of Long Beach, Calif. on one of their
Asia/West Coast of South America services,
partly to relieve the extra-territorial regulatory burden created by the U.S. “24-hour
rule” on shippers sending cargo to non-U.S.
destinations.
Introduced in December 2002, U.S. Customs’ 24-hour rule has applied not only to
U.S.-bound containerized shipments, but
also to so-called “foreign cargo remaining
on board” while the ship calls at a U.S. port
en route to other countries.
Ships on Hamburg Sud’s and CCNI’s
“Asian Express Service,” connecting
Asia, Mexico and the West Coast of South
America, now omit calls at U.S. ports and
will thereby no longer require compliance
with the 24-hour rule.
A spokesman for Hamburg Sud called
the U.S. requirement “an extra hassle” for
Asian shippers moving cargoes to non-U.S.
destinations.
Hamburg Sud said the change of rotation
would improve transit times to Mexico and
South America, and “will also spare customers the inconvenience of the 24-hour
manifest rule.”
TMM Lines and Lykes Lines have also left
the “Ampac” transpacific and inter-Americas
space-sharing agreement in March, prompting changes to the operation of its 10-ship
service. TMM Lines and partners CCNI,
Hamburg Sud and Maruba S.C.A. have notified the U.S. Federal Maritime Commission
of the withdrawal of TMM from the Ampac
Cooperative Working Agreement.
Last October, Mitsui O.S.K. Lines said it
was expanding its coastal services covering
the East and West coasts of South America
to take advantage of expected economic
growth in the region.
MOL said it is now upgrading the frequency of its coastal service to a nine-day interval,
under a new arrangement and in cooperation
with Buenos Aires-based Maruba.
This means that the Japanese carrier can
provide intra-South America liner services
through its deepsea Asia/East Coast of South
America service and through Maruba’s
Argentine/West Coast of South America
service.
2004
3/18/04 11:22:28 AM
CX01-4041.Effcncy
3/8/04
10:36 AM
Page 1
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LOGISTICS
Table 3
Direct North American/South America services
(By port range, as of January)
Carrier/grouping and service name
North America/East Coast of South America
Hamburg Sud/Alianca/Lykes Lines/TMM Lines/Maersk Sealand/Safmarine/
CSAV/P&O Nedlloyd/APL/Evergreen - Tango
Lykes Lines/TMM Lines/Libra/APL - U.S. Gulf-ECSA
Hamburg Sud/Alianca/Lykes/TMM/Maersk/Safmarine/CSAV/P&O Nedlloyd/
APL/Evergreen - Samba
Mediterranean Shipping Co. - Argentina Express
Mediterranean Shipping Co. - Amazonia Express
P&O Nedlloyd/Alianca/Hamburg Sud - U.S.Gulf/ECSA
Hanjin/Zim/Montemar/CMA CGM - ICA
Alianca - Gulf Service
Costa Container Lines - Intramerica Service
Total North America/East Coast of South America services
North America/North Coast of South America
Hamburg Sud/Alianca/Lykes/TMM/Maersk/Safmarine/CSAV/P&O Nedlloyd/
APL/Evergreen - Samba
Mediterranean Shipping Co. - Argentina Express
Italia/Lykes Lines/TMM Lines - Med Pacific Express
CSAV/APL/CCNI/Hamburg Sud/CMA CGM - Americas Service
Dole/King Ocean - USEC/Colombia/Central America
Mediterranean Shipping Co. - U.S./WCSA
P&O Nedlloyd/Alianca/Hamburg Sud - U.S.Gulf/ECSA
Lykes Lines/TMM Lines/Italia/Crowley Liner Services/APL/Nordana/MOL/
CSAV/CCNI/Libra - GEX
Alianca - Gulf Service
Costa Container Lines - Intramerica Service
Maersk Sealand - Venezuela/Gulf
Seaboard - West Coast South America
Hamburg Sud/King Ocean/Maersk Sealand - USEC-Venezuela
SeaFreight - South Florida
Seaboard - Colombia/Panama/ Venezuela/Trindad
Seaboard - Colombia/Venezuela
Seaboard - Venezuela
Melfi Marine - Caribbean Service-CARISER
Seaboard - Caribbean Service
Frontier - South Atlantic-Colombia
Total all North America/North Coast of South America services
North America/West Coast of South America
Maersk Sealand - TA3
P&O Nedlloyd/MOL/”K” Line - LACAS/CWL
CSAV/APL/CCNI/Hamburg Sud/CMA CGM - Americas Service
Hamburg Sud/Maruba/CLAN/CCNI - AMPAC Loop 1
CSAV/NYK - Asia Andes Express Service-ANDEX
Mediterranean Shipping Co. - U.S./WCSA
Hamburg Sud/Maruba/CLAN/CCNI - AMPAC Loop 2
NYK - Margarita Express-Marex
Maersk Sealand - West Coast Central America/Peru Service
Seaboard - West Coast South America
Mediterranean Shipping Co. - West Coast Mexico-WCSA
Interocean/Trinity Shipping - West Coast service
Hamburg Sud - Asia-Pacific-ASPA Loop 1 (now restructured)
Hamburg Sud - Asia-Pacific-ASPA Loop 2 (now restructured)
CCNI/Maruba/CLAN - Seaspac (now restructured)
Total all North America/West Coast of South America services
Avg. ship
capacity
(TEUs)
No. of ships Frequency
in service
(days unless
specified)
Weekly
capacity
of service
3,740
6
weekly
3,740
3,050
2,530
6
6
weekly
weekly
3,050
2,530
2,514
1,948
1,926
1,629
1,341
1,223
6
5
6
5
2
6
48
weekly
weekly
7
10
22
8
2,514
1,948
1,926
1,140
427
1,070
18,345
2,530
6
weekly
2,530
2,514
2,448
2,435
2,046
1,942
1,924
1,541
6
6
6
2
5
6
3
weekly
11
weekly
weekly
8
7
weekly
2,514
1,558
2,435
2,046
1,699
1,924
1,541
1,341
1,223
1,136
1,120
907
904
583
506
442
436
433
294
2
6
3
4
2
3
3
2
2
3
2
2
74
22
8
weekly
7
weekly
weekly
7
weekly
weekly
7
weekly
weekly
427
1,070
1,136
1,120
907
904
583
506
442
436
433
294
24,505
2,605
2,471
2,435
2,200
2,139
1,942
1,848
1,225
1,155
1,134
1,044
516
1,663
1,766
1,707
7
10
6
5
11
5
5
6
4
3
3
2
5
5
10
67
weekly
weekly
weekly
14
6
weekly
14
10
weekly
10
9
14
14
14
9
2,605
2,471
2,435
1,100
2,496
1,942
924
858
1,155
794
812
258
832
883
1,328
17,850
Notes: Some services cover several trades or coasts, or call at Caribbean ports en route. They are shown here in one or more of the subtrades of South America. The Hamburg Sud Asia-Pacific Loop 1 and Loop 2 services and the joint CCNI/Maruba/CLAN Seaspac merged
in March into the Asia Express Service, and no longer call at U.S. ports.
Abbreviations: CCNI= Compania Chilena de Navegacion Interoceanica CSAV = Compania Sud Americana de Vapores.
Source: ComPair Data, the global liner-shipping database (January issue of World Liner Supply reports).
16
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LOGISTICS
Untangling the web
Moving towards the Free Trade Agreement
of the Americas — an evolutionary approach.
BY MICHAEL BERZON
T
he nations of Latin America have
long sought to expand their manufacturing base by creating larger
markets for their goods. There are many
examples of Latin American regional trade
agreements. Some have had a good run over
the years; others have had choppy histories.
Most have prevailed and have been modified
to meet changing requirements.
The growth in regional trade agreements
and the networking between them should be
examined in light of the U.S.-sponsored Free
Trade Association of the Americas (FTAA).
A close look at the Americas today shows a
web of trade agreements totaling around 20.
Can FTAA hope to coalesce this disparate
group into one large bloc?
The need to unify, strengthen and optimize
trade in this hemisphere is compelling.
FTAA could bring the glue and discipline
to the table that would make this possible.
The reality is that FTAA might just become
a “21st trade agreement:” an overlay that
adds more confusion to the trade scene and
confirms the fears of many that it does not
pay to join forces with the proverbial 800pound gorilla.
The need for regional trade agreements
became evident in the early 1960s when
countries like Argentina, Chile and Brazil
realized their auto manufacturing operations were uneconomical. Manufacturing
standards of the time considered facilities
producing less than 1 million cars per year
to be uneconomical. Brazil, the leading
automaker, was approaching that number.
Argentina produced fewer than 100,000
units, Chile considerably less. The result
was expensive and poorly built cars. The
public bought them because import tariffs
of up to 400 percent kept foreign cars out
of reach. On the bright side, it gave rise
to a cottage industry of small auto repair
shops around the continent that could keep
a 1939 Chevrolet running forever with
custom- made parts.
It was becoming all too evident that a
country/silo approach was not the way to
create or expand the industrial base. As a result, many of the South American countries
got together to create a larger consuming
market that, it was hoped, would bring the
benefits of economies of scale to industry in
each country and raise production capacity
to cost-effective levels of production.
LATA. Representatives of the countries
met and endlessly negotiated. Progress was
slow, but the dialogue prevailed. This was
the birth of the Latin American Free Trade
Association or LAFTA in 1960.
No surprise that in the early stages of
LAFTA negotiations each country was
excessively protective of its own agenda. A
greater problem was the lack of a compromise mindset that frequently stalled negotiations. Endless negotiations over trivial items
such as nails and screws took precedence
over automobiles engines, tires and auto
body components. It was a slow start, but at
least it was a start. It set the stage for future
economic and trade cooperation.
The Central American nations had negotiated trade agreements amongst themselves
as early as 1918. In 1960 they brought their
common market into being. It had a good
run for almost 10 years. Unfortunately,
the very violent “soccer war” in July 1969
between Honduras and El Salvador scuttled
the venture. While Version 1.0 lasted, it
demonstrated that small nations, at opposite
poles of industrialization or agricultural
efficiency, could form a trade bloc and
leverage economies of scale to their collective advantage. Several years later, it was
resurrected as a successful Version 2.0.
Not all trade agreements were as successful as the Central American effort. Other
strategies, such as the Andean Pact in the
early 1970s, took economic sub-optimization to absurd depths.
The Andean Pact, created by the Treaty
of Cartagena in 1969, included nations
of the West Coast of South America plus
Colombia and Venezuela. The mechanics
were cumbersome. Countries were allocated certain industries, based on their
existing industrial specializations. Some
allocations made sense — Peru, strong in
textiles, was awarded the regional acrylic
Notable free-trade agreements in the Americas
1959
1969
Central American Common
Market (CACM)
Andean Pact
Chile, Bolivia, Peru,
Columbia, Ecuador,
Peru & Venezuela
(Chile opted out after a
few years).
Costa Rica, El Salvador,
Guatemala, Honduras
& Nicaragua – built on bilateral
treaties signed in 1918 and 1946.
Antiqua, Barbuda Barbados, Belize,
Grenada, Guyana, Jamaica, St. Kitts &
Nevis, lucia, St. Vincent & the Grenadines, Suriname, Trinidad & Tobago.
Latin American
Association for
Integration (LAIA)
Argentina, Brazil, Chile, Mexico,
Paraguay, Peru & Uraguay. Additional
members: Columbia & Ecuador (1961),
Venezuela (1966), and Bolivia (1967).
Argentina, Brazil, Bolivia,
Colombia, Chile, Ecuador,
Mexico, Paraguay, Peru,
Uruguay, Venezuela & Cuba.
AMERICAN SHIPPER:
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1980
APRIL
1991
Caribbean Community
(CARICOM)
Latin American Free Trade
Agreement (LAFTA)
1960
18
1981
Mercosur/Mercosul
Charter members: Argentina, Brazil,
Paraguay, & Uruguay; joined later
by associate members Chile and
Bolivia and recently Peru.
Program for Integration &
Cooperation between
Argentina and Brazil
(Spanish acronym PICAB)
North American Free
Trade Association
(NAFTA)
Brazil & Argentina.
Canada, Mexico and the USA.
1986
1994
2004
3/18/04 11:37:06 AM
LOGISTICS
fibers plant. Other allocations made little
sense. Ecuador, with no auto manufacturing
industry and little know-how, received the
concession to build very small cars powered
by glorified motorcycle engines. Despite
valiant marketing efforts the primitive,
golf-cart size vehicle never caught on, not
even in Ecuador.
Mercosur. The first serious try at integration in the South American “southern cone”
came about with Mercosur. The two largest
South American economies, Brazil and
Argentina, and two smaller, less developed
countries, Paraguay and Uruguay, joined
forces in the “common market of the South.”
The two large ones had overwhelming
superiority in population, gross domestic
product (GDP), manufacturing and agricultural capacity, and external trade. This was
to have been a customs union, eventually
transitioning into a common market.
Mercosur, with all its problems, acrid
disputes and warts, did bring the economies
of scale to both Brazil and Argentina that
the theorists had predicted could occur.
Argentina’s auto parts industry provided
the Brazilian automotive giant with subassemblies. Country silos started to break
down. Economic integration was a fact. The
heads of state of the two large countries
even contemplated a common currency.
The two smaller countries, Paraguay and
Uruguay benefited from the demand from
the two large neighbors.
The good times eventually came to a
screeching halt. Brazil, facing a run on its
cash reserves while trying to protect the
value of its currency, let its currency float
in the late 1990s. Argentina, with its own
currency pegged to the U.S. dollar and
highly overvalued, was suddenly priced
1995
Group of Three
Columbia, Mexico
& Venezuela.
Table 4
South America trade volumes, major partners
(In $billions FOB; 2002 unless noted)
Imports Export partners
Exports
Argentina $25.3 Brazil 23.6%, U.S., Chile,
$9.0
Spain
Brazil
$59.4* U.S. 23.8%, Argentina,
$46.2
Germany, China, Netherlands
Chile
$17.8* U.S. 19.1%, Japan, China,
$15.6
Mexico, Italy, U.K.
Uruguay
$2.1* Brazil 21%, Argentina, U.S.,
$1.9*
Germany, Italy
Paraguay
$2.0* Brazil 25.1%, Argentina,
$2.4*
Chile, Bermuda
Bolivia
$1.3* Brazil 24.3%, Switzerland, U.S., $1.6*
Venezuela, Colombia, Peru
Peru
$7.6* U.S. 28.1%, China, U.K.,
$7.3*
Switzerland, Japan
Ecuador
$4.9*
Colombia
$12.9*
Venezuela $28.6**
*2002 estimated.
U.S. 39%, Colombia, South
Korea, Germany, Italy
U.S. 44.8%, Venezuela,
Ecuador
U.S. 53.4%, Netherlands,
Antilles, Canada
Source: CIA-The World Factbook.
out of Brazilian markets. Worse, the trade
balance between the two neighbors turned
highly negative against Argentina, as
cheaper Brazilian goods poured in. Mercosur shuddered but held.
A second shock came about in late 2001
when Argentina found itself in a major
financial crisis, which eventually resulted
in the largest sovereign nation debt default
in history. The country abandoned its U.S.
dollar parity and the currency devalued
sharply. However, despite a severe recession
and crippling unemployment, exports to
Brazil eventually started to rise. Over time
1998
2001
CARICOM & the
Dominican Republic
CARICOM countries and the
Dominican Republic.
the remaining plants were able to compete
again, thanks to a devalued Argentine Peso.
Two years after the Argentine debacle, trade
between the two countries is strengthening.
Mercosur is still alive and working to the
advantage of its four charter members.
Mercosur has also expanded. Bolivia
joined as an associate member, followed
by Chile, several years later. In 2003 Peru
signed on as an associate. Mercosur and the
Andean Community of Nations (Version
2.0 of the Andean Pact) have signed a trade
agreement that takes effect in July.
So how does all this fit into an FTAA
2003
Chile and the European
Community
Central America,
Mexico & Belize
Three agreements: El Salvador,
Guatemala; Costa Rica; Nicaragua.
Andean Community
Central America
& Chile
Honduras, Guatemala, Nicaragua
& Dominican Republic.
Bolivia, Peru, Colombia,
Ecuador, Peru
& Venezuela.
Chile, Costa Rica,
El Salvador, Honduras,
Guatemala, Nicaragua.
Association
of Caribbean States
1999
U.S. 23.3%, Argentina,
Germany, France
Argentina 18%, U.S., Brazil,
China, Germany
Argentina 25.6%, Brazil, U.S.,
Venezuela
Brazil 32.7%, Argentina, U.S.,
Hong Kong
Brazil 22%, Argentina, U.S.,
Chile, Japan, Peru, China
U.S. 26.1%, Chile, Spain,
Colombia, Brazil, Venezuela
Argentina
$6.0* U.S. 28.6%, Colombia, Japan,
Chile, Brazil
$12.5* U.S. 32.6%, Venezuela, Mexico,
Japan, Brazil, Germany
$18.8** U.S. 27.5%, Colombia, Brazil,
Mexico
**2001
Central America
& Dominican Republic
1997
Import partners
Brazil 42%, U.S., Germany
Formed the Greater Caribbean
Cooperation Sphere
Mexico–European Union
Central America
& Panama
Honduras,Guatemala, Nicaragua
& Panama
U.S.–Central America
Free Trade Agreement
(US–CAFTA)
Costa Rica–Canada
Costa Rica is now included.
2002
2004
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LOGISTICS
framework? The response, based on negotiations to date is: slowly and with great
difficulty. The Buenos Aires Herald in an
Oct. 22 story talked of a tough Brazilian
negotiating position, and mentioned the
U.S. response of building “an Americaswide free-trade agreement with or without
Brazil.” Brazilian Agriculture Minister
Roberto Rodriguez retorted “an FTAA
without Brazil isn’t an FTAA; it’s a second-rate FTAA.” These polarized positions
cast a shadow over the talks unsuccessfully
concluded Feb. 6 in Puebla, Mexico.
‘Disparate.’ The term “disparate economies” does not come close to characterizing
the vast economic (and social) differences
between the nations of the Americas. Therein lies the major problem. It is not about
the small countries in the hemisphere that
can’t compete with the big ones. Chile and
Costa Rica are economically healthy. Both
compete successfully in North American
markets against their bigger neighbors.
Argentina and Brazil are both struggling to
get ahead. Brazil has a large external debt.
Argentina defaulted on its external debt and
is feeling the wrath of stunned creditors who
have been offered pennies on the dollar.
Venezuela is languishing. In contrast, the
differences between the NAFTA countries,
including Mexico, are minimal.
A Feb. 6 Washington Post story discussed
the impasse reached at the recent talks on
FTAA in Puebla. “The Mercosur bloc of
nations, led by Brazil and Argentina, wants
a total opening of markets to agricultural
and other products, while the United States,
Canada and other countries seek exclusions.” It continues with comments from
Deputy U.S. Trade Representative Peter
Allgeier, a co-chairman of the meeting.
“There will have to be some modification
of positions, recalibration of the content
and the level of ambition.” As a result it is
doubtful that the Jan. 1, 2005 launch date
of FTAA will be met.”
The Feb. 7 Economist discusses the pros
and cons of FTAA. It explains that a country
like Brazil, which amongst other things is
one of the top producers of regional jet aircraft, cannot depend on its regional markets
to grow itself out of its current economic
problems. Brazil has to export regional jets
to NAFTA, the EU and China. Perhaps, it
goes on to say, Brazilian President Lula da
Silva, will have to reconsider his confrontational stand on FTAA and accept the fact
that it is trade with the developed countries
that “could allow Brazil to increase its exports by 20 percent a year, cutting in half
its debt payments to exports … ”
An alternative path forward is to continue
expanding the spider web network of trade
20
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Table 5
South America transportation infrastructure
(In kilometers)
Rail network
Argentina 34,463 (168 electrified)
Brazil
31,543 (1,981 electrified)
4 gauges, mainly narrow
Chile
6,585 (evenly split
broad & narrow)
Uruguay
2,073 (standard gauge)
Highway network
Waterways
215,471 total; 63,348 paved 10,950
1,724,929 total; 94,871 paved 50,000
Paraguay
Bolivia
Peru
Ecuador
Colombia
29,500 total; 14,986 paved
53,790 total; 3,496 paved
110,000 total; 26,000 paved
441 km (standard gauge)
3,519 (narrow gauge)
1,829 (standard gauge)
966 (mainly narrow gauge)
3,304 (mainly narrow
gauge)
Venezuela 682 (standard gauge)
79,814 total; 15,484 paved
725
1,600 (used by coastal,
shallow-draft river craft)
3,100
10,000
8,808
1,500
18,140 (navigable by
river boats)
7,100
96,155 total; 32,308 paved
Source: CIA-The World Factbook.
agreements and agreements between agreements. On Jan. 19, the Buenos Aires Herald
said Argentina and Brazil would hold talks
at the Puebla FTAA meeting “to discuss
common strategies to be pursued by the two
leading members of the Mercosur bloc”
Argentina’s economy, while out of intensive care, is still critical. No great potential
here for either country.
The same article notes that the Argentine
International Economic Affairs Secretary
Martin Redrado and Brazilian deputy Foreign Minister Samuel Pinheiro Guimares
“also discussed negotiations between the
Mercosur trade bloc and the European
Union, as well as progress achieved in
negotiations to sign a free-trade agreement
with India.” On a sour but realistic note, The
Economist story states, ”India is one of the
world’s most protected economies.”
U.S., Canada Support. These arguments point to the need for an FTAA with
strong U.S. and Canadian support. However,
while it may be true that India is protectionist, we must remember that the United
States unilaterally imposed tariffs on steel
largely as a political move to appease the
voters in several “steel” states. While they
were in force, Brazil and Argentina, two
countries that had been exporting steel
to the United States, took a big hit. The
European Union took a similar position
with the so-called dollar bananas in the
1990s, giving preference to bananas grown
in former colonies of EU members. Both
Colombia and Ecuador suffered economic
loss as result of that action.
The U.S. president affects foreign trade
with political decisions. So does the Brazilian president when he challenges the United
States on its trade positions. The message
has not only to play well in Peoria. It must
also play well in Paulinia. Given the election
year, will Washington State be wooed with
new tariffs on Brazilian regional jets?
On the bright side, digging through myriad pan-American trade agreements, there is
one interesting development that took place
at the White House in September 2001. The
Mercosur foreign ministers gathered in the
Rose Garden to sign an agreement with
the United States, setting up a Council for
Trade and Investments, and putting in place
work groups for commerce, investment and
electronic transactions. A small step but a
positive development nonetheless.
Perhaps FTAA is akin to applying a forced
approach. After all, the existing process,
in its own way, at its own speed continues
to drive trade integration forward. Such
an approach may seem clumsy and out of
step with the fast-moving pace on the 21st
Century. Pan-American trade integration
is moving forward (see timeline, pages
18-19).
It also demonstrates that trade agreements between the North America Free
Trade Agreement and many southern
neighbors are already up and running. We
might well end up with an FTAA, however
it will most likely not be from a negotiated
template, but from a natural outgrowth of
today’s expanding network, driven forward
by economic reality and necessity.
Michael B. Berzon, a frequent contributor to American Shipper since March 1994,
retired from DuPont after 27 years to form
Mar-Log Inc. His venture provides supply
chain and logistics
outsourcing consulting services. He can
be reached at P.O. Box
480, North East, Md.
21901, telephone (410)
287-7437, or e-mail,
[email protected].
2004
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12/3/03
5:34 PM
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LOGISTICS
South American trade infrastructure
Countries aim to improve the road to market.
BY MICHAEL BERZON
S
outh America has always had the ability to spring surprises,
usually unwelcome ones. Even those engaged in trade with
one or more of its countries over the years have a hard time
trying to figure out the dynamics of the region. Some try to understand it by lumping it all together into one United States of South
America. The truth is, there is no one model that can consistently
apply to any one country, let alone all. It is a highly diverse region.
In addition to French Guiana, Guyana and Suriname there are 10
sovereign nations. Together, their roughly 400 million inhabitants
speak five languages and at least two major indigenous dialects. Yet
credit is due: for all their differences they have been able to come
together in two basic trade agreements, which are now planning
to link up in 2004 (See related story, page 18-20).
Brazil privatizes Santos and reaps cost benefits
Brazil has the largest economy by far in the region, producing
and selling everything from soybeans to regional jets to the United
States, the European Union and China. It enjoys significant foreign
investment, particularly in auto manufacturing. Brazilian business
people are bright and aggressive and justly proud of their achievements. Today, however, their economy is in slow growth mode.
Their exports, once a source of great pride, are now clawing back
up after a slump. Their external debt is crushing. Some might think
there is no way out, but to the Brazilians this is just another cycle
and a reason for optimism.
The port of Santos in the 1980s was the perennial basket case.
It was state-run, equipment was poorly maintained, productivity
was abysmal, costs astronomical and labor strife rampant. Not
without difficulty, major changes have since occurred. Between
1993 and 2004 the terminals were privatized, and most of what
was wrong, from bureaucratic red tape to sheer ineptitude, was
fixed. Terminals, access roads and transportation services were
modernized. Equipment was replaced and properly maintained.
The result was a sharp increase in efficiency and a corresponding
drop in prices. Ten years ago the Santos handled 450,000 containers. Today it handles 1 million.
The formula is simple: private investment, largely European,
is improving the terminals. Meanwhile the government keeps the
channels dredged. Eight years ago no one would have dared dream
of the changes in place today. In addition, the main highway to Sao
Paulo was expanded to handle twice the traffic. Many other roads
have been privatized and improved. The result is that in 10 years
the cost of moving a 40-foot container from the port of Santos to
Sao Paulo has dropped by a factor of five.
Other Brazilian ports are expanding and modernizing using the
same formula. Brazil’s economy is growing but mainly outside of
Sao Paulo Sate, once the traditional center of economic activity.
Consequently ports like Rio Grande do Sul and Sao Francisco do
Sul are expanding their container terminals, as well as bulk and
cold storage capacity, to handle growth from the southern states,
such as Santa Catarina and Rio Grande do Sul. Brazil’s economic
expansion is also heading to the country’s Northeast to states such
as Pernambuco and Ceara. The growing textile industry in Ceara
has required the transformation of Pecem, once a fishing port,
22
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into a modern container port. Further south, Sepetiba, a recently
developed port located between Rio de Janeiro and Santos, is often
touted as the future regional megaport.
Containers are moved inland largely (about 95 percent) by truck.
Although the privatized railroads have invested in infrastructure
and equipment, their focus has been on agricultural commodities.
The reason is simple: there is more money in hauling soybeans.
They travel 1,200 miles from the interior to port, while containers
average 75 miles. However, rail will eventually realize the benefit
of picking up premium container traffic looking to bypass highway
congestion.
Incompatible railroad gauges a cross-border barrier
Railroads carry little cargo across borders. For instance, commercial traffic between Argentina and Brazil travels mainly by road.
Rail would seem make more sense, given the long distances and
relatively flat countryside between Buenos Aires and Sao Paulo.
However, incompatible rail gauges kill that notion, despite valiant
attempts at the border to transfer cargo and containers.
Ocean transportation is not always the answer either. A truck
can travel from the petrochemical complex in Campana, some 50
miles north of Buenos Aires, to Sao Paulo in four to five days.
The same truck is back for a second load before an ocean shipment from Buenos Aires has even reached the port of Santos. In
contrast, destinations north of Sao Paulo are better suited to ocean
transportation.
Argentina privatized the Port of Buenos Aires in the 1990s.
Terminals were improved, but access to this city port can still be a
problem. Truck is the mode of preference, although the privatized
railroads have been keen to capture long-haul container traffic. A
major problem with the rails is the single hub (Buenos Aires) and
spoke system, something like having to fly through Atlanta. The
rail system works relatively well for the agricultural market it was
designed for in the mid 19th century, but is not suited to today’s
industrial centers in the interior of the country.
Chile, Argentina plan trans-Andean connections
Argentina’s growing trade with Chile needs an alternative to the
long, treacherous water route through the Magellan Straits. Road
connections have problems too: snowdrifts often block the transAndean highway routes in winter. Improved access is even more
of an issue given the volume of cargo shipped across Argentina
between Chile, Brazil, Uruguay and Paraguay. In 1999 there were
90,000 truck movements across the Andes accounting for some
2.5 million metric tons. This volume is rapidly increasing, thanks
to increasing trade between the Mercosur regional trade agreement
partners. Plans are in place to double the trans-Andean highway
capacity between the Argentine city of Mendoza, and the Chilean
port of Valparaiso. An upgraded rail link costing some $120 million is planned for 2006. Capacity will more than double from
500 equivalent truck units per day to more than 1,000. Rail gauge
compatibility helps.
Chile’s two main container/general cargo ports, Valparaiso and
San Antonio, provide good access to the capital city of Santiago.
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3/18/04 11:24:14 AM
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LOGISTICS
Ports to the north serve the mining industry. Others serve the
fishing industry.
among others, are subject to landslides and washouts. Security is
a problem. Container hijacking is not unusual.
Chile, Bolivia in century-old ocean access feud
Read the Chilean and Bolivian newspapers and you will find
top billing given to an issue resulting from a war fought some 140
years ago between Chile and Peru, together with Bolivia. Bolivia
lost its ocean access although a 1904 treaty that granted it use of
Northern Chilean ports such as Arica. Bolivians are still smarting
over its lack of a sovereign port.
Adding to its woes, Bolivia’s rugged topography greatly hinders
the movement of goods within and beyond its borders. Brazil and
Paraguay offer two alternatives: road for local traffic between the
countries and ocean for international movements. Another, though
costly, alternative is be to build a canal from Bolivia, using one
of two Northern Argentine rivers, to the Parana River. The Parana
would then be navigable down to the River Plate and on to the Atlantic. There is a precedent: grain exports from southern Bolivia’s
rich agricultural area are barged from the inland port of Quijarro
to the Paraguay-Parana river system down to the Argentine grain
port of Rosario for shipment overseas.
Venezuela: Good ports, highways but trade plummets
To the East, Venezuela continues to suffer through bad economic
times. Even the petroleum industry, once the country’s source of
unending bounty, has also fallen off. Puerto Cabello, close to the
industrial centers of Valencia and Maracay, is the primary container
port. The port of La Guaira is closer to the capital and industrial
center Caracas. However, both ports are connected to the capital
and other coastal industrial centers by world-class highways. Truck
transportation is efficient although traffic congestion in Caracas
can cause lengthy delivery delays. Venezuela’s population is
largely centered along its northern coast, mainly between Caracas
and Maracaibo, the petroleum center. The interior, in contrast, is
sparsely populated. Puerto Ordaz, on the Orinoco River, handles
heavy equipment for mining projects and tar sands hydrocarbon
extraction in the country’s interior.
Peru, Ecuador rely heavily on trucks to haul freight
Peru’s principal port is Callao, located in the country’s industrial
heartland close to the capital of Lima. Truck is the predominant
mode of inland transportation, as the rail system is in poor shape
and not very extensive. Despite the shortage of paved roads, trucks
can usually deliver the goods. The Pan American Highway is the
major north/south artery for trade and travel. The port of Paita, to
the north, offers some commercial overseas services as does Ilo to
the south. Not to be ignored is the Amazon River port of Iquitos,
on Peru’s Eastern Andean slope and a scant 2,000 miles from the
Atlantic Ocean. Passengers and small items only, please.
Continuing up the coast, Ecuador’s largest port, Guayaquil,
handled 62 percent of the country’s 2003 maritime trade, and
Puerto Bolivar, to its south, handled 18 percent. Both are operating
beyond rated capacity. To alleviate the problem two new private
terminals are under consideration for Guayaquil. Another alternative is a new terminal at nearby Posorja. Capacity is still available
at the smaller port of Esmeraldas in the north and Manta, half way
down the coast.
Pickup and delivery of cargo still requires a long trek up the
mountains from the coast to the industrial and consuming centers
such as Quito and Cuenca. Roads have improved, but are still
hazardous. Lack of guardrails and frequent washouts make each
trip an adventure. The proliferation of small chapels along these
routes attests to the need for divine faith as well as human skill in
negotiating these roads.
Colombia’s 2-coast port system serves country well
Further up the Pacific Coast, lies Colombia’s port of Buenaventura.
Together with the Caribbean port of Cartagena, it handles the majority
of the cargo flowing in and out of the country. Buenaventura lies in
the valley of the Cauca River, not far from the important city of Cali.
Cartagena, and its sister Caribbean port Barranquilla, traditionally
handle well over half of Colombia’s container volume. Buenaventura handles the balance. Colombia’s primary export, coffee, ships
through the ports on both coasts. Again, truck is the favored mode
of transportation over Colombia’s rugged terrain. Roads between the
Caribbean ports and the industrial centers of Medellin and Bogota,
Unsung waterways cover the continent
Stepping back for a broader view, the South American continent
has an extensive network of navigable waterways. There are 12 major
transnational systems, mainly along existing rivers. Expanded use
of these networks has slowed due to ecological concerns. However
they do play an important part in daily transportation. The different
modes of transportation shows the extent of this natural distribution
system (see table 5, page 20). These water links could be an answer
to traffic congestion at some future point when investment funds
for their greater, ecologically correct, development is available.
Roads are the first and last leg for trade
Many miles of roads across the continent are still unpaved. In
some cases funds for road repairs are insufficient to keep up with
required maintenance. This means some countries are losing paved
road miles each year.
Shrunken, privatized rail systems deliver the goods
With few exceptions, the rail freight systems are not very effective. The rail link improvement, slated for 2006 across the Andes, is
a bright spot, as is the private investment in the Brazilian railroads.
Years of misguided, government railroad ownership has left rail
infrastructure across the continent in shambles. Privatization has
brought rail routes that make commercial sense back to life. Older,
scenic lines, like the “train in the clouds” in Argentina’s Northwest,
have been kept running. This one offers spectacular mountain views
to tourists who are adventurous enough to carry an oxygen bottle
with them to enjoy the thrilling sights in the thin air.
Asian markets promise export-driven growth
Countries like Argentina and Brazil, which traditionally traded
small volumes with Asia, are now exporting major volumes of
agricultural and manufactured products. China is now one of
Brazil’s top export markets. Both counties are using exports to
grow their respective economies. The Pacific Coast countries,
players in Asia over the years, have also increased their trade with
China and South Korea.
The promise of trade will continue to drive the infrastructure
improvements needed to sustain reliable, commercial links. The
checkered history of this continent does not necessarily have to
predetermine its future.
Subscribe online at www.americanshipper.com
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LOGISTICS
Ridding exotic fruits of bugs
Irradiation treatment promises to boost U.S.
imports of Brazilian papayas and mangoes.
BY CHRIS GILLIS
B
razilian papayas are not first on most
North Americans’ list of favorite
fruits, but with increased migration
of Latin Americans to the north this fruit is
becoming more prominently displayed on
grocer shelves.
Brazil is the world’s largest producer of
papayas. The problem is that the fruit is a
magnet for pests and, once treated to U.S.
Department of Agriculture specifications,
often risks high rates of spoilage while en
route to U.S. markets.
George Karski, president of Concord,
N.H.-based SecureFoods, believes the
answer to winning a
place for Brazilian
papayas in U.S. fruit
bowls, and improving
its transport overseas,
is to use irradiation
treatment technology.
His company, a subsidiary of gold mining
Karski
and energy investment
firm Brazilian Resources, is prepared to
spend millions of dollars to build and operate
irradiation equipment for Brazil’s papaya
export industry.
Brazil’s papayas are traditionally treated
for fruit flies with hot water dips. The treatments, while generally successful, degrade
the fruit’s potential shelf life. Cheaper ocean
transport is out of the picture for most Brazilian papaya exporters, who must use costly
air transport to ship to U.S. markets.
According to Karski, Brazilian papayas
that do arrive in the United States in sellable
condition still get shortchanged. “The fruit
is picked long before it ripens and tastes like
cardboard,” he said in a recent interview.
26
AMERICAN SHIPPER:
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APRIL
Irradiation treatment facilities placed close
to growing areas will allow Brazilian papaya
farmers to pick the fruit closer to its peak of
taste, Karski said. Irradiation kills harmful
bacteria and embedded insects, without
changing the overall quality of the fruit.
More importantly, it slows ripening to
allow Brazil’s papaya exporters to take
advantage of ocean transport. “The only
loser from irradiation treatments will be
the airline industry,” Karski said.
The average cost to fly a 10-pound carton of papayas from Brazil to the United
States is about $9, compared to $1 per case
for ocean transport. The fruit is generally
Produce pests
Fruit flies and seed weevils in imported
fruits and vegetables approved by USDA
for irradiation treatments
1.) Oriental fruit fly
2.) Mediterranean fruit fly
3.) Melon fly
4.) South American fruit fly
5.) Caribbean fruit fly
6.) Mexican fruit fly
7.) West Indian fruit fly
8.) Sapote fruit fly
9.) Queensland fruit fly
10.) Bactrocera jarvisi (no common name)
11.) Malaysian fruit fly
12.) Mango seed weevil
13.) Sweet potato stem borer
14.) Sweet potato vine borer
USDA’s Animal and Plant Health Inspection
Service will not accept irradiated commodities as a quarantine treatment for
other countries until framework equivalency
agreements are signed between the agency
and its overseas counterparts.
sold to wholesalers who command a 10 to
15 percent commission from retailers. If
ocean transport is used, the fruit could be
sold at U.S. retail for about 90 cents per
papaya, compared to more than $1.50 with
air transport, Karski explained.
Ultimately, SecureFoods will use irradiation to treat a variety of Brazilian fruits, such
as mangoes, for export to North America
and Europe. It’s estimated that Brazil ships
abroad more than $160 million in tropical
fruits a year.
The Brazilian agricultural authorities
support SecureFoods’ irradiation treatment
initiative, but the program still requires
bilateral approval from USDA’s Animal
and Plant Health Inspection Service, which
Karski believes will happen soon.
Once SecureFoods gets its USDA approval, it will install four food irradiators
in Bahia in Northeast Brazil. The region’s
papaya production outstrips its domestic
consumption. “Fruit is often discarded, or
left rotting in the fields,” Karski said.
SecureFoods’ first irradiator will be
located in Eunapolis, Bahia, near the port
of Ilheus. The second unit will be installed
at Salvador, a large port and the capital of
Bahia. Fortaleza, Ceara, and Recife, Pernambuco, both of which are large papaya
export areas, will be the sites for the two
other units, Karski said.
Irradiation technologies have been used
for more than 40 years to sterilize medical,
personal hygiene products and food packaging. In recent years, the meat industry has
used irradiation to kill harmful bacteria,
such as E. coli, salmonella, listeria, campylobacter and vibrio, in beef and poultry.
Exposure to these bacteria contributes to 76
million food borne illness and about 5,000
deaths a year in the United States alone.
About 40 countries have approved irradiation treatments for about 40 food products.
The International Consultative Group on
Irradiation estimates that irradiation is used
to treat about a billion pounds of food products and ingredients a year. In the United
States, about 80 million pounds of spices
are irradiated annually.
Numerous health organizations and
government agencies, such as the American
Medical Association, American Dietetic Association, U.S. Center for Disease Control
and Prevention, U.S. Food and Drug Administration, and World Health Organization,
approve irradiation as a safe way to treat
food products.
In 2002, USDA approved irradiation
treatment for certain imported fruits and
vegetables against 11 types of fruit flies
and the mango seed weevil. However, the
technology’s use for this purpose has been
minimal. USDA allows irradiation treat-
2004
3/18/04 11:24:48 AM
LOGISTICS
ments for interstate movements of certain said Inder “Paul” Gadh, import specialist which is the case in meat and produce
exotic fruits and sweet potatoes from Hawaii with USDA’s APHIS. “This technology has a packinghouses, Marulli said.
to the U.S. mainland.
lot of potential for use not just in the United
There are three types of irradiation technoloInterest in the technology has increased States but in many countries.”
gies used for phytosanitary purposes: electron
in recent years with common-use fumigaFrom an operational perspective, it will beams, X-rays and gamma rays. While each
tions and chemical treatments coming under be difficult for irradiation to completely technology operates a little differently, the
increasing fire for their negative environ- replace methyl bromide.
amount of radiation used is minimal.
mental and public health effects.
“Irradiation is not a very good alternative
There are four major builders of irradiaMethyl bromide is one of the most widely for many methyl bromide fumigators,” said tion equipment: Gray*Star, MDS Nordion,
used fumigants for phytosanitary purposes in Al Marulli, a former USDA official and Reviss Services and IBA. SureBeam Corp.,
the United States and around the world. The proprietor of Agricultural Trade Services, another manufacturer, filed for bankruptcy
fumigant, unlike others, penetrates produce based in Chicopee, Mass. “Not to say it earlier this year.
completely without altering its appearance can’t be done, but they will have to figure
Irradiation units are generally sold to
or taste. However, some scientists and out how to make money from it.”
companies involved in product treatment
environmental groups have pegged methyl
Fumigators have the benefit of mobility, activities. Belgium-based IBA’s Guardion
bromide a major contributor to the earth’s whereas irradiation units are stationary and subsidiary is heavily involved in the treatozone depletion, especially when it’s used are most cost effective when they’re located ment of spices. Steris Corp. operates 16 large
for large-scale soil treatments.
close to a constant flowing product source, irradiators around the country for sterilizing
In 1992, the 183 parties to the
medical devices. Food Tech SerMontreal Protocol, including the
vices in Florida uses a Nordion
United States, added methyl brounit to treat meat products. EarWASHINGTON
mide to the list of ozone-depleting
lier this year, CFC Logistics, a
The U.S. Department of Agriculture’s Animal and Plant
substances, and production was
division of the Clemens Family
Health Inspection Service wants Hawaiian sweet potato
frozen in 1995 to 1991 levels.
Corp., installed a Gray*Star unit
growers to consider using irradiation treatments for their U.S.
When the parties met again in
in its 150,000-square-foot cold
mainland-bound shipments.
1995, they agreed to completely
storage facility to irradiate meat
The agency believes irradiation is a safe and effective treatphase out the gas among industrial
products.
ment against sweet potato pests. Hawaiian sweet potatoes are
countries by 2010.
After much evaluation, Foodgenerally treated with methyl bromide fumigation.
In 1997, the Montreal Protocol
Secure decided to pick Gray*Star
USDA rules require sweet potatoes grown in Hawaii, Puerto
accelerated methyl bromide’s
units for its Brazilian venture.
Rico and the U.S. Virgin Islands to be treated against stem and
phase-out for industrial countries
Unlike X-ray and electron beam
vine borers before they’re transported to the U.S. mainland.
to 2005. Starting in 1999, the use of
technologies, which require
Since 1996, USDA has become increasingly open to the
the gas was reduced by 25 percent
enormous amounts of electricuse of irradiation treatments for phytosanitary purposes and
and by 50 percent in 2001. By Januity and aboveground shielding,
as a replacement to methyl bromide fumigation.
ary 2003, methyl bromide’s use was
Gray*Star’s Cobalt-60 Genesis
Unlike Puerto Rico and the U.S. Virgin Islands, Hawaii’s
cut by 70 percent. Methyl bromide
irradiator is compactly built below
sweet potato producers have access to an irradiator at Honolulu,
use in developing countries will
floor level. The units, which have
which is operated by Hawaiian Pride.
end by 2015.
an operational footprint of about
Sweet potatoes are grown on the islands of Hawaii, Kauai,
For quarantine purposes, the
1,600 square feet, are specifically
Maui and Oahu. Shipments are consolidated at the Port of Hilo,
United States and other industrialdesigned to treat food, said Martin
and then transported by barge to Honolulu at a cost of 2 to 3
ized countries will allow approved
H. Stein, Gray*Star’s chief execucents per pound. A pallet of sweet potatoes weighs about 1,500
agricultural products shippers to
tive officer.
pounds, so the charge is about $35 per pallet for non-chilled
continue using methyl bromide.
Electron beams, while good
shipment. Trucking and handling charges to move sweet potatoes
Even for those shippers alfor some sterilization and manufrom the pier to the Honolulu methyl bromide fumigation site
lowed to continue using methyl
facturing processes, can usually
and back to the pier or airport costs about $34 per pallet.
bromide, the cost of the treatments
penetrate produce no more than
According to the USDA, the per-unit cost of methyl bromide
is expected to increase. Before
one inch. Gray*Star’s Genesis
fumigation is about $610 for one to six pallets, with some volume
1999, methyl bromide treatments
machines use gamma rays to pendiscounts. The U.S. phase-out of methyl bromide fumigation
for cherry exports were generally
etrate food products and take nine
for purposes other then quarantine will increase this treatment’s
$1.25 per pound. Today, methyl
minutes from start to finish to treat
cost four-fold to at least $4.50 per pound by 2005.
bromide fumigations exceed $5
a ton of product, Stein said.
It costs about 15 cents per pound to treat produce by irradiaper pound for this commodity.
Gray*Star’s Genesis units cost
tion, but the cost to treat one to two pallets of sweet potatoes
Shippers and treatment providabout $2 million apiece and, if
is cheaper than methyl bromide fumigation because of volume
ers are considering alternative
all the government permits are
discounts and the elimination of certain transportation costs,
treatments to methyl bromide.
together, can be installed in less
USDA said. USDA also has on-site inspectors to oversee the
USDA, which has spent more
than six weeks, Stein said.
irradiation treatment process.
than $146 million in research and
A big problem with implementHawaii began to use its irradiator in August 2000, and treats
outreach related to the developing irradiation facilities is the
500 to 1,000 boxes of papayas a day, four times a week.
ment of treatment alternatives, has
political obstacle related to public
Hawaiian farmers are encouraged to grow other crops to
become a proponent of irradiation
fear of radioactivity. “Irradiation
replace the state’s falling sugar cane production. Sweet potatoes
technology.
comes with a lot of baggage,”
are grown year around in Hawaii. About 50,000 to 60,000
“To me it provides a much safer
he said.
pounds a week are shipped from the state.
environment than methyl bromide
The Food Irradiation Processand other chemical treatments,”
ing Alliance attempts to eliminate
Irradiating Hawaiian sweet potatoes
28
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APRIL
2004
3/18/04 11:25:14 AM
LOGISTICS
concerns about irradiation’s use to treat meats,
fruits and vegetables.
“There is no process as flexible, as thorough
and as simple as irradiation for reducing the
microbial contamination on food,” the alliance
said. “High pressure processing and other
emerging technologies may eventually have
some use, but none are as easily implemented
or as universally applicable as irradiation.”
The alliance defends the safety record of
irradiation. “Many hundreds of published
research studies tried to identify problems
from eating irradiated foods, but failed to
disclose any long-term health risks,” the
alliance said. Meats treated by irradiation
are labeled for consumer awareness.
Yet, the industry still fights to defend its
public image. Anti-irradiation groups, such as
Public Citizen, Clean Water Action Alliance,
Community Nutrition Institute, Government
Accountability Project, Institute for Agriculture and Trade Policy and the Organic Consumers Association, claim these treatments
substantially reduce key vitamins in food.
Stein said it also doesn’t help the food
irradiation industry that SureBeam has
gone bust. With the exception of a machine
operated by Hawaiian Pride, SureBeam shut
down its electron beam units in Sioux City,
S.D.; Chicago and San Diego, Calif., leaving
many meat producers and retailers scram-
bling to find other irradiation treatment
sources. SureBeam management blamed
the company’s collapse on lack of sufficient
market, but soon after its bankruptcy filing
accounting irregularities became evident.
“SureBeam’s actions hurt our industry very
badly,” Stein said. “Every once in a while this
industry gets raided by companies that make
claims they can’t conceivably meet.”
Another lingering problem is the drawnout regulatory process to approve irradiation
treatments for imported foods. USDA’s
APHIS does not accept irradiated commodities as a quarantine treatment for foreign
countries until a “framework equivalency
agreement” is signed between the agency
and the overseas plant protection agency.
Recent illnesses linked to bacteria on imported fruits and vegetables have left many people
concerned about the effectiveness of currently
prescribed pre-shipment treatments.
A 1999 salmonella outbreak in the United
States was linked to Brazilian mangoes,
which according to import records were
treated by hot water dip to kill Mediterranean
fruit flies. The U.S. Center for Disease Control
and Prevention (CDC) traced the shipment
back to a single farm in Brazil. Investigators
found that the dip tanks on the farm were
“unclosed, and toads, birds, and droppings
of bird feces were noted in or near the tanks.”
CDC also found that dipping mangoes too
quickly between hot and cool water tanks
causes the fruit to contract, encouraging
pathogens to enter through the skin.
The USDA responded to this case by
recommending that mango exporters
adequately filter and chlorinate their dip
tank water. The agency also asked these
exporters to wait 30 minutes between the
hot and cool water dips.
Some industry experts believe hot water
dip treatments should be replaced by new
technology such as irradiation. “Hot water
treatment has proven to be untrustworthy,”
Karski said.
In December, the Mexican Association of
Mango Exporters and Phytosan S.A. de C.V.
said it plans to build an irradiation facility
near the port city of Mazatian. Construction
of the facility is scheduled to begin in May
and should be fully operational for the mango
season, starting in March 2005. The association plans to build another irradiation unit at
the Reynosa, Tamaullpas/McAllen, Texas
border crossing. The association believes hot
water dipping in Mexico could be eliminated
within the next seven years.
The Philippines, another mango exporter,
reported plans last year to install irradiation
units to treat for fruit flies and increase its
world market share.
■
06_29AS04.indd 29
2004 29
3/18/04 11:25:29 AM
Meat shippers seek
modern tracking
technology for global
marketplace.
BY CHRIS GILLIS
T
hese days when a cow gets sick the entire meat industry goes to the infirmary.
This was certainly the case for American meat
shippers when the U.S. government acknowledged Dec. 23
that a single cow tested positive for brain-wasting bovine
spongiform encepthalopathy, better known as “mad cow”
disease. Within hours of the announcement, Japan, Mexico,
and other high-value markets banned imports of U.S. beef.
30
AMERICAN SHIPPER:
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APRIL
American meat shippers suffered another
big setback a month later with the discovery
of avian flu on several poultry farms in
Delaware and Texas. Global bans went up
on U.S. poultry shipments.
Other countries’ agricultural sectors, such
as Canadian and British beef, suffered economically from disease outbreaks, and have
spent years trying to re-establish consumer
confidence in their products domestically
and abroad.
While livestock diseases will continue
sending ripples through the marketplace,
more meat shippers and technologists
believe that better supply chain tracking
systems on a global level will help agri-
2004
3/18/04 12:00:26 PM
cultural authorities pinpoint sick animals,
avoid wholesale destruction of herds and
flocks, improve food safety, and help avoid
wide-scale import bans.
Philip Wolfstein, past chairman of the
U.S. Meat Export Federation and managing director for PM Global Foods in Los
Angeles, believes the mad cow case will
have a “silver lining” for the meat industry
in terms of promoting a nationwide animal
tracking technology. “People are going to
expect us to trace animals back to the birth
source,” he said.
The U.S. meat industry uses a variety of
methods to domestically track cattle and meat
products. The U.S. Department of Agriculture
wants to take this to the next level by developing a national animal identification system.
The agency attributes its rapid response to
the Washington state mad cow case to an
animal identification program.
USDA officials have been working with
federal and state agencies, along with the
industry, on a national animal tracking
system for about 18 months. The agency
has been watching out for BSE in the U.S.
herd for more than a decade.
“Such a system will help enhance the
speed and accuracy of our response to disease outbreaks across many different animal
species,” said Agriculture Secretary Ann M.
Veneman in a Dec. 30 statement about the
national animal identification system. “Our
goals are to achieve uniformity, consistency,
and efficiency across the national system.”
The Bush administration’s proposed budget
for fiscal year 2005 includes $60 million for
BSE-related controls, of which $33 million
will be used to accelerate the development of
the national animal identification system.
Both the House and Senate recently introduced legislation requiring the development
of a national animal identification system.
“I believe the implementation of an animal
identification program is necessary toward
ensuring a safe and reliable source of food,
and increasing consumer confidence in the
beef industry,” said Rep. Mike Ross, D-Ark.,
ranking member of the House Livestock and
Horticulture Subcommittee and co-sponsor
of the National Farm Animal Identification
and Records Act, on Feb. 10.
“This bill does not endorse any one national plan over another, but rather, directs
the Secretary of Agriculture to establish an
electronic national identification system
that would require all livestock, from birth
to slaughter, to be identified,” Ross said.
“This national identification system would
also ensure a rapid response within 48 hours
to livestock disease outbreaks.”
He added that the government should
help pick up the tab to roll out the system.
“The burden of this program should not be
laid upon cattle producers alone, and must
be affordable to all cattle producers — large
and small,” he said.
Establishing a national animal identification system and tying it into meat business
systems may be easier said then done.
“It’s going to require lots of manpower
and other resources to get this in place,” said
Michael F. Hampel, logistics manager for PM
Global Foods in Cumming, Ga. “But if that’s
the direction the market is pushing us, then
we’re going to have to put up or shut up.”
Many meat producers have in-house software and documentation-based programs
to track the flow of product through their
slaughterhouses and packaging plants. The
concern is that these systems don’t go back
to the birth and feeding of livestock.
Hampel said PM Global has experience at
this level of product tracking because of its
kosher meats business. To obtain kosher status, there are slaughter and meat preparation
procedures that must be followed. “We document the genealogical line of the animals,
including the feed stocks used, to meet the
kosher customer’s requirements,” he said.
Many meat-tracking systems show their
shortcomings when product recalls occur.
For example, when the USDA tried to locate
the distribution of meat from the Washington
state cow infected with BSE, it thought it
would have to recall about 5 tons of meat.
Because it lacked sufficient data, the agency
ended up recalling about 20 tons of meat.
“Having the ability to pinpoint where meat
is processed ensures that companies only
recall what’s necessary,” said Soma Somasundaram, director of software engineering
for Agilisys, a systems developer for the
manufacturing sector, in an interview.
Agilisys provides automated programs
to a variety of industries, but most of its
clients are in the food processing business.
When recalls are required, Agilisys helps
food processors with tracking lot numbers
and recipe data.
Ken Walters, president and chief operating officer for Atlanta-based Agilisys, said
the system can “track a single tray of chicken
wings back to its origin and identify the
exact recipe ingredients and raw materials
used in the manufacturing stage.”
Agilisys executives say their system,
while largely engaged in food processing,
can be easily integrated with other thirdparty cattle tracking devices and transportation logistics systems to provide a complete
global supply chain overview.
Some countries, such as the European
Union, Japan and Australia, have already
developed sophisticated animal tracking
systems in recent years.
In the case of Australia, which exports 70
percent of its beef production to more than
100 countries, this type of system offers an
international trade advantage. The country’s
National Livestock Identification Scheme
(NLIS) tracks individual animals from the
birth property to slaughter for food safety
and market access purposes.
A recent Australian government study
estimated the overall economic loss resulting from a foot-and-mouth disease outbreak
in the herd to range from $2 billion to $13
billion. “Though NLIS will not prevent a
disease outbreak or residue incident, it will
be able to reduce the financial and social
impact of a disease epidemic due to its accurate identification and rapid traceability
capabilities,” said Meat & Livestock Australia in an explanation of the system.
Meat & Livestock Australia is a producerowned company that provides market access
and research services to promote the country’s
30_32AS04.indd 31
2004 31
3/18/04 12:01:05 PM
LOGISTICS
red meat industry. The company has about
30,000 livestock producer members.
NLIS uses machine-readable radio frequency identification (RFID) devices in the
form of pre-approved ear tags to identify
cattle. Information is stored in a central NLIS
database and follows the products through
retail. “Once full transaction recording is in
place, a life record of an animal’s residency,
and which other animals it has interacted
with, will be established,” Meat & Livestock
Australia said.
Other benefits from NLIS include:
• Reducing financial and social impacts
of livestock disease outbreaks.
• Providing whole-life and origin information to Australia’s international meat
customers.
• Maintaining access to restricted
markets.
• Ensuring domestic and export consumer confidence in Australian beef.
The USDA plans to start development
of its national animal identification system this year. This system will also cover
both imports and exports of live animals,
said USDA undersecretary Bill Hawks in
testimony before the Senate Agriculture
Committee March 4.
“Our implementation would begin with
an assessment this winter and spring of the
existing premises and animal number allocation systems now in use,” Hawks said. “This
review would identify, validate and verify the
capabilities of current systems in operation
and determine the capacity of any of these
systems to serve as a national premises and
animal number allocator and repository.
“Based on that review, we would select
the most promising infrastructure to fund
to develop the national premises allocation number and repository system and an
animal identification allocation number and
repository system,” he said.
Two years ago, the National Institute for
Animal Agriculture began development of
the U.S. Animal Identification Plan. More
than 70 organizations participated. The plan
calls for the use of RFID-based cattle tags
to start the tracking process. Other technologies, such as DNA testing, retinal imaging
and implants, could be integrated into the
system as they evolve.
Advocates of this plan say any future animal identification program should complement existing animal disease surveillance
and monitoring infrastructure.
“We do not wish to follow the example
of Europe, where too much emphasis was
placed on identification and not enough
emphasis on infrastructure,” said Mike John,
vice president of the National Cattlemen’s
Beef Association. “Though much is made of
the many EU tracking systems, the EU has
32
AMERICAN SHIPPER:
30_32AS04.indd 32
APRIL
been subject to a BSE epidemic, foot and
mouth disease outbreak, dioxin contamination, and PCB contamination, all due in part
to weak science-based infrastructure.”
The USDA has claimed that its BSEtargeting program is set at a level significantly higher than the testing standards of
the World Animal Health Organization
(Office International des Epizooties), the
standard-setting organization for animal
health for 162 member countries. Under the
international standard, a BSE-free country
is only required to test 433 head of cattle
a year. In fiscal year 2002, USDA tested
19,900 cattle for the disease.
Michael F. Hampel
logistics manager,
PM Global Foods
“If that’s the direction
the market is pushing us
then we’re going to have
to put up or shut up.”
Until the Dec. 23 announcement, the U.S.
herd, which includes about 95 million cattle,
was reportedly free of BSE. The disease was
linked to 150 human infections in the United
Kingdom during the mid-1980s. The Canadian beef industry suffered from a global ban
on its exports in May 2003 when the disease
was detected in a single cow in Alberta.
Restarting Trade. U.S. agriculture officials are scrambling to restore the country’s
beef and poultry products trade.
Export markets for American beef alone
accounted for about 10 percent of total U.S.
production, with the largest importers located
in Japan, Mexico and South Korea. These
countries closed their markets to U.S. beef
following the BSE announcement Dec. 23.
Closure of these markets has been severe for
U.S. meat producers. According to the U.S.
Meat Export Federation, Mexico is the top
importer of U.S. beef by volume, handling
more than 349,000 tons in 2002. Japan imported $842 million in U.S. beef in 2002.
Some countries have since reopened their
markets to U.S. beef. Poland became the first
country to resume imports, while Canada and
the Philippines have kept their markets open
to certain beef products.
The Mexican government agreed March 4to
reopen its market to boneless U.S. beef products from animals less than 30 months old.
In 2003, the United States exported 335,847
metric tons of beef and related meat products
to Mexico, valued at $877 million.
“Boneless beef products account for the
lion’s share (75 to 80 percent) of U.S. beef
exports to Mexico, so we hope for brisk
trade soon in these items,” said Homero
Recio, vice president of the U.S. Meat Export
Federation.
Ron DeHaven, chief veterinary officer at
the USDA, said the United States is working closely with Mexico and Canada, and
the World Animal Health Organization “to
promote science-based trade policies …
as opposed to what historically has been
an overreaction from a trade perspective
and one based more on emotion and public
perception and not on the science.”
The United States is not alone when it
comes to import bans on beef and poultry. So
far, 12 countries face export bans or market
constraints as a result of animal diseases,
such as BSE and avian influenza.
According to the United Nations Food and
Agriculture Organization, about one-third of
the global meat exports, or 6 million tons,
are affected by animal disease outbreaks.
The FAO estimates that the value of lost
business due to import bans on meat could
reach $10 billion in 2004.
The United States and Canada account
for one-fourth of global beef exports (about
1.6 million tons, valued at about $4 billion).
U.S. beef exports reached 1.2 million tons in
2003. If the ban on U.S. beef stays in place
for the year, the industry’s international
volumes for 2004 will drop to 100,000 tons,
the FAO warned.
The United States, Canada and nine Asian
countries affected by avian influenza-related
bans account for 4 million tons or 50 percent
of the world’s exports of poultry meat.
As a result of the bans, non-traditional
poultry suppliers, such Malaysia, the Philippines and Brazil, have moved into the global
market. Malaysia will export 200 to 240
tons of boneless chicken to Japan while the
Philippines is expected to ship 30,000 tons
there, the FAO said. The organization also said
Brazilian exporters are already planning for
stronger demand for their poultry products
in the wake of the avian influenza outbreaks,
and will increase their 2004 production 5
to 6 percent while raising poultry exports
15 percent.
In addition, the FAO forecasts an increased
demand for pork. “This is already visible in
Japan, where shortages of beef and chicken
have led to pig meat prices surging 40 percent
in February following import bans on U.S.
beef and Asian poultry,” the FAO said. ■
2004
3/18/04 11:51:18 AM
PORT-03012-American Shipper
12/5/03
4:20 PM
Page 1
THE PORT OF VIRGINIA
PUTS DISTRIBUTION CENTERS AT
THE CENTER OF WORLD TRADE.
Ford
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Best Buy, Inc.
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33
J. Crew
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220
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66
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495
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81
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301
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29
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64
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64
95
360
McLane Foods
CVS
Country Vintner
Value City Furniture
Richfood
Hewlett Packard
DSC Logistics
33
Covington
13
RICHMOND
17
Lynchburg
Colonial
Wal-Mart
Heights 295
64
460
360Petersburg
Food Lion
Roanoke Bedford
Hopewell Williamsburg
460
81
Hampton Roads
Newport
News
Hampton
29
360
85
The Port of Virginia
Portsmouth
220
Norfolk Virginia Beach
Suffolk
95
64
58
Martinsville
South Boston
Newport News Inc.
58
Chesapeake
South Hill Emporia
Danville
Franklin
Fincastle
460
460
Big Stone Gap
Blacksburg
Radford
77
58
Bristol
77
Galax
Wal-Mart
Mid Mountain Foods
Hooker Furniture Corp., Inc.
Diversified Distribution, Inc.
Nautica
Dollar General Corp.
KB Toys
Jones Apparel Group, Inc.
Ace Hardware
Cost Plus
Dollar Tree, Inc.
QVC Network, Inc.
Lillian Vernon Corp.
Nash Finch
HUDD
Dai Ei Papers
Target Stores
Sysco Food Systems
Major retailers are taking increasing advantage of The Port of Virginia’s proximity to eastern U.S. markets.
Target, Wal-Mart, Dollar Tree, QVC Network, and Cost Plus have all set up supply chain centers
throughout Virginia. Some 13 million square feet of new warehousing space has been added at more
than 30 new distribution centers around the state. As a result, mass marketers now account for
40 percent of containerized imports at The Port. And more growth is on
the horizon as other leaders in the global market seek to capitalize on
The Port’s distribution network.
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LOGISTICS
WCO widens supply
chain security scope
Customs organization seeks new resolution
focused on physical container controls.
BY CHRIS GILLIS
M
ost customs administrations realize advance cargo information
is only part of the supply chain
security equation, and have turned their
attention to the physical security of ocean
containers.
The World Customs Organization secretariat plans to respond to this objective by
proposing a new resolution at the WCO’s
June council session that will focus on the
prevention of terrorist and other illegal
infiltrations of containers.
In mid-February, WCO Secretary General Michel Danet met with Robert Bonner, commissioner of the U.S. Bureau of
Customs and Border
Protection, in Washington to discuss the
development of global
physical container security guidelines.
Following the Sept.
11, 2001, terrorist
attacks in the United
Bonner
States, governments
and security experts warned that terrorists
may attempt to use legitimate cargo conveyances, such as ocean containers, to carry out
future attacks involving weapons of mass
destruction. It’s estimated that more than
200 million containers move between the
world’s seaports each year.
U.S. Customs responded to this threat by
implementing a container control program,
known as the Container Security Initiative
(CSI), in January 2002. CSI requires U.S.
Customs to establish bilateral agreements
with other governments to target and prescreen high-risk containers in overseas
seaports before they’re shipped to the United
States. U.S. Customs officers, equipped with
advanced manifest information and nonintrusive inspection equipment, work with
their counterparts in the overseas ports.
U.S. Customs also became part of the
Transportation Department-sponsored
Container Working Group, which oversees
Operation Safe Commerce, a public/private
34
AMERICAN SHIPPER:
34_36AS04.indd 34
APRIL
Michel Danet
secretary general,
World Customs
Organization
“The United States won’t
be able to secure all the
ports in the world. However,
through an international
reference, containers could
be physically secured from
anywhere in the world.”
partnership involved in testing existing and
new security technologies for containers in
transit.
At the same time CSI and Operation Safe
Commerce were rolled out, the WCO received
impetus from the Group of Eight countries,
of which the United States is a member, to
develop guidelines to improve international
supply chain security. This work, largely in
line with CSI, was conducted by a WCO-initiated task force that included representatives
from 50 countries and 25 intergovernmental
organizations and companies.
The WCO task force’s work concludes
in early April. Unlike U.S. Customs’ CSI
program, the implementation of the WCO
supply chain security guidelines by overseas
customs administrations is still in its infancy.
The WCO, however, believes a resolution
for physical container security could foster
a “green channel” for cargo to the United
States from non-CSI countries.
“The United States won’t be able to secure all the ports in the world,” Danet said
in a recent interview. “However, through an
international reference, containers could be
physically secured from anywhere in the
world.”
Similar to the work of the supply-chain
security task force, the WCO expects to
invite shippers and carrier representatives,
along with the manufacturers of electronic
and manual container seals, to discuss current
and future developments of container seal
technology. The first meeting will take place
at the WCO’s headquarters in Brussels before
the end of the year, followed by regional
meetings in 2005 and 2006, Danet said.
“We want to have a dialogue and partnership with the trade. We need to know the
needs of the traders to see what types of
actions will be taken and the tools that will
be used,” he said.
Since the WCO is a non-binding organization, it can only recommend operational
best practices for customs administrations
to implement. Danet said the WCO would
emphasize the “economic benefits” of
implementing a global physical container
security program.
At the upcoming June council meeting,
the WCO secretariat also plans to announce
the formation of a high-level strategic working group of customs director generals. This
select group of officials will meet at least
once a year to discuss mutual security concerns, such as the proliferation of weapons
of mass destruction, Danet said.
Another area of interest for the WCO is
the evolution of customs agencies beyond
just inspection and revenue collection to
becoming multifaceted border forces. This
change has already occurred for some customs administrations, such as the United
States and Canada. Other countries are
moving in the same direction.
“We’re not talking about the adoption of
protectionist measures but building more
comprehensive controls at the borders for
cargo, passengers, money and immigration,”
Danet said.
Danet is confident that the WCO council
will approve the proposed measures as ways
to further strengthen the organization’s role
in both supply chain security and trade
facilitation.
Danet praised the supply-chain security
task force’s “phenomenal work” during
the past year and a half. He added: “That’s
why I strongly believe we need to continue
working with the private sector.”
During the development of the supply chain
security guidelines, some conflicts emerged
between customs and industry members of
the task force. “It’s always difficult to have
customs administrations and industry work
together, because customs administrations
are convinced that it’s up to them to decide
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LOGISTICS
what needs to be done, while the trade, because they’re players, believe nothing should
be done without their concerns taken into
consideration,” Danet said.
The task force concluded its guidelines in
June 2003, but continued to meet to address
lingering concerns of customs administrations and industry sectors.
The crux of the guidelines is that security
risk assessments of the supply chain by
customs administrations should begin at the
cargo’s origin. Export declarations, which
are generated from existing commercial
documents, generally include the essential
data elements, such as commodity description, price, origin and destination, shipper
and consignee details and transportation
provider, to conduct adequate cargo risk
assessments.
Customs administrations traditionally
overlooked exports, because they’re generally deemed positive for the national economy.
Governments generate large portions of their
annual revenues from imports.
The task force supported the development
of WCO-based bilateral and multilateral
agreements on common minimum control
and risk management standards, shared
intelligence programs, and risk profiles of
shippers and trade flows. “Unique consignment reference” numbers should link these
data exchanges. The biggest benefit to international shippers involved in this integrated
control chain is preclearance of their goods
upon arrival in the importing country.
Danet said the WCO will test the guidelines by promoting pilots between customs
administrations and industry sectors. ■
Delay in enforcing ‘shipper’ definition
U.S. Customs heeds industry’s warnings
on risks of changing definition.
WASHINGTON
Ocean carriers will be able to continue
to use the traditional definition of a shipper
in cargo declarations, after the U.S. Bureau
of Customs and Border Protection agreed
to delay enforcement of a change of who
should be shown as the “shipper” on cargo
manifests.
The proposed change formed part of a
review of data required by Customs in the
advanced submission of cargo information
under the Trade Act of 2002.
“Customs and Border Protection will
allow for the current definition of ‘shipper’
as outlined in the 24-hour final rule until
further notice,” the agency said in a statement in late February.
It had earlier intended to enforce, effective
March 4, a ruling that carriers must submit
information on shippers, defined as “the
owner or exporter” of the cargo, via the Sea
Automated Manifest System. This definition of “shipper” deviated from the previous
one used in the 24-hour rule on advanced
cargo transmission, for which the shipper
could be an exporter or an intermediary.
Relief. The delay came as a relief to several
industry associations, which had warned
that enforcing the proposed change in the
shipper definition was unworkable.
“We tried to come up with alternatives,”
said Peter Gatti, executive vice president
of the National Industrial Transportation
League. But there is no automated system
that would allow importers to transmit data
to customs before the goods are loaded on
36
AMERICAN SHIPPER:
34_36AS04.indd 36
APRIL
a ship, he said.
One possible solution may be to create an
electronic portal to consolidate and gather
the data on shipments, but this process would
take time, Gatti said.
Until now, for maritime shipments, Customs has relied on ocean carriers’ manifests
to provide it with data on cargoes.
Changing the identity of the shipper on the
bill of lading or on the manifest would meet
Customs’ requirements of knowing who the
cargo owner or exporter really is. But by doing this, “you upset the commercial relationships” between ocean carriers, shippers and
other contractual parties, Gatti said.
Joint Petition. In early February, four
U.S. trade associations joined forces and
sent a common petition to U.S. Customs
requesting changes to the new rules
governing the advance transmission of
electronic data, including the rule on the
shipper definition.
The NIT League, the National Customs
Brokers and Forwarders Association of
America, the World Shipping Council and
the Retail Industry Leaders Association
(formerly known as the International Mass
Retail Association) argued that the final
rule, issued Dec. 5, was impractical and
could damage the industry.
Customs’ delay on the change in the shipper definition is believed to be the direct
result of this joint industry petition.
Because the information Customs gathers
would come from bills of lading, carriers
would still need to be able to use the same
definition of the shipper as that used in the
B/L, the industry groups said at the time,
noting that the shipper on the B/L may or
may not be the cargo owner and exporter.
When the ocean carrier’s shipper shown
on the B/L is an intermediary, applying the
rule would require ocean carriers to obtain
information not on its customers, but on
the intermediary’s customers, the industry
groups said. This could mean replacing the
entity shown as “shipper” on the B/L, such
as a consolidator, by “multiple entities on
multiple B/Ls that have no relationship to
the transportation contract.”
“Carriers simply do not routinely receive
information about their transportation customers’ suppliers,” the associations stressed.
The industry associations also warned that
the shipper listed on the B/L could differ
from the name of the seller in contract of
sale or purchase of the goods. “Under those
circumstances, the issuing bank will not pay
under the letter of credit, and the transaction
will be thwarted,” they told Customs.
Last summer, the World Shipping Council
also expressed concerns over the proposed
rule requiring the identity of “the actual
shipper (the owner and exporter)” of the
cargo from the origin country outside the
United States.
The carrier group asked Customs at the
time to delete the amended definition of
“shipper,” or “more appropriately ... to place
the information-reporting requirements for
‘actual shipper’ information on the parties
to the underlying import transaction, not
the carrier, which is a party only to the
transportation contract.”
Review. U.S. Customs said the purpose
for the enforcement delay in the change
of the shipper definition was to allow the
agency “time to review a petition submitted by trade representatives challenging the
definition of shipper.” It did not indicate
how long the review would take.
U.S. Customs said it “will continue to
make risk determinations on the information
provided in the shipper field as we do today.”
Information that is not useful in assessing
risk will “invite closer scrutiny and increase
the likelihood that the shipment will be
examined,” the agency warned.
The agency has expressed dissatisfaction about the quality of the information it
receives on shippers for some time. “Currently, the information Customs and Border
Protection receives about the shipper is not
helpful in making risk determinations,” it
said in a statement in early February. “For
example, identifying the shipper as a carrier,
bank or importer does not provide Customs
and Border Protection with useful information.”
■
2004
3/18/04 12:09:25 PM
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1/7/04 12:43:53 PM
LOGISTICS
Chinese base for Zim Logistics
Logistics unit aims to build its
business from China outwards.
BY PHILIP DAMAS
Z
im Logistics, the two-year-old
international logistics arm of Haifabased Zim Israel Navigation Co., has
set its eyes firmly on China as the starting
base on which to build its business.
Zim Logistics (China) Ltd. was formed
at the end of 2001
and started business
activities in Shanghai
in March 2002. Danny
Hoffmann, its chief
executive off icer,
promises that other
logistics operations
will be established all
Hoffmann
over the world.
“Zim Logistics (China) is the first company,” Hoffmann said. Having started in
China, Zim Logistics will expand “from
the east to the west.”
The company has already set up Zim Logistics offshoots in Vietnam and Singapore,
and appointed agents in several countries.
Zim Logistics appointed Carpe Air & Sea
Shipping Inc., based in Englewood Cliffs,
N.J., as its exclusive U.S. agent in October.
Zim Logistics (China) is one of only six
non-Chinese companies that has a “class
A” non-vessel-operating common carrier
license for “shipping-related business,”
Hoffmann said. Maersk Logistics, APL Logistics, NYK and P&O Nedlloyd Logistics
are among the others.
Zim Logistics is opening a branch in
Guangzhou, South China. Its five other
branches in the country are located in
Shenzhen, Xiamen, Nanjing, Qingdao and
Beijing.
Like other major shipping lines and
freight forwarders, Zim wants to provide
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38AS04.indd 38
AMERICAN SHIPPER:
APRIL
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logistics services as a complement to existing oceanborne transport activities.
Zim Logistics (China) provides forwarding, customs declarations, trucking, rail
transport, barge transport, inland distribution, packaging, labeling, warehousing,
project cargo and air freight activities.
Under its Chinese license, the company is
allowed to bypass the usual Chinese-owned
intermediary agents and directly engage in
commercial transactions. This includes collecting freight charges, booking space with
carriers, warehousing, container stuffing
and unstuffing, issuing cargo receipts and
inland transport. The company can also
provide trucking activities via subcontractors and carry out customs clearance via a
customs broker.
Zim Logistics provides some inland distribution for Budweiser in China. It loads
imported cargo into containers and trucks
them from Ningbo to nearby Shanghai. The
logistics company also ships containers on
barges to Wuhan, and then to the shipper’s
factory.
For ocean freight, the company consolidates cargoes from different Chinese or
other Asian origins into a single container, a
service called multicountry consolidation.
For air freight, Zim Logistics (China) has
been appointed general sales agent for the
cargo division of the Israeli state airline El
Al. The logistics firm can air freight cargo to
Tel Aviv, Israel, where cargo is transshipped
to Europe, Africa and North America.
This year, the logistics company plans to
extend its international network of agents.
“We are studying,” Hoffmann said.
Sea, River Transport. Besides Zim Logistics (China), Zim also owns Sun Cypress
Shipping Co. Ltd., a Chinese-based common
barge operator established in 1999. The two
affiliates are separate companies.
The barge transport company operates
feeders along the Pearl River in South China.
The feeder ships cover the main ports located
in the Pearl River Delta, including Huangpu,
Shekou, Chiwan, Sanshan, Rongqi, Sanshui,
Xintang, Nansha, Jiangmen and Zhuhai. The
company also provides project cargo handling service and container management.
As a shipping line, Zim Israel Navigation
is “the largest carrier” in the port of Shekou,
South China, and the ninth-largest in the
port of Shanghai, Hoffmann said.
When doing business with shipping lines’
logistics affiliates, the question of neutrality
in ocean carrier selection is an important
one for shippers. But he said Zim Logistics
(China) is a third-party logistics provider,
and negotiates with several carriers other
than Zim Israel Navigation. “We don’t have
any obligation to Zim” as a carrier.
■
2004
3/18/04 12:13:54 PM
LOGISTICS
Sierra Leone rebuilds customs
West African nation hopes to regain trade controls.
BRUSSELS
Sierra Leone wants to rebuild its economy
and believes a new customs administration
will help move it in that direction.
The West African country’s customs
operations and local shipping industry
were essentially destroyed by 11 years of
bloody civil war, which ended in 1998.
The Sierra Leone government has spent
the past five years trying to rebuild the
national economy.
Before the war, Sierra Leone’s customs
service and income tax collections were
separate operations, resulting in unstable
and underused border controls, said Sahr E.
Johnny, first secretary
at Sierra Leone’s embassy in Belgium, in a
recent interview.
In 2002, Sierra Leone merged its customs
and income tax operations under the National Revenue Authority
Johnny
Act. The country’s new
National Revenue Authority is headed by
General Director John Karimu, who is assisted by Nat Cole, head of customs.
The National Revenue Authority also
advises the government about the businesses that operate in the country. “There
should now be more drive towards collecting
excise duties, especially from some small
companies that have evaded these taxes for
so long,” Johnny said.
The government’s goal is to implement a
customs service of about 500 officers and
support staff to oversee the movement of
goods through the country for both control
and tax collection purposes.
For now, illegal trade activities are still
commonplace in Sierra Leone.
Today, Sierra Leone has no industrial
manufacturing sector. Before the war its
primary domestic industries were beer,
cigarettes, cement and flour production. The
country imports consumer goods, electronics and foodstuffs, mostly from China.
The country has the potential to export
raw diamonds, bauxite and some agricultural
products, such as coffee, cocoa and fish.
Some exports, such as raw diamonds, were
alleged to have fueled the war machines
of both anti- and pro-government groups
during the civil war, and were subsequently
banned by many countries.
“Nothing is happening right now (with
exports), but the potential is there,” said Lamin
Traore, chief executive officer of Sitral Group,
based in Conakry, Guinea. Sitral, which has an
office in Freetown, Sierra Leone, is involved
in electrical power, water generation and other
infrastructure projects in the region.
Traore said the government should work
harder to lift wartime import bans, for
example in the European Union, on Sierra
Leone’s agriculture and fish products to help
jumpstart exports and reduce the potential
for smuggling these goods out through
neighboring countries.
Another disincentive to trade in Sierra
Leone is the 45- to 60-percent duties placed
on imports arriving in Freetown. This also encourages shippers to route their cargo through
Guinea, instead of Freetown’s seaport and
airport, to avoid the duties, Traore said.
Sierra Leone’s importers also remain concerned about non-tariff barriers to trade, such
as the 72- to-96 hour delays for the government to process preshipment import licenses,
and the creation of additional bureaucracy to
oversee customs operations.
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39AS04.indd 39
2004 39
3/18/04 12:16:27 PM
‘End game’ is here
BAX Global wants the U.S. Federal Maritime Commission to end a petition drive within the non-vesseloperating common carrier industry for the ability to
sign confidential service contracts with shippers, and
end the practice of tariff publication by proceeding to a
proposed rulemaking.
The flurry of petitions from the NVO industry started
shortly after UPS filed its petition in July 2003, asking the
FMC to use its exemption authority under section 16 of the
1998 Ocean Shipping Reform Act to allow UPS to offer
customers confidential service contracts. This privilege was
granted to vessel-operating common carriers in OSRA.
The National Customs Brokers and Forwarders Association of America followed with another petition asking
that the FMC to use similar authority under OSRA to
end the requirement for NVOs to publish tariffs. NVOs
have complained over the years that tariff publishing is
a costly exercise with little benefit to shippers.
Other large NVOs, such as C.H. Robinson Worldwide,
Ocean World Lines, DHL-Danzas Air and Ocean and
BDP International, filed petitions along the same lines.
And behind these petitions, particularly the one by UPS,
are hundreds of comments from lawmakers and industry
officials, including the U.S. Justice Department.
“Simply put, BAX believes the endgame has arrived, the
record is complete, and the commission must act promptly,”
said the Southern California-based NVO in comments
to the FMC on Feb. 13. “It is time for the commission
to consolidate all related, pending petitions into a single
rulemaking on the issue of service contract authority for
qualified non-vessel-operating common carriers.”
When BAX filed its NVO service contracting petition
to the FMC Oct. 10, the company urged the agency to
pursue the rulemaking route. “Rulemaking is the preferred
process to adopt when an agency seeks to formulate new
policy because it provides public participation in the process, avoids time-consuming adjudicatory hearings, and
allows for easier enforcement,” the BAX petition said.
BAX cautioned the FMC in its latest comments that
“continued failure to consolidate the similar filings and
initiate a rulemaking will only invite a continual stream
of petitions from the NVOCC community.”
Not acting at all could put the FMC face to face with
lawmakers on Capitol Hill.
“The commission has a big decision to make regarding
NVOs and confidential service contracting,” said a Washington attorney familiar with the petitions. “The FMC
should do something in consultation with the industry,
or the industry will seek legislative change. This is not a
threat, but the reality of the situation.”
The attorney, who requested anonymity, pointed out that
OSRA in some respects is already behind the times with
the emergence of large American asset-based NVOs, such
as UPS, FedEx and BAX Global, and the FMC’s traditional
carrier-centric approach to industry issues appears outdated
in the modern supply chain and logistics environment.
FMC Chairman Steven Blust acknowledged during a
March 4 House budget hearing that the NVO petitions and
comments “address the substantive requests for relief, as
well as fundamental question of whether the commission
has the authority to grant the types of relief requested,
and we are presently considering these issues.”
The reaction from a number of operators in the NVO
industry to Blust’s comments has already resulted in the
circulation of some draft legislation that not only goes to the
40
40AS04.indd 40
issue of service contracts, but to antitrust immunity enjoyed
by liner carriers under the 1984 Shipping Act and some even
questioning taxpayer money going to foreign-controlled
carriers under the U.S. Maritime Security Program.
A sticky one
Is it a case of shipper deception or facing up to the
competitive reality in the non-vessel-operating common
carrier industry?
That’s the sticky question the U.S. Federal Maritime
Commission will face if it delves into a recent petition
filed by Crowley Logistics and its subsidiary Apparel
Transportation against the newly formed Apparel Logistics. The petition asked the agency to revoke Apparel
Logistics’ ocean transportation license and to investigate
its “character” and intent in the market.
The petition alleged that Apparel Logistics was “secretly
incorporated” by former Apparel Transportation executive Manuel Lescano six days before it bought Apparel
Transportation on June 24, 2003.
Furthermore, Leo Del Calvo Sr., the qualifying individual
for Apparel Logistics’ OTI license application, is father of
Leo Del Calvo Jr., a manager in Crowley Logistics’Apparel
Transportation. The petition also alleged that Apparel Logistics hired away some Apparel Transportation employees
with valuable account and ocean operations information
both in the United States and abroad.
Apparel Transportation, a Miami-based FMC-licensed
NVO and freight forwarder, is focused on the U.S./Central
American clothing and textile market. The company’s
clients also require specialized services involving the shipment, handling, and imports of wearing apparel.
Apparel Logistics, also based in Miami, rebuffed Crowley
Logistics’ petition as an attempt to “thwart competition in
the open marketplace,” and said the FMC should dismiss it.
“Upon careful review, it becomes apparent that Crowley’s
real ‘concerns’ are not about ‘integrity and character,’ but
instead are concerns about having to face competition in
the transportation industry,” Apparel Logistics said in filed
comments. “Crowley knows that (Apparel) Logistics is a
start-up company and hopes to crush such company under
the weight of legal fees and harassment.”
Apparel Logistics, which received its OTI license from
the FMC Feb. 13, denied hiring away Apparel Transportation employees, and if so, said that shouldn’t matter.
“If Crowley were to have its way, none of its former
employees could work for a competitor,” Apparel Logistics
said. “Such a result cannot be proper because it’s adverse
effect on competition in the marketplace.”
In addition, Apparel Logistics criticized Crowley
Logistics’ allegation that its corporate name is deceptive
to Apparel Transportation’s shippers. Apparel Logistics
pointed out that there are several businesses in South
Florida with “Apparel” as the first word in their names.
“Has Crowley filed suit against such entities? Has
Crowley taken action to deny any licenses to such entities? Of course not, as Crowley does not have an ax to
grind against a former employee as in the case here,”
Apparel Logistics said.
Apparel Logistics noted that in addition to the FMC
petition, Crowley Logistics attempted to block the company’s creation through litigation in the Florida courts.
Apparel Logistics said this approach “smacks of illegal
antitrust violations.”
The FMC may want to defer on this one and let the
two companies fight it out in court.
2004
3/18/04 12:19:43 PM
MAR558B_AltRouteAd_AmerShip.qxd
12/22/03
1:55 PM
Page 1
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Bush ends GSP benefits for 10 countries
WASHINGTON
The Bush administration has terminated
preferential tariff treatment for 10 countries
due to political and economic changes.
The 10 countries are no longer eligible to
use the U.S. Generalized System of Preferences. GSP, which was reauthorized in the
2002 Trade Act until the end of 2006, grants
tariff-free status to imported products from
certain developing countries.
Seven of the countries removed from the
U.S. GSP program are located in Eastern
Europe. They are the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland and
Slovakia. These countries are scheduled to
join the European Union on May 1.
The other three countries coming off the
U.S. GSP program are Antigua and Barbuda,
Bahrain and Barbados.
The administration said these countries
are now defined as “high income” countries
as defined by the International Bank for
Reconstruction and Development.
■
CaroTrans rolls out NVO online booking system
UNION, N.J.
CaroTrans International has initiated a
new online booking program in its system.
U.S.-based shippers, freight forwarders
and co-loaders are now eligible to use the
Union, N.J.-based non-vessel-operating
common carrier’s online system for U.S.
export bookings. A login and password
are required.
Through the system, data feeds from
the Internet to NVO’s operating system
and generates a booking number, which
is fed back online to the customer making
the booking.
The application was under development
since last year and required about six months
to take live.
The project was led by Kevin Drinkwater,
global information technology manager for
Mainfreight in New Zealand. Mainfreight
owns CaroTrans.
For more information, access online www.
carotrans.com.
■
Tibbett & Britten to test RFID technology
EDMONTON, Alberta
Tibbett & Britten Americas, a unit of Tibbett & Britten Group, a U.K.-based logistics
services provider, has signed a four-way
partnership to test radio frequency identification (RFID) technology in a distribution
center in Edmonton, Alberta.
Tibbett & Britten’s partners are IconNicholson, Raymond Corp. and the Econorack
Group of Cos.
The venture will design and build an RFID
environment at a distribution warehouse
provided by Connect Logistics, a group
member of Tibbett & Britten and also a
third-party logistics provider for the Alberta
Gaming and Liquor Commission.
A portion of the warehouse will be configured with RFID hardware, tags and software,
to be used with lift trucks, pallet and carton
storage locations, and dock door.
■
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42AS04.indd 42
AMERICAN SHIPPER:
APRIL
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Kuehne & Nagel U.S.
unit takes in USCO
NAUGATUCK, Conn.
Kuehne & Nagel Inc., the U.S. unit
of Kuehne & Nagel International AG,
a Swiss provider of forwarding and logistics services, has fully integrated the
unit known as Kuehne & Nagel Logistics
Inc., formerly USCO Logistics.
As a result of the integration, Robert
R. Auray, president and chief executive
officer of Kuehne & Nagel Logistics,
“is leaving the company to pursue other
interests,” Kuehne & Nagel International said in a statement. Auray had
the same roles at USCO.
Kuehne & Nagel International said
Dan DeSoto has assumed responsibility
for U.S. contract logistics as managing
director and executive vice president,
reporting to Rolf Altorfer, president
of Kuehne & Nagel Inc. DeSoto was
executive vice president, operations, for
Kuehne & Nagel Logistics and USCO.
Kuehne & Nagel International acquired USCO in 2001 and rebranded
the unit in February as Kuehne & Nagel
Logistics. The integration brings U.S.
international forwarding and contract
logistics operations into a management
structure that parallels Kuehne & Nagel
operations globally, said Klaus Herms,
president and CEO of Kuehne & Nagel
International AG.
The contract logistics headquarters
of Kuehne & Nagel Inc. will remain
in Naugatuck, Conn.
CAT Group. The big Swiss logistics
company also recently completed its
purchase of CAT Group’s Overseas
Logistics Division.
K&N said it received approval from
the French antitrust authorities for its
acquisition, which was originally announced Jan. 21.
CAT Group’s forwarding unit comprises air and sea freight, customs
clearance and project business. K&N is
integrating CAT’s operations, business
and contracts as well as 80 staff.
Jacques Petit, former managing director of CAT Overseas Logistics, has
been named automotive development
director for Kuehne & Nagel in France.
He will be responsible for further development of K&N’s logistics services
for the automotive industry there and
will also act as key account manager
for the Renault-Nissan account worldwide.
■
2004
3/18/04 12:30:00 PM
alsd_1129_am_shipper
12/5/03
12:35 PM
Page 1
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USPS tries to shake
regulatory shackles
Warnings of looming financial crisis spurs
change to private business model.
BY ERIC KULISCH
A
confluence of bad circumstances has members
of U.S. Congress, the General Accounting Office, postal officials, customers, private sector
competitors and others warning of further rate increases and
service interruptions unless the U.S. Postal Service’s charter
is modernized.
Congress, primarily the House, has debated the need for
postal modernization for the better part of the past decade.
44
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The effort has gained momentum now
that the Bush administration has joined
in making postal reform a high priority.
Last July, a postal commission appointed
by President Bush recommended several
changes, many advocated by the USPS itself,
to create a more modern, streamlined and
responsive mail handling entity. Congress
appears ready to pass a legislative package
this year to address the problems facing the
postal agency.
“Universal postal service is at risk and
… reform is needed to minimize the danger
of a significant taxpayer bailout or dramatic postal rate increase,” said Rep. John
McHugh, R-N.Y., who recently chaired
2004
3/18/04 12:52:36 PM
several hearings of the House Government
Reform Committee special panel on postal
reform and oversight, in opening remarks.
Companies, like individuals, rely on the
U.S. Postal Service to conduct business. The
fortunes of direct marketers, publishers and
catalog retailers are most directly tied to
quality postal service, but virtually every
American shipper depends on a national
document distribution system for billing,
advertising and other business-to-business
or business-to-consumer communications.
Companies have to manage the mail chain
— the flow of documents and parcels in and
out of their organizations — just as they do
other parts of their supply chain.
The USPS is the largest player in a $900billion mail and parcel delivery industry that
accounts for 8 percent of the U.S. Gross
Domestic Product, and includes companies
such as FedEx, UPS, automated sorting
equipment manufacturers, paper mills,
printers, card and envelope manufactures,
catalog retailers, home shopping networks,
online retailers such as eBay and Amazon.
com, and publishers.
The U.S. postal system “is the largest
single logistics network in this country,”
Michael Critelli, chairman and chief executive officer of Pitney Bowes (the mail
and document management company that
invented the postage meter 84 years ago),
recently told a House panel.
On the surface, the USPS is doing pretty
well for a behemoth bureaucracy. The Postal
Service has been mostly self-financed since
the mid-1970s, when subsidies were phased
out following the transition from the old
Post Office Department to the more business-oriented U.S. Postal Service. In 2003,
the USPS turned a profit for the first time
since fiscal 1999. The $3.9-billion surplus
on a 3.1-percent rise in revenue to $68.5
billion followed a $676-million loss in 2002
and a $1.7-billion shortfall in 2001. And
the agency has made strides during the last
three years containing workforce costs and
increasing productivity.
Last year Congress corrected the formula
for funding its retirement system, thereby
reducing the amount of money the USPS
is required to annually pay into its pension
fund, and eliminating the need for a rate
increase until 2006 at the earliest, according to postal officials. They attribute about
$3 billion of the agency’s 2003 surplus to
fixing the pension overpayments, meaning
a real net income of $900 million.
But the long-term trends are more sobering, according to postal and labor officials,
oversight agencies and large corporate
mailers. Rising costs will soon overwhelm
the temporary surpluses created by the new
law. Meanwhile, the USPS faces about $90
billion in debt, pension and workmen’s
compensation obligations and health benefit
liabilities at the same time mail volumes and
revenue are declining. Those health care
obligations are expected to rise with a large
percentage of USPS’s 730,000 employees
nearing retirement age. The debt load has
forced the Postal Service to sharply cut
back on capital investment to replace aging
vehicles and facilities this century.
Mail Drop. Total mail volume declined
last year for the third year in a row. The nation’s mail service provider delivered 202.2
billion letters, advertisements, periodicals
and packages in fiscal year 2003, more than
43 percent of the world’s total, but down
from 207.5 billion in 2001. By 2017 total
mail volume is projected to slide to 181.7
billion pieces, contributing to an $8.5 billion
loss, according to a report last year by the
Bush-appointed postal commission.
While revenues rose in 2003, they were
under budget, and the USPS fiscal 2004
budget forecasts overall revenue to remain
stagnant, which would mark the first year
since 1970 that revenues have failed to
increase, the GAO said.
First-Class mail, which produces revenue
that covers more than two-thirds of the
USPS’s overhead costs, fell a record 3.2
percent and is projected to decline annually
in coming years. More specifically, the volume of 37-cent letters slipped a record 5.4
percent, while bulk First-Class mail dipped
1 percent for the first time since 1976. FirstClass mail volume is down five billion pieces
from a peak of 104 billion pieces in 2001,
amounting to $4.5 billion less in revenue
according to postal officials. In fact, the
rate of growth of First-Class Mail has been
slowing since 1984.
The USPS blames volume and revenue
shortfalls to increasing use of e-mail,
faxes and electronic bill payments; intense
competition from private package delivery
companies such as FedEx, UPS, and DHL,
a subsidiary of partially privatized German
national postal services Deutsche Post; the
shift by businesses to more ground delivery
services; and an increasing share of total
volume from lower-margin bulk mail.
The USPS is not unique when it comes
to the impact of electronic communication.
Document business has remained flat or
declined at FedEx and UPS in the last three
to four years.
The problem for the Postal Service is
that other classes of mail are not making
up for the First-Class shortfall. Volume for
Standard mail, which mostly comprises
advertising, is growing and now accounts for
45 percent of the total, but the lower standard
rate means less money is allocated to cover
costs on a piece by piece comparison. Other
products are experiencing volume declines
or slow growth. Meanwhile, key costs, such
as for new bioterror detection systems,
continue to rise and productivity gains are
expected to slow, according to the GAO.
Bills and payments account for 25 percent
of postal revenue, according to Postal Service
figures. The USPS is in a Catch-22 when it
comes to rates because any increase is likely
to drive companies to accelerate use of electronic billing methods, the GAO forecast.
Every year the USPS adds about 1.8 million new addresses to its delivery network.
Volume declines pose a huge challenge
for cost control because they are occurring even as the USPS expands its network
infrastructure — vehicles, postal facilities,
routes — to keep up with population growth
and suburban expansion. The USPS delivers
44_54AS04.indd 45
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TRANSPORT / INTEGRATORS
Reform. Changing the postal laws has
proved difficult in the past because different
constituencies — mail companies, consumers, businesses, and unions — have not been
able to reach consensus on how to implement
a postal reorganization. Most groups agree
that the Postal Service needs to be fixed, but
differ on specific solutions. But “a continued
stalemate would force the Postal Service
to operate under its present, increasingly
outmoded business model until enough
customers abandon the system to make
financial failure unavoidable,” the agency
said in its 2002 Transformation Plan.
The USPS is lobbying for new rules
that would alter its public policy mandate
to provide universal service no matter the
cost, while following strict rate-setting
procedures and civil service protections
for workers, a combination that tends to
institutionalize inefficiency at a time when
companies need freedom to quickly adapt
to the ever-changing global economy.
Post offices, for example, can’t be closed
or consolidated without going through a
complicated approval process.
Or consider that it also can take more
than 10 months for the USPS to get approval
from the Rate Commission for an increase
in postage and delivery rates, and another
eight months to implement them. It takes
that long, and millions of dollars, for the
USPS, its customers and competitors to
marshal economic data and legal arguments
for and against the need for rate increases.
The prohibitive cost of these trial-like proceedings tends to leave smaller businesses
and consumers out of the debate.
Sought-after reforms would cover everything from labor management, to higher
borrowing limits and pricing flexibility, to
how goods and services like transportation
are procured.
The USPS is already taking steps to improve productivity, but needs extra authority
from Congress to make the transition to a
near-autonomous commercial operation.
New legislation and other proposals being considered would make it easier for
the USPS to make sweeping changes in
46
AMERICAN SHIPPER:
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First-class mail volume growth
(Fiscal years 1984-2004)
8
7
Actual
Projected: Postal service
6
5
Annual % change
to 5.4 million more addresses today than in
2000, while the amount of mail delivered
declined 5.7 billion pieces, David Fineman,
chairman of the USPS Board of Governors
told the House panel in February.
“The combination of declining FirstClass volume, increasing delivery points,
and expanding benefits costs has put the
Postal Service into a box which no amount of
good management, cost cutting, or improved
efficiency can get us out of. We can’t get
out of the box because the current business
model won’t allow us to,” Fineman said.
4
3
2
1
0
-1
-2
-3
-4
‘84 ‘85 ‘86 ‘87
‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04
Fiscal year
Source: U.S. Postal Service.
how it does business by lifting operating
restraints and giving management more
power to reduce costs, set rates, negotiate
prices and services with major customers,
adjust transportation routes, introduce new
sources of revenue, and change existing
product offerings, prices and service levels
to meet, or even spur, demand.
Variable pricing, for example, could encourage business mailers to clearly identify
their address in order to make the mail more
traceable for service and security reasons, or
act as an incentive to mail during non-peak
periods. Relaxing rigid rules might give the
USPS the ability counter the current spike
in fuel costs with a surcharge, a common
cost recovery mechanism used by private
transportation providers.
Congress also wants to end indirect subsidies and expand a new performance-based
system for measuring employees and service
standards to make the agency more accountable to customers and taxpayers.
Companies are motivated by higher profits
to constantly develop more efficient ways
to operate, but the USPS is prohibited by
law from earning a profit over a period of
years, and tends to rely on rate increases to
cover rising costs. Postal reformers say the
agency should be allowed to retain some
of its profits because a breakeven policy
produces little incentive to cut waste and try
new strategies.
Cost reduction measures that have been
proposed by the Postal Commission and
members of Congress include reducing
the workforce through attrition, closing
underutilized Post Offices and using more
automation. The Postal Commission also
recommends a process for the orderly
consolidation of the USPS’s more than 282
processing and distribution centers.
A joint House-Senate hearing on postal
reform was scheduled for March 23.
Rates. The issue of how the USPS prices
its products has taken on even more importance during the current debate over the
USPS’s health.
Not everybody agrees that the USPS is
nearing disaster. Postal unions support giving the USPS more freedom to behave like a
private company, but some of them argue that
the whole reform debate is being driven by
large mailers interested in cutting their rates
to maximize profits. The unions are balking
at Postal Commission recommendations that
would alter collective bargaining and other
labor policies, and threaten some jobs.
The American Postal Workers Union
notes that recent volume declines coincided
with the Sept. 11 terrorist attacks, the use
of the mail system in a series of unsolved
anthrax attacks and a recession. Meanwhile,
the USPS reported that mail volume during
the 2003 holiday mailing season increased
significantly over the previous year, resulting
in the highest volume period in the USPS’s
history. Advertising by mail is expected to
increase as the Federal Communications
Commission’s new “do-not-call registry”
restricts telemarketing opportunities and
lawmakers grapple with ways to try and stem
the tide of e-mail spam.
High-volume mailers have lobbied the
government to let the USPS negotiate more
customized rates and service, and for rate
increases that are more predictable in their
size and timing. Many seek a rate cap, too.
Companies “are having increasing dif-
2004
3/18/04 12:56:33 PM
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ficulty accommodating rate increases that
far exceed the general rate of inflation,”
Rebecca Jewett, vice chairman of Norm
Thompson Outfitters and chairman of the
Direct Marketing Association, told a House
hearing on Feb. 11. Jewett, who was until
recently president of Norm Thompson Outfitters, said her company’s rates have risen
22 percent on average during the past five
years while the rate of inflation during that
time was about 14 percent. “We have reached
the point where, in many cases, the cost of
mailing a catalog equals or may even exceed
the cost of producing that catalog.”
“As a result of postal rate increases,
postage expenses have become the most
expensive single line item at Time Inc.,”
testified Ann Moore, chairman and CEO
of the media conglomerate that includes
magazine brands such as Sports Illustrated,
Time and People. “This year, we will spend
more than $500 million on postage.
“The success of postal reform will depend on a rate system that delivers a strong
incentive to hold down costs and to provide
commercial mailers with predictable rates,”
she said. “If I can’t predict the future costs
of mail, and thus the long-term cost of a new
launch, the risk of building a new magazine
is sometimes just too high. Give me predictable rates, and I can launch more magazines,
creating jobs not just at Time Inc., but all
the way down our supply chain.”
Jewett recommended rate adjustments
should dovetail the rate of inflation or the
actual cost of providing services, whichever
is less, and occur no more than once a year.
Postal officials point out that the price of a
First-Class stamp, adjusted for inflation, is
virtually the same as it was in 1971, despite
a 15 percent rate hike in an 18-month period
between 2001 and 2003.
The USPS should keep rates at current
levels through 2008 to
balance out recent increases, testified Gary
Mulloy, chairman and
CEO of in-home print
advertising company
ADVO Inc.
Postmaster Jack Potter has suggested that
Potter
the USPS pursue the
option of a cap and phased rate increases,
while the Postal Commission recommended
giving the agency rate-setting authority as
long as rates covered the cost of each product
and did not increase faster than an index tied
to inflation.
Meanwhile, the USPS is already laying the
groundwork to raise rates in early 2006.
Some large companies advocate a prorated fee-for-service system in which commercial mailers would only pay for services
48
AMERICAN SHIPPER:
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APRIL
they use, in effect shifting the burden of
rate increases to different users. But others
argue that would undermine the principle
of universal service and force the USPS
to impose surcharges for delivery to rural
communities and other low-volume postal
districts or increase taxpayer subsidies.
“Such a structure would be tantamount to
proposing that public education be funded
only by those who have children in school,”
said William Burrus, president of the American Postal Workers Union. “The proponents
of this radical approach — those who profit
from the universal service network — are
eager to avoid paying for it.”
In an interview, Burrus said advertisers and
other users of Standard mail, who understand
their costs will rise unless First-Class mail
volumes turn around, are trying to preempt
an increase in Standard mail rates. “That’s
why lobbyists for the mailers are looking to
the future and seeing there will have to be
a re-division of that institutional cost. They
are saying, before we get to that point, ‘I’m
not sending mail to the rural parts of Maine,
so let someone else pay for that.’ And my
analogy is to the average citizen who says,
‘Well, I’m sending something next door. I
don’t want to pay for Alaska.’ ”
Burrus downplayed the effect of electronic transactions on First-Class volume
declines, saying the real diversion was occurring between First-Class and Standard
mail. Companies realize, he said, that postal
service for Standard mail has improved to
the point that it virtually matches First-Class
delivery schedules.
Mailers “are making decisions to use the
cheapest way to get in (the postal system).
Right now they have a sweetheart deal. Their
advertising dollars are going further. They
are using the postal network to get their
message out on the cheap. No other country
does this. No other country has discounted
systems, work-sharing systems. They have
a rate for mail. Our rates are all over the lot.
For the same size letter our rates range from
9 cents to 37 cents,” he said. “Let’s not fool
ourselves that pricing flexibility is going to
have any impact whatsoever in the drop in
First-Class volume.”
Outsourcing. One way the USPS acts
like a private entity is by entering into partnership agreements with vendors to provide
mail transportation, delivery service, retail
operations and other support services.
Unions oppose the trend of subcontracting
traditional postal tasks to private contractors
who tend to pay lower wages and hire fewer
workers. Outsourcing advocates say the
private sector should be allowed to operate
Postal Service processing facilities and run
back office functions so the USPS can focus
on what it does best: last-mile delivery.
William Davis, chairman and president of
mail service provider R.R. Donnelley, said
in written testimony to the House panel that
the USPS could save $6 billion to $8 billion
per year by outsourcing the operation of
Bulk Mail Centers and other sorting hubs
to private sector operators.
The unions, however, point to a sinceexpired contract with the former Emery
Worldwide Airlines (the air transport portion
of which now goes to FedEx) to process
Priority Mail at 10 mail facilities as a failed
example of outsourcing after the USPS
suffered hundreds of millions of dollars in
losses and took back the work.
Unions also don’t like work-sharing arrangements where major mailers that take
more steps to prepare — sorting, weighing,
applying barcodes, and delivering it deeper
into the system — get a discount because
they reduce the amount of available work to
postal employees. Nearly 75 percent of all
domestic mail is partially processed by commercial mailers, many of which outsource this
function to consolidators like R.R. Donnelley
and UPS Mail Innovations, according to the
GAO. Mailers receive $15 billion in annual
work-sharing discounts, Postmaster Potter
has testified. Corporate participants say unbundling the various handling and delivery
steps makes the USPS more efficient and
saves billions of dollars because it can invest
less in buildings and equipment.
Burrus testified before the House and
Senate that work-sharing discounts do not
save money and are unfair to consumers
and small businesses.
“The Postal Service is currently giving
away hundreds of millions of dollars every
year in the form of excessive work-sharing
discount” that “exceed the costs avoided by
the Postal Service,” Burrus said Feb. 5 during
a field hearing held in Chicago.
“It’s not possible to create a business model
for a healthy Postal Service if the rate-setting
process continues to hemorrhage hundreds
of millions of dollars. Put simply, the Postal
Service cannot break even if it continues to
artificially subsidize major mailers,” Burrus
told the Senate Governmental Affairs Committee a couple of weeks later. He argued that
such discounts should be eliminated, not just
rolled back to equal the costs avoided, as the
Postal Commission recommended.
Davis countered that work-sharing
discounts may appear to exceed savings
because the USPS doesn’t factor in all the
fixed costs it avoids when plugging the
figures into its cost accounting system.
Work-sharing incentives can take many
forms, but business mailers say rate confusion and bureaucratic delays have stunted
the program’s growth. They want the USPS
2004
3/18/04 12:56:59 PM
to have more incentives to expand the
program.
The agency recently requested permission
from the Postal Rate Commission to expand
an experimental program designed to make
handling of periodicals more efficient. Under
the trial arrangement, small publishers are
offered incentives to combine bundles of different publications on the same pallet, rather
than use costly mail sacks. Now the USPS
wants larger mailers with heavier publications
to participate in pallet sharing.
The need to take such a cost-saving plan
to the Postal Rate Commission illustrates the
difference between the USPS and an independent business, which can quickly implement
decisions to adjust to the market.
R.R. Donnelley, a magazine and catalog
printer with a separate division specializing in
postal and package logistics, took 18 months
to reach a work-sharing agreement with the
USPS on a co-palletization project, and only
ended up with a three-year trial run, Davis
pointed out. R.R. Donnelley is known for
popularizing the concept of zone skipping,
a system designed to reduce the cost of bulk
mail shipments by avoiding intermediate
sorting centers and delivering mail to the post
office closest to the final destination.
“In addition, the disarray of the price
signals set forth in the work-sharing program
make it impossible for mailers and mail
service providers to optimize their own mail
preparation functions and logistics networks
to take full advantage of the work-sharing
opportunities that the discounts are intended
to provide,” Davis said. “Mailers would like
to see prices structured in such a way as
to equitably reward mailers for absorbing
additional work and bypassing inefficient
portions of the postal stream.”
Technology. The USPS has become more
aggressive finding innovative ways around
regulatory restrictions. Barred by law from
offering volume discounts, the agency developed a customized pricing strategy known as
a Negotiated Service Agreement. An NSA
mimics characteristics of work sharing by
requiring business to adopt cost-efficient
mailing methods in order to differ from a
pure volume discount program.
Last June, credit card issuer Capital One
Financial Corp. became the first and only
company to sign an NSA with the Postal
Service. The arrangement is designed to
save the USPS money by allowing it to destroy undeliverable mail and electronically
notify Capital One instead of physically
returning it, saving the agency $40 million
over the term of the one-year deal. Capital
One also agreed to prepare mail to a higher
standard than normal. In return, Capital
One receives discounts on First-Class mail
volume above an annual threshold of 1.225
billion pieces, Vice Chairman Nigel Morris
told the House panel.
The agency is also beginning to test
systems for tracking each piece of mail,
but has a long way to go before it reaches
the sophistication of FedEx and UPS,
who allow customers to go online to learn
where their package is in the network at
any given time.
Business mailers envision a day when
USPS will be able to achieve the success
of those competitors in meeting precise
delivery windows.
The so-called intelligent mail initiative
uses barcodes to identify the sender, the
recipient, the type of mail product, the payment received, and an ID number.
By electronically sharing information on
the status of mail, the USPS can enable companies, for example, to know when marketing
materials have reached customers, or when
customers have put their bill in the mail so
those payments can be routed to a lockbox
or other processing point for improved cash
flow, Critelli said.
In the end, postal transformation is
unlikely to occur in one legislative swoop,
but through a series of internal and external
reforms during the next few years.
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44_54AS04.indd 49
2004 49
3/18/04 1:01:50 PM
Partial to parcel
USPS free market approach opens doors to new
business, encroaches on FedEx and UPS turf.
BY ERIC KULISCH
T
he U.S. Postal Service, hamstrung
by regulatory constraints, has lost
ground in the parcel market to private
delivery carriers who had the flexibility to
adopt innovative discount pricing strategies
to attract business shippers. Now it’s fighting back.
In the last few years the USPS has rolled
out new services aimed squarely at the parcel
market dominated by UPS and FedEx. But
those competitors are working to make sure
the USPS stays in its regulatory box.
The move to target the home package delivery market is part of a wider effort by the
quasi-governmental mail service to develop
a more flexible, private-sector-style business
model designed to improve service and rehabilitate the agency’s financial situation in the
face of falling business and rising costs.
At the center of the postal reform debate is a
fundamental question of whether the best way
to preserve the USPS is to streamline it or to
allow it to seek new revenue opportunities.
Carrier Pick Up is a new service the USPS
partially launched nationwide Feb. 1 that allows customers to place an order through the
Internet for next-day Priority and Express
mail pickup on the mail carrier’s normal
letter route. The concept was tested for six
weeks late last year in southern California
and Long Island, contributing to volume
spikes in those regions for Priority Mail,
said James Cochran, manager of package
services for the USPS. The USPS eventually plans to give customers the option of
scheduling service by phone, he said.
Carrier Pick Up, which is targeted to
households and small businesses, is available
in major metropolitan areas. Cochran said.
Postal officials hope to make the service available everywhere by the end of the year.
Under Carrier Direct, a similar program in
effect for several years, a customer can have
a dedicated truck make a special stop at a
home or business address during a specific
window of time, often within two hours.
For an extra $12.50, a shipper can book one
package or fill up the entire truck.
Cochran said Carrier Pick Up meets the
needs of most businesses because they have
the ability to project ahead by one day. If the
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number of packages changes somewhat, that’s
O.K., because “we are just trying to get a
sense of whether there are 20 or 200 packages,
because that will drive the size of vehicle we
use” on the route that day, he said.
“It allows us to compete better in the
marketplace, because we’ve got great prices,”
Cochran said. The service provides customers
added convenience by acting as an “electronic
red flag” to alert the driver to go to the door
for a package instead of having the customer
wait by the mailbox or office front desk.
The services are an attempt to recapture
lost parcel revenue. In 1985, the USPS was
the second-largest ground parcel carrier, but
by 2002 had dropped to a distant third behind
FedEx Ground, with $1.2 billion in parcel
post revenue, according to statistics compiled by industry analyst Satish Jindel.
Some competitors question why the Postal
Service has strayed from its core function
of universal letter and periodical delivery
into areas well served by the private sector.
The government should only step into the
free market to fill services others cannot
provide, Michael Eskew, UPS chairman and
chief executive, testified before the Postal
Commission one year ago.
“The same line of reasoning that some
use to justify USPS incursions in private
markets, if applied to other government
operations, would put the Government
Printing Office into publishing magazines,
the Treasury Department into issuing credit
cards, and the Air Force into commercial air
service,” he said.
Several proposals call for the Postal Rate
Commission to take on a stronger regulatory
role, including making sure the USPS is
competing fairly with private sector delivery companies like FedEx and UPS. These
companies complain that the postal agency
uses revenue from its monopoly products,
such as First Class Mail, to underwrite
expenses for products like Priority Mail
that must compete for customers on the
open market, and that the agency is exempt
from many laws and regulations with which
private firms must comply.
A paradox of postal competition in the
express and parcel markets is that the USPS
has the power to set the rules defining the
scope of its monopoly in these areas, thus
insulating itself from unbridled competition and benefiting financially from laws it
regulates. Under a bill introduced last year by
Sen. Tom Carper, D-Del., the USPS would
also be prohibited from issuing regulations
that would give the Postal Service an unfair
advantage over private sector companies, and
the agency would have to pay a federal income
tax on express, parcel and other products that
private firms also offer and pay tax on.
The USPS gets breaks from many types
of federal rules. It is not required to pay
property tax to states and localities for postal
facilities, and is exempt from gross receipts,
income and sales taxes required of private
companies. It also can borrow at preferred
rates from the federal government, and gets
preferential treatment from the Bureau of
Customs and Border Protection, because
there tends to be little of value to declare
in letters and flat envelopes that make up
most international mail shipments.
The USPS was exempted from the advance
manifest reporting requirements for inbound
shipments issued in December. Under the
new security rules, air carriers and other
transportation providers later this year will
begin electronically filing documents with
information about their freight as much as
four hours prior to arrival, so Customs can
determine if a shipment poses any terrorist
threat. In fact, postal services around the
world have always had a pass when it comes
to providing detailed manifest information to
U.S. Customs. Furthermore, postal shipments
are not subject to the same physical security
measures required by the Transportation
Security Administration as commercial air
imports, in part because the USPS has stringent security in its own facilities.
UPS, ironically, is fighting a similar battle
to one it waged with success in Europe for a
level playing field when it complained that
German postal monopoly Deutsche Post was
underwriting its express, international and
logistics divisions. The European Commission fined Deutsche Post 24 million euros
(about $22 million at the time) in March 2001
for cross-subsidizing its commercial parcel
activities and engaging in predatory pricing.
The EC condemned DP’s practice of offering
rebates to certain large mailers in exchange
for a large portion of their mail-order parcel
business. The EC later ordered Deutsche Post
to repay state subsidies and interest worth
about 850 million euros ($900 million).
The EC forced Deutsche Post to create a
separate entity for business parcel services
that would procure services from Deutsche
Post or its competitors, or provide the
services itself. European regulators said
delivery services provided by Deutsche Post
2004
3/18/04 1:02:10 PM
CLLN-4514_AmrShppr
3/8/04
10:49 AM
Page 1
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to the new entity must be at market prices
and be available in identical form to UPS
and other competitors.
The difference is that the postal service
operates with greater government oversight
and visibility in the United States than in
Germany, according to Jindel. UPS and
FedEx can ask the Postal Rate Commission
for evidence of how the USPS is allocating
parcel revenue to cover its costs.
Eskew argued that the USPS’s express and
parcel activity distorts the market without
adding measurable benefit to the USPS bottom line. Parcel Post, for example, would
need to quadruple the amount of packages
handled to offset just a 1-percent decline in
First-Class mail volume, he said.
Conversely, FedEx and some postal critics
question whether its time to roll back the
USPS monopoly on delivery of letter mail
and access to post boxes. FedEx and UPS
have extensive ground networks in place
for delivering residential parcels and can
meet required delivery windows in major
metropolitan areas. But powerful mail shippers say they are comfortable with the USPS
letter mail and mailbox monopolies.
From some perspectives, it is the USPS
that needs protection from the private delivery companies, who dominate the market
for parcels greater than two pounds and are
gaining market share in smaller parcels.
USPS Priority Mail volume dropped 14
percent in fiscal year 2003 and over the last
three years has declined nearly 30 percent,
the GAO reports. Priority Mail, once a growing profit center for the USPS, now faces
stiff competition from lower-priced ground
delivery alternatives. Parcel Post volume is
growing, but not enough to offset declines
in Priority Mail. Express Mail, a guaranteed
next-day or second-day delivery service, is
also declining for the same reason, the GAO
said. UPS and FedEx previously catered
to businesses, but are now challenging the
traditional post office with their own retail
presence. UPS acquired the Mailboxes Etc.
franchise in 2002 and turned it into the UPS
Store. FedEx acquired copy and office service
center Kinko’s this year (February American
Shipper, pages 40-45).
UPS and FedEx are in the unusual position
of simultaneously being major competitors
and users of the USPS. UPS is a major
Postal Service customer, paying more than
$250 million in 2003 for mail service from
its UPS Stores and general corporate communications, and benefiting from package
volume generated by catalogs and advertising distributed through the mail, spokesman
David Bolger said.
While FedEx and UPS want to restrict
the USPS’s ability to operate in parcel and
expedited delivery markets, they don’t want
52
AMERICAN SHIPPER:
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APRIL
Michael Eskew
chairman and chief
executive officer,
UPS
“The same line of reasoning
that some use to justify
USPS incursions in private
markets, if applied to other
government operations,
would put the Government
Printing Office into
publishing magazines,
the Treasury Department
into issuing credit cards,
and the Air Force into
commercial air service.”
the Postal Service to fail because they rely
heavily on the universal service it provides,
people familiar with postal issues say.
UPS recently began to offer a product
called UPS Basic, which allows the company
to handle mail preparation and line-haul
transportation, while allowing select shippers
the option of using cheaper Postal Service for
door-to-door delivery, to take advantage of the
more ubiquitous postal network in some parts
of the country. By dropping mail as deep as
possible into the system, either at bulk mail
centers or at the local delivery post office,
companies receive work share discounts for
avoiding the USPS’s more costly sorting activity. Companies with a special permit send the
USPS an electronic file with all of the packages they want delivered on a given day and
the Postal Service withdraws the appropriate
postage amount from a debit account.
That business model has been very successful for Donnelly Logistics (an arm of
catalog publisher R.R. Donnelley), Quad
Graphics, American Package Express, Airborne Express (now part of DHL) and about
15 other mail consolidators that have entered
the market since the Postal Service created
the Parcel Select program in 1999.
“We have efficiencies in the rural area
that they don’t,” USPS’s Cochran told
American Shipper.
Jindel estimates that the USPS has relin-
quished about $1.4 billion in annual parcel
services revenue to the consolidators and
that they will soon start cutting into the
agency’s Priority Mail volume.
FedEx is expected to enter this line of work
later this year after reaching an agreement
with the Postal Service, Cochran said.
FedEx also has the added distinction of
being a business partner with the USPS,
which signed a seven-year, $6.3-billion
contract with FedEx Express to provide
air transport for First-Class, Express and
Priority mail. FedEx also leases space at
post offices for its purple-orange-and-white
drop boxes, a business projected to garner
FedEx an additional $900 million.
Parcel Protection. Critics charge that
the nation’s mail provider does a poor job of
identifying and allocating overhead costs to
specific products. A commission appointed
by President Bush said express, parcel and
other competitive products should be priced
high enough to ensure they cover more than
operational costs, otherwise the USPS gains
an advantage because the letter-business
revenues cross-subsidize those products’
share of overhead costs.
UPS claims the USPS marks up FirstClass mail 81 percent to make up for
products that are underpriced relative to
their true costs.
The situation is similar to the one in the
air freight industry, where it is difficult to
isolate all the costs for cargo that is carried
in the belly of passenger plane. A cargo operation may appear profitable, but unless the
airline has a system for allocating a portion
of the fuel, crew and other costs to cargo,
the passenger side of the company masks
cargo’s true effect on spending and basically
gives cargo a free ride. Some airlines have
created separate cargo subsidiaries that
purchase transportation from the passenger
side as if they were a standalone company,
thus making their expenses more transparent
so they can find where inefficiencies lurk
in their cargo operations.
UPS and FedEx oppose giving the USPS
pricing flexibility, fearing it will only exacerbate parcel and express subsidization.
“FedEx will not support a bill that allows
the Postal Service to raise rates in non-competitive markets and use the funds to lower
rates in competitive markets,” said Fred
Smith, the FedEx chairman and president.
“Nor will we support a bill that allows the
Postal Service to use government status for
commercial gain, or convert assets of the
United States into cash for buying into competitive markets,” he told the House panel.
The policies of both companies are broadly
similar on the issue of postal reform, but
UPS has been more vocal about the USPS
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3/18/04 1:02:30 PM
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providing a redundant service. Smith, perhaps
mindful of his company’s lucrative USPS contract, indicated he is comfortable with USPS
as a player in the parcel business as long as
safeguards for competition are in place.
Eskew, in an effort to stave off further
USPS’ encroachment in the parcel, express
and international arenas, told the Postal
Commission that the government mail service would better preserve its universal mail
service by focusing on cost reductions rather
than volume discounts and other types of
negotiated rate reductions.
“It is essential that the Postal Service
make the necessary investments in cost
management information to enable them
to better manage their business and better
price their products — before any pricing
flexibility is considered,” Eskew said. Some
data on which prices are based is 20 years
old, he charged.
UPS has sophisticated activity-based
costing models to assign costs to products,
customers and processes based on their use.
Using data mining techniques, the Atlantabased parcel and logistics giant can tap more
than 50 million records in its enormous
database to closely analyze how packages
move through its network, measure the
amount of work input per product at each
stage and how much of shared resources
— such as real estate, information technology or sorting systems — are consumed by
ground, air, next day and other services,
according to testimony by James Holsen,
UPS vice president of engineering, before
the presidential commission. Detailed cost
data gives the company a better understanding of different market segments, and how
to associate profitability to each package
and customer, than relying on average costs.
It wants the Postal Service to develop the
same industrial engineering skills.
In its case to the Postal Commission, UPS
pointed to international mail, where rates
are not subject to review by the Postal Rate
Commission, as a situation where pricing
flexibility has failed to generate sufficient
revenue to cover non-operational costs or
create a profit. In fact, the amount of overhead covered by international mail has been
reduced 50 percent, from 2.6 percent to 1.3
percent, in the last 20 years, according to
the Postal Rate Commission.
Global Priority Mail and Global Package
Link, two international expedited products,
actually lost money, according to the Postal
Rate Commission’s 1998 report to Congress.
Global Package Link was discontinued in
2001.
UPS further contends that the USPS
should not gain further pricing power because
it has not taken advantage of the flexibility it
has under current law to get quick approval
54
AMERICAN SHIPPER:
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APRIL
for certain narrow rate classifications.
“We are not in the position where we want
to roll back what currently exists” in terms
of USPS activity in parcel and express business, UPS’ Bolger emphasized. “You can’t
put the genie back in the bottle. But you
need to get your cost house in order before
you can venture out into other areas.”
Bolger characterized UPS’s position as
one of offering business advice to the Postal
Service designed to help it overcome the
types of difficult financial, managerial and
operational barriers that any company faces
when trying to enter a new market.
“We aren’t giving away the secret sauce
by any means, but here’s what we have to do
in our business to make a profit. We know
exactly to the 10th of a penny how much
it costs to send a package from Cleveland
to Columbus. The Postal Service cannot
provide that level of detail,” he said.
That means the Postal Service needs to
analyze its mission and whether it is structurally and administratively ready to expand
its parcel activity. Among the questions the
agency has to grapple with are whether
its small, door-to-door trucks can handle
lots of larger packages and whether letter
carriers want to carry heavier packages,
Bolger said.
The USPS has to determine whether it’s
best suited to be a door-to-door integrated
carrier or a delivery company for the last
mile, agreed Jindel, who cited public perception and poor marketing as reasons hurting
volume growth for Priority Mail.
“People use the Post Office for a value
proposition. In spite of things that the Post
Office has done to improve its on-time service, the perception remains that customers
making a decision for on-time service are
going to use the private carriers,” he said.
Jindel, whose Pittsburgh-based SJ Consulting Group advises
shippers and logistics
providers on business
plans for parcel consolidation, small-package
delivery and courier
services, said USPS
promotes Priority Mail
as a two- to three-day
Jindel
service, when in reality
a high percentage of packets are delivered
overnight and on the second day.
“The technology is there now, so when
you select Priority Mail, by looking at the
origination and destination ZIP codes, they
should be able to tell you this is a next-day
service and two to three days,” he said in an
interview. “Priority Mail doesn’t have to be
guaranteed to be equal to the private guys if
they do a better job of telling the customer the
exact transit time that they achieve, because
the customer assumes the worst.”
In fact, private express delivery companies are trying to compete more with the
USPS on price by voiding guarantees for
on-time delivery in exchange for a lower
price to their customers, Jindel said. Now
that large shippers have programs that can tie
into the FedEx and UPS tracking networks
and document service failures, the delivery
companies would rather offer a 1 percent or 2
percent discount and avoid all the paperwork
associated with refunds, he said.
“The best role for the USPS in the parcel
industry is to focus on providing acceptance
and delivery service to any private company including integrated parcel carriers,
consolidators, less-than-truckload carriers
and other niche carriers,” Jindel wrote in a
white paper last year. “This will eliminate
some labor-intensive costs for parcel service, eliminate the arguments from private
carriers that the USPS rates for parcel
services are improperly priced, increase
parcel volume that is handled by the USPS
at its delivery units, and allow it to build
delivery density that will help reduce cost
for all mail services for the USPS.”
While business mailers work for rate
reductions, FedEx and UPS focus on raising
the postal rates with which they compete.
One of the reform principles outlined by
President Bush is for the USPS to become
more accountable by making public cost
breakdowns and performance measurements.
But William Burrus, president of the American Postal Workers Union, said he worries
that FedEx and UPS will use cost data as a
wedge to drive up the cost of Parcel Plus and
other services vs. their own products.
If the USPS says it is attributing 10 percent
of package revenue to transportation costs,
for example, UPS and FedEx might argue
to the Postal Rate Commission that their
models show transportation should account
for 15 percent of the cost, which might make
the postal product more expensive than the
comparable UPS or FedEx service.
“Transparency for a government agency
in a democracy is essential. But there have
to be some rules and regulations to avoid
being manipulated to the disadvantage of the
citizens in a market situation,” Burrus said,
adding, UPS officials “don’t permit anybody
to look into their pricing structure.”
Similarly, mailers will use the data to
support their effort to cut their own postal
rates, he said.
Rebecca Jewett, vice chairman of Norm
Thompson Outfitters and chairman of the
Direct Marketing Association, said universal
service should be expanded to include parcel
delivery. “Postal Service parcel delivery
represents competition, which holds down
parcel delivery costs for all.”
■
2004
3/18/04 1:02:49 PM
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Customs helps itself on Air AMS
If you are engaged in international air commerce, the
thought may have crossed your mind that U.S. border
authorities were awfully nice to feel your pain and give
you more time to comply with their new advance manifest
filing requirement.
But don’t get carried away. The government has not
gone soft. They postponed the rule to help themselves
because they were the ones behind the implementation
curve.
In December, the U.S. Bureau of Customs and Border
Protection laid out a series of rules forcing international
air freight carriers and forwarders to electronically share
business data on their shipments beginning March 4 in
order to give authorities early insight into potential terrorist threats.
The rules were part of a broader effort to manage the
security risk associated with thousands of ocean, air,
rail and truck shipments that enter the United States
every day.
Based on the 24-hour rule for inbound ocean shipments that effectively began early last year, carriers and
intermediaries have to provide their manifests anywhere
from 30 minutes to four hours in advance of arrival at a
U.S. port, depending on the mode of transportation.
U.S. Customs selected the air freight industry to go first
because a relatively successful system for transmitting
data on commercial cargo was already in place. Major
carriers have been voluntarily providing air waybills to
Customs for several years through the agency’s Automated
Manifest System (AMS).
All the players were gearing up for the compliance
deadline, which Customs officials had indicated was a
soft target building to strict enforcement several months
down the road.
Carriers and forwarders that did not previously
participate had to get new software systems that could
communicate with Air AMS, and those already in the
program had to tweak their systems to transmit additional
data required under the newer mandate.
A large segment of the airline industry was ready to go
when Customs said March 4 it was delaying implementation of the advance manifest rule because it was not ready.
It turns out Customs underestimated how much time it
would take to upgrade Air AMS and train personnel to
handle procedures and data fields not supported by the
current system.
Under the revised compliance schedule, the requirement for advance electronic filing of cargo data will be
phased in region by region.
The first group of U.S. ports, mostly on the East
Coast, will begin enforcing the rule Aug. 13, followed by
central states two months later and, finally, West Coast
states Dec. 13.
This unusual arrangement begs the question of whether
there will actually be dual, overlapping phase-in periods
— one based on geography and one on severity of noncompliance.
In the past couple of years, Customs has fostered
an educational approach to get informed compliance,
rather than cracking down the minute a rule goes into
effect. In the case of the 24-hour rule, as with the current implementation schedule for the Food and Drug
Administration’s bioterrorism rules for prior notice of
imported food shipments, Customs phased in enforcement to give the industry time to adapt to the new rules
56
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AMERICAN SHIPPER:
APRIL
and adopt the necessary technology to share trade data
with government systems. Early on, penalties and cargo
holds were only enforced in the most egregious cases in
which no documents were filed on time. Then the agency
progressively got tougher on violators who provided
inaccurate data, such as neglecting to include the name
of the consignee.
I guess this means each region will have its own phased
in approach for enforcing proper manifest filing. Customs
needs to clarify this situation.
The staggered regional rollout, while beneficial for
Customs, is essentially meaningless for air freight providers, because they will have to be ready to provide the
required information from day one anywhere in the nation.
In other words, the deadlines have not been extended
for carriers and forwarders as much as it appears. Data
quality has to be good at the source of the shipment, and
carriers have to be in compliance for that first region
because they can be transporting goods to Texas one day
and Massachusetts the next.
Still, the delay is a positive development. The agency
is learning from previous rollouts of automated systems
for clearing goods and vehicles that it’s better not to force
something on industry that the agency is not prepared
to implement.
The agency discovered that a big problem getting the
Free and Secure Trade program for electronic clearance
of pre-approved truck shipments set up on the northern
border (now also being implemented along the Mexican
border) was training inspectors to use the new computer
program.
By pushing back the start of the program and phasing
it in, Customs will create less disruption for shippers
because Customs will be better able to process the air
waybills.
Meanwhile, the extra five months is giving freight
forwarders time to re-evaluate how to submit shipment
data to Customs. A logistics industry executive at the
Logicon 2004 conference in Las Vegas, March 7-9,
privately shared that some are having second thoughts
about submitting their house airway bills to the air carriers to file with Customs on their behalf. Originally, the
air forwarders took a different approach than their nonvessel-operating common carrier cousins on the ocean
side that jealously fought to protect the confidentiality
of their customers by seeking the ability to file manifests
directly with Customs.
Direct filing has the added benefit of speeding up
transmission times to Customs, because for those who
relied on carriers to do their manifest filing the 24-hour
rule essentially meant they had to have their shipments
ready sometimes 48 hours in advance to account for the
data going through a middleman.
The logistics official, who is knowledgeable about
compliance issues, said part of the concern related to
co-loading situations in which one forwarder reserves
space on a plane and then offers some of it to other freight
forwarders when it is clear not all of it will be filled. The
practice results in a lot of last-minute negotiations about
whose house bill everything will go on and who will file
subcontractor bills.
Trying to figure out who has to give content and shipping data to whom gets pretty complicated, so it may
just be easier for a company to file directly through Air
AMS and notify the carrier and the co-load partner that
the data has already been transmitted.
2004
3/18/04 1:10:15 PM
Untitled-4
100
6/3/02, 11:40 AM
COSCO-style cooperation
Wei Jiafu, the president and chief executive officer of the
China Ocean Shipping Co. group, believes there should be
more cooperation in the liner shipping industry. He called
for more cooperation not only between carriers, shippers
and other parties, but also among fellow carriers.
In a broad policy speech to a conference in Long Beach
March 9, Wei suggested that a “cooperative game” would be
beneficial to all. He praised “coordinated competition” and
criticized “vicious competition” among liner carriers.
Nobody could fault Wei for suggesting more cooperation among shippers, carriers and other parties involved
in shipping. But more cooperation between carriers, if
it implies the avoidance of “vicious competition,” is a
different matter altogether.
Regretfully, Wei did not say which specific areas of
cooperation COSCO had in mind.
Wei said liner operators “should enhance exchanges
and cooperation, strengthen mutual trust, safeguard
common interest of our industry under the framework
of regional and international maritime organizations and
liner conferences.”
You would have thought that ocean carriers already
cooperate a fair amount on a wide range of topics: ship
operations and capacity (under vessel-sharing agreements
and global alliances), regulatory and security issues (under
representative associations like the World Shipping Council), e-commerce (under multicarrier portals and various
technical committees), insurance (under protection and
indemnity clubs) and pricing and market analysis (under
conferences and discussion agreements).
Is this not enough?
China warms to stock market
China Shipping Container Lines, the fast-growing
state-owned Chinese carrier, is planning an initial public
offering on the stock market in about June, according to
reports in Asia.
Hong Kong newspaper The Standard said China Shipping Container Lines is seeking to raise about $2 billion
with an IPO in Hong Kong.
A spokesman for China Shipping Container Lines in
Shanghai could not comment on this development, saying
this information was considered “secret.”
The carrier is a subsidiary of Shanghai-based China
Shipping Group, headed by Li Kelin.
BNP Paribas Peregrine Capital is reportedly sponsoring the IPO.
Another affiliate of China Shipping Group — China
Shipping Development Co. — is already listed on the
Hong Kong stock market.
COSCO, another state-owned Chinese company, also
has several affiliates listed on Asian stock markets.
In early January, China Shipping Development said China Shipping Group was planning to turn China Shipping
Container Lines into a joint-stock limited company that
could raise capital domestically and internationally.
If confirmed, China Shipping Container Lines’ public
offering will be the third this year in the liner industry,
alongside those of Royal P&O Nedlloyd (incorporating
P&O Nedlloyd Container Line) and Hapag-Lloyd (including Hapag-Lloyd Container Line.)
Nedlloyd, NOL takeovers?
Just when you think mergers and takeovers in liner shipping were off the agenda, something new comes up.
58
58AS04.indd 58
Two Norwegian shipowners have acquired stakes in
soon-to-be-restructured Royal Nedlloyd NV, the Dutch
company that owns 50 percent of P&O Nedlloyd.
John Fredriksen, who controls the tanker-shipping giant Frontline, has bought a 6.7-percent stake in the Dutch
company. Einar Rasmussen, another Norwegian shipowner,
has a shareholding of less than 5 percent in Nedlloyd.
It is not known whether the Norwegians are buying
into Nedlloyd for purely speculative reasons or as a first
step towards an acquisition.
In the early 1990s, Nedlloyd fought off another
Norwegian investor, Torstein Hagen, who tried to gain
control of the company and accused the company of
underperforming.
But Haddo Meijer, chief executive officer of Nedlloyd, said the actions of Fredriksen and Hagen are not
comparable.
“The company then was in distress,” Meijer said, referring to the time of the onslaught by Hagen. Nedlloyd
now “is a successful company.”
P&O Nedlloyd is also believed to have been approached
recently by a company for a takeover.
Meanwhile, Neptune Orient Lines, the parent company
of APL, said it would “continue to explore avenues to take
advantage of any growth opportunities in the future.”
But asked if the company would acquire other shipping
lines, APL CEO Ron Widdows replied: “I think most
carriers in our industry are profitable to some degree. I
don’t know there is anybody who is selling.”
“There hasn’t been any consolidation for some time,”
Widdows told American Shipper.
What if?
Christopher Koch, president and chief executive officer of the World Shipping Council, said one of the
security issues to be examined by U.S. federal agencies
in the coming year is security contingency planning in
shipping.
Koch referred to this as “the unpleasant topic of contingency planning, or how would trade be allowed to continue
in the event of a terrorist attack on the industry.”
Koch said at a conference March 9 that the issue
requires definition within and among the various government agencies.
Its implementation of any response scenario will also
involve “substantial activity” by other governments,
shippers, carriers, brokers, terminal operators, and others, he said.
“Having some kind of dialogue and road map of expectations and requirements would be very helpful to the
private sector,” Koch noted. The World Shipping Council’s
carrier members are ready to participate in such work.
In late 2002, the consulting firm Booz Allen Hamilton
and 85 officials from government agencies, port authorities, consumer goods manufacturers, insurers, technology
providers and carriers carried out a war game simulation
of “dirty bomb” attacks through U.S. ports.
Participants in the war game made decisions to shut
down every port in the United States for eight days, which
resulted in a backlog of container deliveries that would
require 92 days to be resolved, and would have an impact
of $58 billion on the U.S. economy.
“We discovered that it is easy to close a port in the event
of a crisis, but it is extraordinarily difficult to deal with
the consequences of closing,” said Mark Gerencser, vice
president of Booz Allen Hamilton, at the time.
2004
3/18/04 1:11:54 PM
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The Gatun Locks at the Atlantic entrance to the Panama Canal.
Panama Canal gathers
more cargo data
Authority seeks prior information for security purposes,
but automated system draws concerns.
BY PHILIP DAMAS
B
eginning April 1, the Panama Canal
Authority will require shipping
companies or their agents to submit
detailed data electronically and in advance
of vessels transiting the canal.
Response to the requirement has been
mixed welcome from canal users, who say
they were not given enough time to prepare
for the change, and fear commercial data
could be disclosed to competitors.
The Panama Canal-sponsored Automated
Data Collection System has several goals. It
aims to make data gathering more efficient
by eliminate data collection via paper. And
the requirement that vessels transiting the
canal report all necessary data 96 hours before arrival will help the authority’s security
verifications and transit operations. In addition, the Panama Canal Authority believes
the system will improve its analysis of the
market, leading to “a more accurate pricing
and customer service strategy.”
In January, the Panama Canal Authority’s
maritime operations director, Jorge L.
Quijano, told all shipping agents, owners
and operators in an official notice that the
Automated Data Collection System would
be formally introduced April 1, with full
implementation scheduled for July 1.
Under the canal’s plan, shipping lines
60
AMERICAN SHIPPER:
60_63AS04.indd 60
APRIL
“One of our major
concerns has to do with the
integrity of the information
being handled.”
Thomas H. Kenna
president,
Panama Chamber
of Shipping
must now submit to the canal authority not
only operational data about their ships, but
also data regarded as commercially sensitive, such as cargo declarations.
Teresa Arosemena, spokesman for the
Panama Canal Authority, said the canal
will electronically collect data that has been
manually collected.
“The required information is basically
the same type of information that has always been requested from our customers,”
the Panama Canal Authority said in an
official notice. But it admitted additional
information will be required, including
vessel security officer general data, and
prior ports and corresponding MARSEC
(Maritime Security) levels. The canal will
require detailed information on:
• Harmonized code for detailing of
cargo (10 digit), including cargo inside
containers.
• Location of cargo in the vessel, according to the stowage layout, to be electronically
provided when a vessel arrives at canal
waters for its first transit.
• International Maritime Dangerous
Goods (U.N.) code for dangerous cargo.
• U.N. port codes for origin and destination ports.
• U.N. Country codes.
The Panama Canal Authority will require
detailed commercial data that appears on
vessel manifests, a move that prompted
carriers to compare it with the scope of information gathered by the Port Import Export
Reporting Service via U.S. Customs.
Chris Koch, president and chief executive
officer of the Washington-based World Shipping Council, said Panama’s new cargo data
gathering system “is going to be a mirror
image of the U.S.’s system.”
It will also collect information on cargoes
to and from the United States. The cargo
declaration requirement will apply not only
to cargoes shipped to Panama, but also
to shipments on transit via the canal and
destined to other countries.
“There is sensitivity among shippers”
about their information being disclosed,”
Koch said. “Shippers need to think about
it.”
In the United States, though, where data is
gathered by Customs through the Automated
Manifest System, it is known that shippers
can request their name not to be disclosed
to the public.
Asked whether the canal authority will
publish the new detailed commercial data
on container shipments, Arosemana replied:
“We don’t disclose what’s in the box. We
will publish the number of containers, but
not the cargo.”
“We have no way of knowing if the
Panama Canal Authority will publish cargo
statistics any differently than they do now,”
said Thomas H. Kenna, president of the
Panama Chamber of Shipping, which represents shipping agents in Panama. “We are
confident that the Panama Canal Authority
is well aware of their customers’ concerns
regarding confidentiality and we expect
the Panama Canal Authority to respect that
confidentiality.”
“The Panama Chamber of Shipping
is extremely concerned with the Panama
Canal Authority’s announcement regarding
the implementation of the Automated Data
Collection System and more specifically
with the unrealistic deadline established for
2004
3/18/04 1:15:00 PM
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3:54 PM
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TRANSPORT / OCEAN
its implementation,” Kenna told American
Shipper.
He said the automated system “offers
some distinct advantages and opportunities
if implemented correctly.” But he cautioned
that introducing such an electronic system
“is a task that cannot be rushed into without
proper and detailed analysis.”
“Although the technology required for
the implementation of the Automated
Data Collection System currently exists in
the market, many of the canal’s customers
(ships, lines, operators or agents) do not
have the resources available at this time,”
Kenna said.
“How is a ship expected to ‘download’
and transmit the requested information
electronically if all that is available onboard
is a telex machine?” he asked. “What backup systems are in place in case of a power
failure, computer glitch or Internet serviceprovider failure? The potential liability
issues are daunting.”
The shipping executive noted that local
agents in Panama do not have the required
additional human resources readily available on hand and that hiring and training
takes time.
“One of our major concerns has to do
with the integrity of the information being
handled,” Kenna said. Information passing
from the ship to a clerk at a local agency
and then re-keyed into the canal computer
“is prone to contamination.”
The Panama Chamber of Shipping has
held meetings with the Panama Canal Authority to discuss its concerns.
Major local agencies have offered to
open their offices to canal technicians
and marine traffic control staff to allow
a better, on-hand look at their operations.
The Panama Chamber of Shipping is also
looking at ways to mitigate “the expected
fallout if the implementation deadline is not
extended,” Kenna said.
Meanwhile, the Panama Canal continues
to experience rapid growth in transit traffic
by commercial ships.
In the fourth quarter of 2003, canal tonnage increased 9.3 percent to 66.8 million
tons. The number of canal transits increased
3.6 percent to 2,991 from 2,886.
There was a rise in passenger, dry bulk,
tankers and container vessels. “A 4.6-percent
rise in bulk carrier transits can be attributed
to increased steel exports from Asia and
increased grain exports from the United
States to Asia, especially China,” the Panama
Canal Authority said.
The Panama Canal has also benefited
from the greater reliance of transpacific
container shippers on all-water services,
following the U.S. West Coast port labor
disruptions of 2002.
■
62
AMERICAN SHIPPER:
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APRIL
Carriers see end of losses in their liner shipping
operations, through cost cuts, rate increases.
BY PHILIP DAMAS
P
&O Nedlloyd and Neptune Orient
Lines, the parent company of APL
Liner and APL Logistics, both completed their turnaround last year, buoyed by
higher freight rates in their liner shipping
operations.
London-based P&O Nedlloyd reported a
net profit of $15 million for 2003, representing a favorable $319-million profit swing
when compared to its record loss of $304
million for 2002.
NOL reported an even larger year-on-year
profit improvement — $759 million — as it
recovered from record losses of $330 million
made in 2002 to report a net profit of $429
million in the year ended Dec. 26.
NOL’s turnaround was mainly due to a
$488-million improvement in the annual
operating results of APL Liner, and also
reflected capital gains on the sale of the
Singapore-based group’s tanker-shipping
activities.
APL Liner reported an operating profit
(earnings before interest and tax) of $406
million for last year, compared to a loss of
$72 million in the previous year. P&O Nedlloyd made an operating gain of $77 million
in 2003 after $19 million of restructuring
costs, compared to losses in 2002 (see table,
page 63).
As with P&O Nedlloyd, APL’s improved
bottom line for 2003 was largely driven by
a jump in revenue, itself the result of higher
unit revenue per TEU.
APL’s revenue soared 21 percent last
year to $4.2 billion, as average freight rates
rose 20 percent to $1,256 per TEU. P&O
Nedlloyd’s revenue went up 18 percent
to $4.8 billion, with a 12-percent rise in
revenue per TEU.
The increases in revenue per TEU confirm
the upward trend of freight rates across
the container shipping industry last year.
P&O Nedlloyd is the world’s fourth-largest container shipping line and APL the
eighth-largest.
P&O Nedlloyd’s management team “has
put a lot of efforts over the last 12 months
on rates, and this remains a priority going
forward,” said Philip Green, chief executive
officer of P&O Nedlloyd.
However, both P&O Nedlloyd and APL
insisted that their improved results were
not just due to the higher prices charged
to shippers.
Several Factors. “If you drive your
volumes up, your prices up and your costs
down, you get a better result,” Green said.
Haddo Meijer, chairman of Royal Nedlloyd, which owns 50 percent of the AngloDutch joint venture, said P&O Nedlloyd’s
improved results came from both the better
market environment and the actions of the
carrier’s management.
Ron Widdows, CEO of APL, said 40 percent of the improvement in NOL’s earnings
last year came purely from rate increases.
“The majority of the improvement
came from cost reductions … and yield
management,” he said. The higher profits
were generated not only through increased
rates, but also through an improved cargo
mix targeting higher contributions, he
explained.
APL cited several factors for its profit
recovery: robust demand, rate increases, a
tight control of capacity and cost cuts. The
carrier implemented a cost reduction program worth $163 million a year, although its
overall operating costs increased last year.
“(The) industry’s supply/demand balance
and carriers’ resolve led to successful general rate recovery,” APL said. NOL said 2003
“was an outstanding
year for (the) liner
business,” and noted
the turnaround of the
liner shipping industry
at large.
In 2003, APL Liner
increased its carryings
in the headhaul, or
Green
dominant, directions
of the east/west trades: by 7 percent in the
eastbound transpacific, 15 percent in the
westbound transatlantic and 11 percent
in the Asia-to-Europe trade. By contrast,
the carrier said it deliberately reduced its
carryings in the westbound transpacific
2004
3/18/04 1:15:24 PM
TRANSPORT / OCEAN
“as equipment was quickly repositioned
empty” back to Asia to move other highyield eastbound shipments.
P&O Nedlloyd said it improved its operating profit last year despite the adverse
effect of both fuel costs and currency.
The London-based carrier made annualized cost cuts of $301 million over
2002-2003 before restructuring costs of $28
million in 2002 and $19 million in 2003.
These fell short of P&O Nedlloyd’s target
of $350 million, mainly due to increases
in ship charter rates and a growth in trade
imbalances at the end of 2003, the company
reported.
Restructuring, Efficiencies. Green,
who took over as CEO in January, praised
P&O Nedlloyd’s former management for
turning an operating loss of $206 million
in 2003 into an operating profit of $96
million in 2003.
Yet, “the level of profitability is not acceptable at the moment,” he cautioned.
“What was achieved is not enough,”
Green added. He promised more action to
reduce costs and raise efficiency, including
through yield management.
P&O Nedlloyd will introduce this year a
new system to manage yields and capacity
utilization, as part of its information technology program, called Focus. Using the
system, P&O Nedlloyd employees will be
able to see the revenue and costs associated
with each shipment, Green said.
P&O Nedlloyd ended 2003 with a stronger fourth quarter that produced higher
freight rates and a net after-tax profit of
$56 million, as compared to a loss of $83
million in the year-earlier period.
Fourth-quarter revenue climbed 22 percent to $1.3 billion, with a 16-percent rise
in average revenue per TEU to $1,347, and
a 5-percent volume gain to about 988,000
TEUs.
Having recently sold its remaining tanker
shipping interests, NOL is now concentrating on the liner-shipping and logistics
businesses.
David Lim, group CEO of NOL, said
NOL’s restructuring is 95 percent complete
in terms of disposals of non-core assets.
In a statement to the stock market, NOL
also said that it would “continue to explore
avenues to take advantage of any growth
opportunities in the future” — a language
that suggests potential acquisitions. NOL
did not elaborate on what type of acquisitions it would consider.
Following the sale of its tanker-shipping
arm, NOL reduced its total debts from $2.8
billion at the end of 2002 to $1.3 billion at
the end of last year, and reduced its debtto-equity ratio from 5.1 to about 1 over the
Operating results of APL, P&O Nedlloyd 2003
Container carryings (in million TEUs)
2002
3.000
APL
2003 % chng
3.032
1%
2002
3.560
P&ONL
2003 % chng
3.743
5%
Revenue (in $millions)
Operating costs (in $millions)
Operating profit margin (in $million)
$3,425
$3,497
($72)
$4,180
$3,774
$406
22%
8%
664%
$4,075
$4,309
($234)
$4,818
$4,741
$77
18%
10%
133%
Average revenue/TEU*
Average operating cost/TEU
Average operating profit/TEU
$1,142
$1,166
($24)
$1,379
$1,245
$134
21%
7%
658%
$1,145
$1,210
($66)
$1,287
$1,267
$21
12%
5%
132%
* The figures shown for average revenue per TEU are calculated as total revenue divided by carryings; APL said that its average freight rate amounted to $1,046 per TEU in 2002 and $1,256 per
TEU in 2003.
same period.
Neptune Orient Lines’ directors are proposing to resume the payment of dividends
to stockholders.
APL’s liner business generated 75 percent
of the revenue of the group in 2003, virtually unchanged from the previous year’s
percentage.
APL Logistics, which accounts for 18
percent of group revenue, also returned to
profit last year, with an operating income
of $7 million on revenue of $975 million.
This compares to an operating loss of $27
million and revenue of $813 million in
2002. APL Logistics’ profit resulted from
an increase in revenue, operational improvements in contract logistics and international
services operations, and “improved pricing
discipline,” the company said.
NOL also reported $75 million in operating profit for 2003 from its tanker-chartering arm, now sold.
Prospects. APL predicts a firm outlook
for the liner shipping industry this year, with
“supply and demand in relative balance.”
“Volumes will increase and rates in key
trades are projected to recover further this
year due to favorable economic conditions
and supply constraints,” APL said.
NOL said it expects to raise its profit
results again this year, barring exceptional
circumstances.
Widdows told American Shipper Feb.
27 that APL’s ships in the transpacific,
Asia/Europe and intra-Asian trades are
running full, with cargo being “rolled over”
to the next sailings as volumes grow at a
robust pace.
“We’re full in Asia/Europe and rolling
cargo; we’re full in the transpacific and rolling cargo; and we’ve been full in intra-Asia
for five months,” Widdows said.
APL reported that industry-wide cargo
volumes in the eastbound transpacific
trade rose 9.8 percent in January over the
high volumes experienced in January 2003
shortly after the ending of the U.S. West
Coast port lockout. From Asia to Europe,
conference statistics show a 12-percent
jump in volumes for January from Asia,
Widdows said.
He also reported increases in the backhaul
trades from the United States and Europe
to China.
APL’s bullish comments on volume
growth follow other forecasts that the
transpacific trade could slow down this year.
In December, eastbound Pacific volumes
decreased 6 percent, largely due to the effect of the previous December’s West Coast
labor disruptions. In 2003 overall, volumes
rose about 8 percent, with growth slowing
in the second half.
Commenting on the January cargo
growth figures, Widdows cautioned that
it is too early to say whether current fullvessel conditions would last until the end
of this year.
Yet, APL expects container trade growth
to exceed that of supply in 2004. APL’s ship
utilization in its headhaul trades averaged 94
percent in the fourth quarter of 2003.
Widdows said it is possible that the backhaul trades from North America to Asia and
from Europe to Asia could increase their
cargo volumes this year.
“The backhaul volumes are strong and
appear to be sustained,” Widdows said.
He also cited growing cargo imports in
China.
However, Green and other carrier executives are expecting the headhaul trades to
grow faster than the backhaul trades. Green
sees a worsening of trade imbalances.
P&O Nedlloyd said that, with the favorable trend in freight rates, and provided trade
growth continues as in 2003, the outlook for
the container shipping industry “remains
positive” for 2004 although cost pressures
remain from currency movements, high fuel
prices and rising charter rates.
■
60_63AS04.indd 63
2004 63
3/18/04 1:15:45 PM
TRANSPORT / OCEAN
Playing a ‘cooperative game’
COSCO’s Wei Jiafu urges more cooperation
among ocean carriers, shippers.
LONG BEACH, CALIF.
Wei Jiafu, president and chief executive
officer of the China Ocean Shipping Co.
group, the parent company of COSCO
Container Lines, has called for more cooperation in the liner-shipping industry among
carriers, and between carriers, shippers
and other parties, saying that a “cooperative game” would be
beneficial to all.
In a broad policy
speech to a conference
in Long Beach March
9, Wei suggested that
this cooperation model could begin in the
transpacific trade.
Wei
“I believe the Pacific services should become a primary
platform for liner operators to establish
long-term coordinated competition mechanism with each other, as well as with shippers, related service providers, terminal
operators, logistics businesses and railway
companies in compliance with (the) cooperative game mentality,” he said. “We hope
that by establishing this new mechanism,
new cooperative patterns will emerge
gradually in the industry, and will eventually guide and promote the sustainable,
healthy and stable development of the liner
transport industry.”
The cooperation could occur at different
levels, Wei said.
Liner operators should establish a new
mechanism of “coordinated competition”
and a new mode of “competitive development” in compliance with the mentality
of a cooperative game, Wei said, without
specifying which activities would be coordinated.
However, Wei added that liner operators
“should enhance exchanges and cooperation, strengthen mutual trust, safeguard
common interest of our industry under the
framework of regional and international
maritime organizations and liner conferences.”
Although not a traditional member of
liner conferences, COSCO has nevertheless joined the discussion agreements in
the U.S./Asia and Canada/Asia eastbound
and westbound trades in recent years, as
well several carrier groups in Asia. COSCO
Container Lines is also a member of the
64
64AS04.indd 64
AMERICAN SHIPPER:
APRIL
“CKYH” global alliance formed in early
2002. COSCO has also joined the World
Shipping Council, the Washington-based
carrier group.
Wei appeared to suggest that the cooperation could be industry-wide.
“We should promote the cooperative
and competitive relationship between liner
operators and gradually establish a new
mutually beneficial and win-win business
mode in this industry,” Wei told the Long
Beach conference.
Wei said carriers committed their
resources to competition, rather than collaboration, with each other.
“Many of them are preoccupied with
a ‘single-party-win’ mentality, seeking
only to maximize self-interest, and this
behavior often triggers vicious competition, and will eventually hurt all the parties
involved,” he added. “This phenomenon
has been witnessed over the past years in
the international liner transport market,
including transpacific routes on numerous
occasions.”
Wei’s comments appeared to mirror what
other ocean carriers have called “destructive” pricing competition. It is known that
undercutting rates to retain and increase
market share has been a common competitive practice among container carriers,
particularly in weak markets.
Referring to the game theory of human
interactions, in which the outcomes depend
on the interactive strategies of two or more
persons, Wei said all games can be divided
into either a cooperative game or a noncooperative game.
“In the case of non-cooperative games,
the participant focuses on maximized
personal interest ... this turns out as the
worst situation for everybody,” Wei noted.
By contrast, a cooperative game scenario
“encourages individuals to pursue personal
benefit on the basis of a maximized collective benefit,” he said.
Wei believes this approach can be transposed to liner shipping.
“No entity has been created to represent
the collective interests of carrier, shipper
and other service providers,” he said.
“These three crucial components of the
marine transport chain’s client-oriented
guidelines have not been applied in earnest
to other parties in the same supply chain.
“Normally, they focus on creating value
for themselves, instead of creating value for
others, so a mentality of serving each other
has not been founded,” Wei said.
“Liner operators should comply with a
basic principle of competition, as well as
cooperation when handling the relationship
with shippers, shipping-related service providers and terminal operators,” he said.
A “serving-each-other” mentality should
be established among these four parties and
each party “should aim at creating value for
others,” he argued.
Wei noted that the collaboration between
liner operators and shippers should not be
limited to the maritime shipping sector only,
and should extend into logistics areas.
Wei also called for regulatory harmonization, and more communication between
policymakers and the industry.
“The coexistence of excessive regulatory
control, together with arbitrary attitudes in
the shipping policies adopted by various
governments, have brought a state of confusion and disorder to the market,” he said.
China’s Growth. Commenting on
China, Wei said that in recent years China’s
container-shipping market has witnessed
a fast growth and China’s liner transport
market has become the world’s fastestgrowing market.
Statistics show that in 2003 China’s
seaports handled 47.66 million TEUs, 31.7
percent up from 2002, he said.
The Chinese government is aiming to
quadruple the country’s GDP by 2020,
when compared to that of 2000. “In order
to hit this target, China’s economy and trade
need to maintain a fast growth for a long
period of time and annual GDP growth rate
is expected to maintain at about 8 percent
and annual trade growth rate at over 10
percent by 2010,” Wei said.
In shipping, the Chinese government is
promoting a fast development of the liner
transport and the shipping industry, Wei
reported.
“These measures include accelerating
construction of maritime infrastructure,
regulating the shipping market in compliance with laws and actively promoting
modern logistics,” he said. Wei cited the
implementation of a new “Port Code” of
the People’s Republic of China that will
“play a key role in promoting terminal
constructions and providing higher quality and higher efficiency port service
to both domestic and foreign shipping
companies.”
Non-Chinese shipping companies account for 70 percent of deepsea liner sailing
from China and 47.5 percent of near-sea liner
sailings, COSCO reported.
■
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Keeping ‘outsiders’
out of Jones Act
A Coast Guard rulemaking promises to more
closely scrutinize vessel financing.
BY CHRIS GILLIS
T
he 1920 Merchant Marine Act, better
known as the Jones Act, is supposed
to preserve U.S. domestic waterborne trades for the American merchant
marine, but complex vessel lease financing
schemes have allowed some foreign operators to enter the business.
The Coast Guard has issued new rules and
proposed another rulemaking jointly with
the Maritime Administration that promise to
tighten the reins on lease financing arrangements to ensure that Jones Act vessels remain
in the hands of U.S.-based companies.
In 1996, Congress amended the vessel
documentation laws to promote lease financing of vessels operating in coastwise trades.
Lease financing has become a common way
to finance capital assets in the maritime
industry because of the cost benefits over
traditional mortgage financing.
Prior to 1996, Jones Act operators were
prevented from obtaining financing from
companies that are less than 75 percent
U.S. owned because the leasing company
had to be a U.S. citizen under section 2 of
the 1916 Shipping Act. Lease financing
allowed U.S.-flag vessel operators, for the
first time, to obtain international sources of
capital to finance ships.
Under lease financing, however, vessel
ownership is in the name of the lessor, with a
“demise charter” or “bareboat charter” to the
vessel charterer, which in turn is responsible
for operating, crewing and maintaining the
vessel as if the charterer owned it.
While most of the transactions under
the 1996 lease financing provisions are
legitimate, Jones Act proponents say some
foreign entities have used complex corporate
transactions to foil congressional intent
for the law. These foreign operators set up
what they call “special purpose” leasing
companies that are not bonafide financial
institutions to bareboat charter vessels to
section 2 U.S.-flag vessel operators.
Jones Act proponents also claim that
overseas-backed operators have the benefit
of substantial direct and indirect subsidies,
pay little or no taxes, face less stringent
Michael G. Roberts
spokesman,
Maritime Cabotage
Task Force
“We’ve seen what
happened to the U.S.-flag
vessel industry
in the international trades.
We’re not going to take
it in the Jones Act trades.”
competition and other regulatory requirements, which are not available to U.S.-based
marine services providers. In addition, the
home countries of these foreign operators
impose restrictive maritime cabotage rules
of their own.
In recent years, Australian firm Adsteam
Marine entered the U.S. Pacific Northwest
and Alaska towing markets by acquiring
U.S.-flag Northland Services. French company Groupe Bourbon entered the U.S. Gulf
offshore marine services business using a
similar method.
Nabors Industries, a U.S. operator of
offshore supply vessels, relocated its corporate headquarters to Bermuda to take
advantage of extraordinary tax breaks. Jones
Act proponents allege that this structure
enables Nabors to move the revenues from
its U.S.-flag vessel operation offshore to
avoid paying U.S. taxes.
The Coast Guard said it’s aware of these
operations and plans to use its new regulations for closer screening of companies seeking Jones Act operations endorsements.
The Maritime Cabotage Task Force, a
large pro-Jones Act lobby, has spent the
past several years pressing the Coast Guard
to crack down on special purpose leasing
companies and other schemes that allow
foreign entities to enter the U.S. domestic
waterborne trades.
“This rulemaking represents a substantial step forward in restoring the certainty
necessary to ensure continued investment in
vessels and companies engaged in domestic
waterborne commerce,” said Philip M. Grill,
chairman of the Washington-based task force,
in a statement. “America’s Jones Act fleet is
growing to meet the needs of commerce, but
must be assured that the playing field will
remain level so that true competition, not unfair advantages, determine which companies
thrive in the future.”
In comments to the Coast Guard, the task
force said the agency has “an independent
obligation to interpret the citizenship requirements” before issuing a vessel operator a
coastwise endorsement. “In light of the
significant legal change resulting from the
lease financing provision, and the potential
for abuse of that provision contrary to U.S.
security and trade interests, the Coast Guard
must carefully review all aspects of any potentially questionable transactions brought
before it,” the task force said.
Representatives of overseas-based Jones
Act operators insist that they operate within
the law. “This is no different than Toyota setting up a factory in Tennessee,” said Charlie
Papavizas, a Washington-based attorney for
Groupe Bourbon. “It’s Japanese money being
invested in the United States, and thus the
factory and the employees are in America.”
Papavizas pointed out that Groupe Bourbon is financing the construction of 10 U.S.flag ships in an Alabama shipyard.
“It’s enormously frustrating because it all
boils down to the big Jones Act constituency
telling the Coast Guard that this is bad and to
fix it,” he said. “The law doesn’t permit them
to do this, but the agency did it anyway.”
Jones Act proponents remain adamant
about preventing U.S.-based companies in
the coastwise trades from being picked off
by “outsiders.”
“We’ve seen what’s happened to the U.S.flag vessel industry in the international trades,”
said Michael G. Roberts, a spokesman for the
Maritime Cabotage Task Force. “We’re not
going to take it in the Jones Act trades.”
The Coast Guard is not done with its
attempt to block overseas-based companies from the Jones Act trades. In another
proposed rulemaking with the Maritime
Administration, the Coast Guard proposes
to amend its regulations on documentation
under lease-financing provisions of vessels
engaged in the coastwise trades.
One proposal considers whether the agency
should prohibit or restrict the chartering back
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of a lease-financed vessel to the parent of the
vessel owner or to a subsidiary or affiliate of
the parent. Another proposal would set a limit
on the time that a coastwise endorsement issued before Feb. 4 would run. In addition, the
Coast Guard will consider whether applications for endorsement under lease-financing
provisions should be reviewed and approved
by an independent third-party with expertise
in vessel chartering.
At the same time, MarAd proposes to
amend its regulations to require its approval
of all transfers of the use of a lease-financed
vessel engaged in the coastwise trade back
to the vessel’s foreign owner, the parent of
the owner, a subsidiary or affiliate of the
parent, or an officer, director or shareholder
of one of them.
In 1992, MarAd changed its rules to allow
general approval for time charters of U.S.flag vessels to charterers that were not U.S.
citizens, and to eliminate MarAd’s review of
these time charters. However, MarAd is concerned the lease-financing provisions could
allow foreign operators to “exert additional
control over a vessel operated in the coastwise
trade by becoming the owner of the vessel
and time chartering the vessel back to itself
or to a related entity through an intermediate
U.S. citizen bareboat charterer.”
MarAd said its review of charter arrangements under limited circumstances where
the time charterer is related to the non-citizen
vessel owner will “ensure the U.S. citizens
maintain control over vessels operating in
the coastwise trade.”
There are some exceptions, however, to the
Jones Act’s section 2 citizen requirement.
Under the Bowaters Amendment, foreign
ownership is allowed for vessels owned by
a corporation involved in manufacturing or
mineral industries to domestically transport
its own goods.
The “fourth proviso” of the Jones Act
temporarily suspends the U.S. citizen ownership requirement for Yukon River services.
Similar allowances are made for oil spill
response ships, provided that they’re owned
by a not-for-profit oil spill response cooperative and their use is restricted to training
and deployment during an oil spill.
The task force said these exceptions are
narrowly drawn to prevent abuse of section
2 citizen requirements of the Jones Act.
“Where a strong case is made in particular
circumstances for an exception to those requirements, a statutory provision is enacted
to address those circumstances, and only
those circumstances,” the task force said
in comments for the Coast Guard’s final
rule. “Such provisions have not provided
a loophole for skirting the U.S. citizen
ownership requirement in other circumstances.”
■
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Product tank vessels
for U.S. security
Five MSP slots are available. But who will build them?
BY CHRIS GILLIS
T
he U.S. Maritime Administration has
begun taking competitive proposals
from American vessel operators and
shipyards to build five U.S.-flag product tank
vessels to operate for both commercial and
military purposes.
Under the 2003 Maritime Security Act,
Congress established the National Defense
Tank Vessel Construction Assistance program, through which MarAd will provide
financial help on up to 75 percent of the
actual cost of approved vessel construction,
depending on appropriations, but in no case
more than $50 million per vessel.
The first five slots of the new 60-ship
Maritime Security Program pool must be
awarded to section 2 citizens that own
and operate new U.S.-built product tank
vessels.
The size of the proposed product tank vessels may range between 35,000 and 60,000
deadweight tons, according to a notice
published in the Feb. 20 Federal Register.
MarAd also said the ships must:
• Meet the requirements of foreign
commerce.
• Be capable of carrying militarily
useful petroleum products and be suitable
for military purposes in times of war and
national defense.
• Meet the construction standards
needed for citizen documentation under
U.S. laws.
House Armed Services Chairman Duncan Hunter, R-Calif.,
and other members of
Congress have voiced
concern about the lack
of U.S.-flag product
tank vessels to transHunter
port jet fuel to war
zones in the Middle East. During the start
up of Operation Iraqi Freedom, U.S. forces
chartered 26 double-hulled product tank
vessels, but only one was a documented
U.S.-flag ship.
MSP, initially established by the 1996
Maritime Security Act, was set to expire
Sept. 30, 2005. It provides the federal government with access to 47 militarily useful
commercial container and roll-on/roll-off
ships. The government also paid the vessel operators in the program $2.1 million
per ship per year to help offset the higher
U.S.-flag operating costs. MarAd oversees
the MSP program.
After extensive industry lobbying and
several congressional hearings, the House
and Senate agreed to increase the MSP
fleet to 60 U.S.-flag ships for 10 years, but
varied on the payment per ship. During the
final draft of the 2004 National Defense
Authorization Act, the House and Senate
conferees set the payment per ship starting
at $2.6 million per ship for fiscal years
2006-2008; $2.9 million per ship for fiscal
years 2009-2011; and $3.1 million per ship
for fiscal years 2012-2015.
While the existing slot holders will
grandfather into the new MSP program,
the House and Senate conferees made it
clear the 13 new slots should be dedicated
to product tank and ro/ro vessels.
While the National Defense Tank Vessel
Construction Assistance program sounds
attractive, it will be a tall order for any
U.S.-flag vessel operator to fill.
“It looks and sounds like a good deal
from a press release point of view, but if
you scratch the surface just a little bit it is
definitely more difficult,” said Peter Shaerf,
senior vice president of American Marine
Advisors, a New Yorkbased merchant bank
focused solely on the
maritime industry.
The biggest hurdle, even with a fully
funded $50 million
payment per ship,
is the higher cost to
Schaerf
build these vessels in
a U.S. shipyard, Shaerf explained. Building
product tank vessel in a U.S. shipyard could
cost from about $75 million to more than
$100 million, compared to $20 million to
$45 million in a foreign shipyard.
The higher operations cost of U.S.-flag
vessels, once they’re built, is another
concern for perspective operators. Even
with the U.S. government’s MSP payment,
2004
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TRANSPORT / OCEAN
operators of the U.S.-flag product tank vesThe association, which represents six of similar fate in 2003. U.S. law requires that
sels can expect to spend at least $10,000 the largest U.S. shipyards along with 32 all single-hull tankers must be taken out of
a day per ship to operate them, whereas member companies that manufacture vesservice by 2015.
There are about 50 U.S.-flag product tank
foreign-flag operators spend about $5,000 sel components, would have preferred that
a day per ship.
MarAd’s request came with a more definitive vessels operating today, most of which operate in the coastwise trades under long-term
In addition, unlike the U.S. coastwise tonnage size. The size
contracts, such as with the oil companies
product tanker trade, which is tied to range could “slow the
on the U.S. West Coast.
long-term shipper contracts, the American competitive environRealizing the trend of a shrinking U.S.-flag
product tank vessels
ment” for building the
product tank vessel fleet for international
in the international
MSP product tank vesservice, Maritime Administrator William G.
trade operate on the
sels, Brown said.
Schubert developed a
spot market. Against
A 45,000-deadprogram in late 2002 to
this backdrop, some
weight-ton tanker is
expedite reflagging of
U.S.-flag vessel operaconsidered by many
Brown
eligible foreign-built
tors complain that the
industry experts to
military is increasbe the optimal size ship for clean products ships to the American
ingly squeezing them
for Jones Act and overseas military opera- merchant marine.
Arntzen
The expedited reto drop their freight
tions.
transport rates.
Competition for those operators willing flagging process for
Morten Arntzen,
to take the risk to build and operate the new product tank vessels
Schubert
president and chief
MSP product tank vessels will be fierce. takes about 45 days.
executive officer of
“There’s no question that these ships will The Coast Guard conducts a plan review
of each vessel eligible for reflagging and
New York-based tankget built,” Arntzen said.
er operator Overseas
The number of U.S.-flag product tank gives approval subject to on-site inspecShipholding Group,
vessels leaving service due to tough oil tions. MarAd said this process substantially
said the build and oppollution regulations and age continues to reduces the cost to reflag ships under the
U.S. flag.
erations requirements
outpace replacement tonnage.
Kurz
However, the country’s cargo preference
for the MSP product
By the end of 2002, five U.S.-flag product
tank vessels will limit the field of perspec- tank vessels, all about 39,000 deadweight rules exclude overseas-built and foreigntive competitors for the business.
tons and built in the mid-1970s, were taken flagged vessels re-registered under the U.S.
“It’s certainly not for the faint at heart,” out of service, because they didn’t meet the flag from access to government-financed
said Arntzen, whose company operates 52 double-hull requirements of the 1990 Oil freight, such as food aid, until after three
ships. “We’re certainly going to look at the Pollution Act. Another five vessels faced a years in regular commercial service. These
reflagged ships are also excluded
possibility (of participating in the
from the Jones Act trades due to
program) very closely. We’ll do
strict U.S.-build requirements.
our homework.”
Since Schubert announced the
“We are certainly very keen to
expedited reflagging initiative,
be a participant in this program,”
only one international vessel
said Gerhard E. Kurz, president
operator has taken advantage of
and CEO of Seabulk International,
it. In September 2002, Maersk
based in Fort Lauderdale, Fla. “We
Line Ltd., the U.S.-flag vessel
would hope to get one or two of
subsidiary of A.P. Moller/Maersk
those vessels.”
Sealand, reflagged the 35,000Kurz said Congress could have
deadweight-ton Maersk Rhode
sweetened its U.S.-flag product
Island from U.K. flag to U.S.
tank vessel program by offering
flag.
operators a contract guarantee
Last year, Seabulk, one of the
on top of the MSP payment and
largest U.S.-flag operators of
the ability to operate in the comproduct tank vessels in the U.S.
mercial spot market.
domestic waterborne trades,
U.S. shipyards are also grateful
bought two recently built 45,000for the opportunity to build comdeadweight-ton foreign-flagged
mercial tankers. However, there is
product tank vessels to open its
some concern about the reference
foray into the international clean
in MarAd’s request for proposal
products transport business.
about “assembly” of ships in U.S.
Kurz said his company remains
shipyards.
firmly committed to U.S.-flag
“Someone could essentially
vessel operations, but he wants
import modules and weld them
stronger economic incentives to
together in a U.S. shipyard, minioperate these types of ships in
mizing impact for U.S. jobs,” said
Cynthia L. Brown, president of The Maersk Rhode Island, owned and operated by Maersk the fickle international trade. “I
the Washington-based American Line Ltd., is the only U.S.-flag handy-sized product tanker wouldn’t mind putting these two
dedicated to international trade.
ships under U.S. flag.”
■
Shipbuilding Association.
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Freight at risk
Insurance executive offers advice on reducing insurance
risk for cargo moving by rail, truck in Mexico.
BY ROBERT MOTTLEY
S
tolen cargo, particularly high-tech
goods, remains a plague on commerce throughout Mexico and areas
of Latin America.
“Certain countries are better off than
others. The worst problems areas for stolen
shipments in 2004 are found in Argentina,
Brazil, Colombia and Mexico,” said Thomas
Gillen, regional manager for marine loss
control for the American International
Group of insurers.
Gillen, based in Mexico City, conducts
vulnerability assessment of logistics systems
for clients of AIG in Mexico, the Caribbean,
and Central America — the region extending
from Guatemala to Panama.
“High-quality, up-market goods are at
risk throughout Latin America, and probably
more so in Mexico and Brazil,” Gillen told
American Shipper.
In Mexico, “the majority of robberies are
preceded by an information leak of some
kind,” he said. The leak could come from
personnel working for the shipper of the
goods, or from employees of the carrier or
even the private security company hired to
protect the shipment. “Nor can you exclude
local authorities with a roving eye.”
Wish Lists. Throughout Mexico’s interstate highway system, there are checkpoints
set up by the police or army, or the attorney
general’s office, ostensibly to look for drugs
or firearms.
“They routinely check the bills of lading for all shipments. If the personnel at
the checkpoints are corrupt, and happen to
see something they like on a bill of lading,
then they’ll call their armed cronies about
a kilometer down the road to intercept the
shipment,” he said.
Gillen said his company pays up promptly
when claims are justified. “Armed robbery
is force majeure; there’s nothing to be done
after the fact,” he noted.
Even if a shipper has set up a theft of its
own goods, Mexico remains pro-carrier.
“If a loss is proven to be 100 percent
the fault of a carrier, that carrier is liable
for only up to 15 days minimum wage per
ton, which works out to about $45 a ton,”
Gillen said.
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“If a half-million-dollar shipment of pharmaceuticals is stolen, you get almost nothing
back from the carrier,” he explained.
Several countries in Central America
actually have laws where carriers are held
liable, but the carriers are so poor that even
if they were held liable for 100 percent of a
shipment, they couldn’t carry any responsibility for it.
Within the federal district of Mexico,
which extends across the center of the
country, the theft percentage for unprotected
shipments soared in 2003. In fact, 84 percent
of all truck hijackings in Mexico occurred
in that region, which includes the Gulf port
of Veracruz, the cities of Puebla and Guadalajara, the Mexico City metropolitan area,
and the Pacific port of Manzanillo.
Despite that whacking, “our local clients
have had reasonable success in shipping
their cargoes without trouble, because they
take precautions. Our problem children are
multinational companies,” Gillen said.
“The home offices of those multinationals
are not in-country, so the people in charge
of spending money on security don’t see the
difficulties faced in Mexico,” he said. “Even
after being burned once, the multinationals
rarely seem to learn.”
For many of these companies, “security
with them is always looked at as an expense,
not an investment,” Gillen said. “It’s always
close to the bottom on budgetary priorities.
When budget cuts come around, security
is always the first thing to be chopped,
even now.”
Rail vs. Truck. Rail in Mexico is by far
the most secure way to move goods, far
better than by truck. Using railroads is less
expensive than using trucks, but is “a little
bit slower,” Gillen noted. Trains are safer
because it’s harder to steal the goods, and
most rail yards have adequate security.
“In contrast, trucking brings indisputable
risks,” Gillen said. Drivers and guards are
usually unarmed. Robbers simply hijack the
truck, drive to an unloading area and remove
the goods they’re stealing, he explained.
“A lot of gangs work at different levels to
make an incident like that happen. They’ll try
to place a source in a company, and also recruit
drivers and security guards,” he said.
In Mexico, relatively few drivers or guards
are harmed by robbers. In Brazil, theft is
much more violent, and in Argentina, it’s
been bloody for years.
When shipping by truck, Gillen recommends “that contracts be signed with
carriers, written pacts instead of casual
handshakes, in which the carrier agrees to
be held economically responsible for losses
demonstrated to be his fault,” he said.
“It’s been an uphill battle to do that, but
more companies are insisting on it. We
have yet to have a carrier who signed such
a contract be robbed and then try to back
out of it, so it hasn’t been tested in the
Mexican courts.”
“We see that clause in contracts to be
less of a recovery tool than a means for loss
prevention,” Gillen said.
AIG also recommends the use of a Global
Positioning Satellite (GPS) device on vehicles. “GPS is easy now to implement in
Mexico, Brazil and Argentina. In Central
America, it’s still a fledgling operation,”
Gillen said.
“We also recommend the use of reputable
security companies to escort a shipment in
high-risk areas,” he said. A key high-risk area
is Mexico City itself, and its environs.
An escort means either guards in the truck,
or in a vehicle following the truck.
Mexican citizens are not allowed to have
firearms, which are prohibited everywhere.
There are stiff penalties for being caught
with a firearm without a permit for it.
“There are several reputable security
companies that don’t have weapons but
they have outstanding communications,
good training, GPS, and good relations
with the authorities. If they see something
going down, they can trigger alarms to get
the police involved quickly before the cargo
disappears,” he said.
Night Raids. Among other recommendations, AIG suggests that internationally
established guidelines be followed for tying
down or bracing cargo within containers.
“Also, in Mexico, we insist that carriers
travel on toll roads, which are demonstrably safer than non-toll federal highways,”
Gillen said.
About 55 percent of robberies occur at
night. “What we don’t like about night-time
operations is that if a shipment arrives at its
destination after closing hours, and the driver
parks outside waiting for daylight — that
truck is a sitting duck,” he noted.
“We urge our clients to plan that if they
can’t make it before the close of business
that day, their shipment spends the night in a
guarded parking area, or else they work their
logistics out so they can arrive when the place
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TRANSPORT / INLAND
is open and can receive their goods.”
The North American Free Trade Agreement has “definitely stimulated the developing of serious truck carriers in Mexico.
“Those who want eventually to have authorization to cross the border into the U.S. have
to upgrade their trucks,” Gillen said.
“That’s also one of the major challenges
we face here. As a preventive measure, we
recommend to our clients that their carriers have no vehicles older than six years,
follow a maintenance plan, and modernize
their fleet,” he said.
Mexican trucks crossing into the United
States must still offload their cargo to a U.S.
carrier within a short distance of the border.
A U.S. carrier coming into Mexico has to
be authorized by the Mexican government
to travel at will. “Companies such as Yellow
and Roadway have no problem obtaining
permits to complete an entire journey,”
Gillen noted.
So far, the U.S. Bureau of Customs and
Border Protection’s 24-hour rule “is having a
beneficial effect on us,” he said. “However,
a lot of our shipping problems in Mexico
are not with exports, but with distribution
within the country.”
In the southern-most Chiapas province,
“when shipments go by truck from Chiapas
into Guatemala, you frequently have robber-
ies across the border in Guatemala that can
be traced back to information leaked from
customs warehouses on the Mexican side
that are near checkpoints,” he said.
“Overall, our clients are realizing that,
in terms of security, they can’t rely on
the government to help them out,” Gillen
said. “They have to take strong measures
themselves.”
“Generally, logistics vigilance doesn’t
have to be expensive. You can’t overstate
the value of prevention and preparedness.
The good news is that most of what works
to increase cargo security costs very little
or nothing: signing a contract with a carrier
you already have, just of going on just a
handshake; paying minimal tolls to stay on
safer roads, seeing that a shipment travels by
day and arrives before nightfall,” he said.
“It also doesn’t cost anything to control
information, so that word of a high-tech
shipment, for example, is restricted to the
bare minimum of people who have to know,”
he said.
■
NTSB faults CP Rail, FRA for 2002 derailment
WASHINGTON
A U.S. National Transportation Safety
Board investigation found the Canadian Pacific Railway’s inadequate track inspection
and maintenance program as the cause of a
deadly train derailment on Jan. 18, 2002.
The accident occurred a half-mile west of
Minot, N.D. Five tank cars carrying anhydrous ammonia, a poisonous gas, ruptured
and released a vapor plume that killed one
person and sickened more than 300 others.
The NTSB’s investigation of the accident
faulted the Canadian railway for discontinuing ultrasonic testing of joint bars before
the accident. The ultrasonic testing is a
procedure that the agency believes would
have identified cracks in the line.
The NTSB also faulted the Federal
Railroad Administration for not requiring
adequate inspections and testing of joint
bars in continuous welded rail and recommended “on-the-ground inspections and
nondestructive testing” in the future.
In addition, the agency said the five ruptured tank cars were made before 1989 with
“non-normalized” steel. In low temperature,
steel becomes brittle and easily fractures.
“Normalizing” is a heat treatment process
that lowers the temperature at which steel
will become brittle, the agency said.
All tank cars built after 1989 are required
to use normalized steel.
■
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Caught
in the middle
Carriers, shippers at risk of ports that don’t
comply with July 1 deadline of ISPS code.
BY PHILIP DAMAS
V
isualize the following scenario.
It is July 2. A ship calls at a minor Indonesian
port that has not yet complied with the July 1
deadline for implementation of International Ship and Port
Facility Security (ISPS) code of the International Maritime
Organization. The ship carries your cargo to the United
States.
This scenario raises serious questions for shippers: What
70
AMERICAN SHIPPER:
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will the U.S. Coast Guard and the U.S. Bureau of Customs and Border Protection do
if the ship and its cargo reach a U.S. port,
or when its cargo is loaded at the unsecure
overseas port?
Christopher Koch, president and chief
executive officer of the World Shipping
Council, the Washington-based group representing liner carriers, predicts potential
complications in such a scenario.
“It would appear likely ... that not all
foreign port facilities will be compliant on
July 1,” Koch told a conference in Long
Beach March 9.
“Vessels calling between such ports and
the cargo on those vessels are caught in the
2004
3/18/04 1:37:17 PM
USCG photo by PA1 Tom Sperduto
middle,” he warned. “It is not yet clear what
a vessel can expect in these situations.”
Shippers should expect consequences to
cargo that passes through non-compliant
facilities, Koch noted. “Those consequences
may become more substantial as time passes
and the government becomes less tolerant
of foreign ports that are not compliant with
the code.”
Koch suggested that ports that are late
in their security compliance will be in
developing countries, but did not name
specific ports.
He believes the United States will not stop
trade in July with countries that have not
complied with the security code by then.
“However, the issue is how will ISPS- ports from developing nations called for
compliant vessels be treated by the U.S. information sharing and technical assisCoast Guard and other nations when they tance ... as well as financial assistance,” the
arrive after having called at a foreign port UNCTAD report said.
facility that does not have an ISPS compliant
facility security plan,” he said.
Trade Barriers? UNCTAD, the World
The United Nations Conference on Trade Customs Organization and others have
and Development Ports believes that ports, warned that developing countries lack the
as well as ships, are behind in their efforts funds required to enhance their transport
to comply with the July 1 deadline of the security. In turn, poor transport security
ISPS code.
could make it more difficult for developing
“Recent surveys carried out on the status countries to trade internationally.
of implementation of the security measures
UNCTAD said the investment required
raise concerns that not enough progress in developing countries to implement the
has been achieved so far,” UNCTAD said ISPS code is “substantial and immediate.”
in a Feb. 26 report, Container Security: It estimates an initial investment of about
Major Initiatives and Related International $2 billion for all the ports of developing
Developments.
countries.
The lack of progress has been reported
“The International Maritime Organizaby governments and other interested parties, tion security requirements place a particuincluding industry organizations, such as larly heavy burden on the poorer developing
the International Chamber of Shipping, the countries that often lack both the capital
Baltic and International Maritime Council, and the expertise, and may face further
the International Association of Classifica- limitations on their ability to participate in
tion Societies, Intertanko, Intercargo and international trade,” UNCTAD said.
the International Association of Ports and
Failing to implement the ISPS code could
Harbors, the report says.
expose developing countries’ exports to
The International Association of Ports additional checks or delays at the destinaand Harbors surveyed
tion port.
its member ports and
Koch suggested that
found difficulties in
it is possible that U.S.
their compliance efCustoms’ Automated
forts.
Targeting System
“While 70 percent
may assign a higher
of the 53 member
security risk to cargo
ports which respondcontainers transiting
Christopher Koch
ed to the survey were
through non-ISPS
president,
World Shipping
confident they would
compliant facilities,
Council
meet the deadline of
and thus make it more
July 1, 2004, 19 perlikely such containers
cent were uncertain,” “The issue is how will ISPS will be held up for
UNCTAD said. Reainspection.
sons cited for delay compliant vessels be treated
The United States
in implementations
and other ISPS comby the U.S. Coast Guard pliant nations are likeincluded, above all,
financial constraints,
and other nations when ly to take actions “that
as well as lack of
will cause carriers
they arrive after having and shippers to have
staff and expertise.
Other reasons cited
common interest in
called at a foreign port astrongly
were delays in legsupporting
islative enactment facility that does not have efforts by all countries
and procedures by
to become compliant
governing bodies and an ISPS compliant facility as soon as possible,”
authorities.
Koch predicted.
security plan. ”
“ I n p a r t i c u l a r,
Ports are concerned
smaller ports and
about a potential inAMERICAN SHIPPER: APRIL
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TRANSPORT / PORTS
crease in “security related competition,”
as some countries might impose stricter
requirements than others, UNCTAD said.
The UNCTAD report is posted on the Web
at www.unctad.org/en/docs/sdtetlb20041_
en.pdf.
Koch believes that U.S. port facilities will
meet the July 1 deadline for compliance
with the security code, and so will liner
shipping operators.
“Discussions with our member lines’ representatives have identified no significant
problems regarding lines’ expectations of
their vessels being compliant by that time,”
Koch said.
Commenting on the inspection of containers, Koch said that U.S. Customs uses the
Automated Targeting System to screen 100
percent of all suspicious containers before
they are loaded aboard a vessel bound for
the United States.
As it has refined the Automated Targeting
System, Customs has increased the proportion of containers inspected from less than
2 percent of all containers before Sept. 11
to 5.4 percent, the World Shipping Council
said, quoting recent reports.
“That means that Customs is now inspecting almost 400,000 ocean containers a year,”
Koch said. “ We expect container inspections
to continue to increase in 2004.”
‘Zero tolerance’
Making sense of port security compliance
in port of New York-New Jersey.
BY ROBERT MOTTLEY
C
apt. Craig E. Bone, as the U.S.
Coast Guard’s Captain of the Port
for the NewYork-New Jersey area, is
charged with making sense of new port security rules to be enforced effective July 1.
“First of all, there will be zero tolerance for
violations of new security rules — no waivers
will be given for anyone — in the enforcement of the Marine Transportation Security
Act (MTSA) and the International Ship and
Port Security (ISPS) Code,” Bone said.
“These are parallel laws that are in synchronization with each other. This is the first
time in my career that I have seen this level
of alignment nationally and internationally,”
Bone said.
“Under MTSA, all commercial waterfront
facilities including public access facilities …
as well as local marinas and boating areas
are subject to meeting security requirements.
Facilities that are not required to submit formal security plans for approval must meet the
requirements established in the Coast Guard’s
area maritime security plan,” he said.
Working under the direction of the Department of Homeland Security, the Coast
Guard has established maritime security
(MARSEC) levels.
These are levels of protection to be
achieved for vessels, facilities, and ports that
correspond to the Homeland Security Threat
Color coded system: MARSEC Level 1
(yellow), MARSEC Level 2 (orange), and
MARSEC Level 3 (red).
If the port of New York and New Jersey,
which is at MARSEC 1, were to be placed
at MARSEC 2, “a number of protection
activities would be executed by both law en-
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TRANSPORT / PORTS
forcement and private sector entities,” Bone
said. “Depending on the nature of the threat
that places us at that level, additional security
zones may be established and recreational
vessel traffic further restricted.”
At the highest MARSEC level 3, “all
maritime traffic will initially be halted,”
Bone explained.
Vessel and small boat movements in the
port at MARSEC 3 would only be authorized
with positive identification and controls in
place for every movement. There are 1,100
commercial vessels transits in the port of New
York and New Jersey on any given day.
The inter-agency maritime protection
security mix in the New York-New Jersey
region includes the Coast Guard, Bureau of
Customs and Border Protection, Immigration and Customs Enforcement, U.S. Park
Service, FBI, the CIA, Secret Service, Office
of Naval Intelligence, New York City Police,
Port Authority Police, New York and New
Jersey state, county and local police, and
Navy militia, supported by the National
Guard. Other significant players include
FEMA and EPA.
The most visible Coast Guard role in the
harbor at the MARSEC 1 level continues to
be vessel boardings. In 2003, there were 362
ships boarded at sea, and 479 boarded upon
arrival dockside.
“Most offshore Coast Guard boardings
of foreign-flag ships in the New York-New
Jersey port region occur between 2 a.m. and
4 a.m., to avoid delays in vessel arrivals and
normal cargo operations,” Bone said.
“All vessels are screened prior to arrival and assessed for risk and threat to the
port,”he said in the course of several interviews. “Both safety and security factors, as
well as specific intelligence reports are considered. Vessels presenting the highest levels
of risk are boarded offshore at anchorage or
during their transit between ports.”
“We assess the risk for each vessel’s transit
in U.S. waters and respond with the screening,
protection, and control measures to prevent
any of the above from occurring,” he said.
Voyage charters don’t always indicate
when cargo shows up, let alone where it
comes from or where it’s being taken. While
masters are supposed to identify voyage
charters, there are often vagaries, so a ship’s
captain often doesn’t have all of the required
facts in hand.
Compliance with MTSA and the ISPS
Code “requires that the name of the charterer
be reported in all advanced notice of arrivals,” Bone said. “However, it is the owner,
agent, master, operator, or person in charge
of a vessel who is required to submit this
information 96 hours in advance. During
the vessel pre-arrival screening process, any
charterer that has a history of associations
with substandard ships will increase the
probability that ships it charters are targeted
for boardings.”
“So, charterers carry a certain amount of
responsibility in ensuring that only regulatory compliant vessels call to U.S. ports,”
Bone said.
“With regard to SOLAS (International
Convention for the Safety of Life at Sea)
vessels, cargo is not a determining factor on
whether or not a ship can operate without a
security plan, or go to a facility without a
security plan. All SOLAS vessels and all
facilities that receive SOLAS vessels are
required to be in compliance with MTSA
and ISPS, no matter what cargo is carried,”
he said.
Asked what happens when a vessel calls
at a non-compliant foreign port and then
comes back to the United States, Bone said
that “if that ship has arrived from a port which
does not maintain adequate antiterrorism
measures, the Coast Guard is tasked with
determining the security level that the ship
maintained while at that port.
“If the vessel did not maintain at least
security level 2, additional port state control
measures will be initiated. These include
detention of the ship, if the evidence shows
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70_74AS04.indd 73
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TRANSPORT / PORTS
that the vessel embarked persons
“However, there are two sepaor loaded stores or goods at a port
rate targeting systems, one focused
facility or from another ship that
on safety, while the other is focused
did not have approved security
on security,” he said. “Every ship
NEW YORK
plans,” Bone explained.
is screened through both matrixes,
Officials within the U.S. Maritime Administration have
Harbor habits will change, as
and the results documented in
wondered what the effect enforcing the Marine Transportawell, after July 1. Small vessel
MISLE. Ships could very easily
tion Security Act and the International Ship and Port Security
support facilities, even those in
be targeted for a boarding under
Code after July 1 will have on government-impelled preferupriver ports — for example,
both criteria.”
ence cargoes.
small companies in Albany, N.Y.,
“In addition, every safety exam
“If USDA (U.S. Department of Agriculture), USAID (U.S.
that provision and repair deep-sea
will include verification that
Agency for International Development) or any other contracships that call at Albany — are gothe vessel is in compliance with
tors are buying a particular commodity, do they need to put
ing to have to be compliant with the
the ISPS Code, and that every
into their request for quotations a clause that says the cargo
MTSA and the ISPS Code.
security boarding team is able
can only be delivered to a facility that is compliant with the
That means such facilities will
to identify a substantial safety
Code?” asked Thomas W. Harrelson, director of MarAd’s
have to file security plans, and
problem that could pose a threat
office of cargo preference, in an interview.
pay the extra cost of augmenting
to the port,” Bone said.
“The regulations do not direct how maritime facilities
their premises with better fences,
At a recent hearing in Washensure compliance. Rather, the rules have provided security
guards and 24-hour security camington, D.C., before the House
performance standards that facilities must meet,” according
eras — if they want to continue
of Representatives Committee
to Capt. Craig E. Bone, the U.S. Coast Guard’s Captain of
servicing deep-sea vessels.
on Transportation and Infrastructhe Port for the port area of New York and Jersey.
Some confusion persists with
ture’s subcommittee on Coast
Cargo bookings for July 1 and afterwards have to be made
facilities and marine service
Guard & maritime transportation,
in mid-April at the latest.
providers that cater strictly to the
Rep. Peter DeFazio, D-Ore., said
There are indications that ocean carriers are going to put
U.S. domestic trade. In the New
the United States should not acclauses into their charter parties saying that for any delay due
York area, barge operators have
cept the ISPS Code at face value.
to security that isn’t the carriers’ fault, the shippers will pay
asked what happens to barges
“It’s not the law of the U.S., and
demurrage on cargo.
carrying domestic cargo through
doesn’t require the Coast Guard to
USDA and USAID are also said to be considering adding
ports or past special zones areas
acquire and review these plans.”
a clause into their charter parties, saying that a vessel must
that have to be ISPS code-compliIn response, Adm. Thomas H.
be compliant with the ISPS Code to be awarded cargo.
ant? A trucking terminal operator
Collins, commandant of the U.S.
“If shippers move cargo on a compliant vessel, then they
wanted to know if proximity, such
Coast Guard, called the ISPS sysshouldn’t have to put such stipulations in their contracts,”
as sharing a fence with a codetem “very positive” and cited the
Bone said.
compliant facility, requires filing
benefits of “strength in numbers”
The new rules will restrict the availability of ships to carry
a security plan?
with the large number of countries
preference cargoes in certain trades.
“The MTSA defines the term
signed on to the program.
“If the vessels don’t make it into the U.S., they aren’t going to
‘facility’ as any structure or facilCollins assured the House
be around to carry outbound cargo,” Bone said. If an outbound
ity of any kind located ‘in, on,
subcommittee’s members that
ship from the U.S. carrying government-impelled preference
under, or adjacent to’ any waters
the Coast Guard will “trust but
cargo calls at a foreign port that is not compliant, “that vessel
subject to the jurisdiction of the
verify” the ISPS plans. “We’ll
will be subsequently restricted as to where it could go.”
United States,” Bone explained.
monitor if (ships are) practicing
“That broad definition was drafted
security. We’re not just going to
to capture and regulate under the
accept a piece of paper. We’re
Bone said that domestic-oriented barge going to review every vessel.”
MTSA those facilities determined by the
Secretary of the Department of Homeland operators and trucking terminals next to ISPS
He warned that vessel operators coming
Security as most likely to be involved in a code-compliant facilities should research to U.S. ports had better “keep rigorous and
their risks and have a vulnerability plan ready, comprehensive records.”
‘transportation security incident.’ ”
Facilities within zones that do not fit that so they won’t be caught short if they do have
Collins also noted that the Coast Guard
description will be evaluated as to their risks to file security plans at a later date.
has reduced the number of substandard ships
The Coast Guard is tracking vessel entering U.S. ports by 65 percent.
and vulnerabilities, Bone noted.
information separately from present port
The Coast Guard is training more than 500
state control data.
inspectors for its ISPS-related work. “We
“Vessel arrival information is tracked in don’t take this lightly. We’ll aggressively purthe Shipboard Arrival Notification System sue this in our port state control,” he said.
database. This information is used for preCollins said vessel security plans are 99
screening, both for port state control and percent complete. As of March 4, the Coast
security,” he said. “Additionally, vessel, Guard had received 8,887 vessel security
facility and involved party specific infor- reports, and had issued 89 notices of viola• Tampa Bay Florida •
mation of both marine safety and security tions to non-compliant vessel operators.
400,000 SF Warehousing
particulars are tracked in the Coast Guard’s
The Coast Guard has also received about
under construction
Marine Information for Safety and Law En- 3,500 facility security plans, or 92 percent of
on the port • at the entrance
forcement (MISLE) database. They are not the expected total, and has issued 63 notices
Federal Port Corporation, 2300 South Dock, Palmetto, FL 34221
tracked separately, nor is port state control data of violations to non-compliant port facility
941-358-6081 • Fax- 941-358-8073 • [email protected]
compromised or less than accurate.”
operators.
■
Matter of preference
Port Manatee
Commerce Center
74
AMERICAN SHIPPER:
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3/18/04 1:52:45 PM
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A weather report isn’t enough
In July 2000, Liberty Hardware Manufacturing Co.
arranged to have a container of bathroom fixtures shipped
from Guangzhou, China, to Greensboro, N.C., using the
services of Zim Israel Navigation Co. Ltd., an ocean
carrier. Upon arrival in Greensboro, 3,571 cartons of the
cargo were found to be wet and damaged from exposure
to freshwater, with rust forming on the fixtures.
American Home Assurance Co., the insurer for Liberty
Hardware, subsequently sued Zim Israel and the vessel
involved in federal court. U.S. District Judge Peter K.
Leisure wrote in his ruling that “neither party offers direct
proof of precisely when and how the cargo was exposed
to and damaged by freshwater. No one saw, for example,
the cargo left exposed on a rainy day. Rather, each side
offers evidence that the cargo was not damaged while in
its own control, and infers that (it) must have been damaged while in the other party’s control.”
The shipper’s insurer argued it had rained in Hong
Kong while the container holding the cartons was being
transferred from a barge to Zim Israel’s ship. Zim Israel
countered that fresh water could not have accumulated
on the barge used, and that the Shekou terminal in Hong
Kong had no report of flooding. The carrier also cited
testimony from a cargo surveyor who sealed himself
in the container “and observed no holes or defects that
would allow water to enter.”
“The pivotal issue before the court … is whether the
(shipper) delivered the cargo to (the carrier) in good
condition,” Leisure wrote.
“The moving party bears the burden of demonstrating
that no genuine issue of fact exists. The movant’s burden
will be satisfied if he can point to an absence of evidence
to support the nonmoving party’s claim,” Leisure said.
After that, “the burden shifts to the nonmoving party to
offer specific evidence showing that a genuine issue for
trial exists. The nonmoving party must do more than
simply show that there is some metaphysical doubt as
to material facts.”
Leisure ruled that while the argument of Zim Israel
and its ship that the cargo was not in its control when it
got wet ”fits poorly within the burden-shifting scheme
of the Carriage of Goods by Sea Act (COGSA) … (they)
persuade the court that a reasonable jury could find them
not liable to the plaintiff for the damaged cargo.” The
court ruled in favor of the ocean carrier, finding that
“a genuine issue of material fact remains as to whether
plaintiff delivered the cargo in good condition.”
[American Home Assurance Co., a/s/o, Liberty Hardware Manufacturing Co.; v. Zim Jamaica and Zim Israel
Navigation Co. Ltd.; U.S. District Court for the Southern
District of New York; docket number 01 Civ. 2854 (PKL).
Date of ruling: Dec. 23]
Paid freight is in the clear
On March 7, 2003, Energy Transport Ltd. chartered
the vessel San Sebastian pursuant to a charter party with
Oilmar Co. Ltd, to ship cargo for which PT Cabot Indonesia
was owner and consignee. The “freight” for the shipment
— the compensation a shipowner is to receive for carrying the goods — was to be paid by Energy Transport to
an agent, Odin Marine Inc., which would then transfer
it at the prescribed time to Oilmar.
Later, Energy Transport subchartered the vessel to an
entity called Pacific Oil Inc., which had its own cargo
aboard the ship. According to the subcharter, Pacific Oil
76
76AS04.indd 76
would pay its freight directly to Odin Marine.
On May 2, 2003, a fire and explosion aboard the San
Sebastian damaged its cargo. On June 6, following terms
of the subcharter, Pacific Oil paid $1.1 million in freight
to Odin Marine, which held the money in a New York
bank for eventual forwarding to Oilmar.
After the explosion, Energy Transport sued the San
Sebastian and its owners in federal court, alleging negligence and breach of contract. Energy Transport also asked
the court to arrest the freight held in Odin Marine’s bank
account, contending that Energy Transport was entitled
to a maritime lien on such compensation.
U.S. District Judge Jed S. Rakoff wrote in his ruling
that “a shipper has a maritime lien on the vessel herself
for damage to the shipper’s cargo. A charterer also has a
lien against the vessel for breach of the charter party. But
what about the freights due for shipment of cargo?” the
judge asked. He noted that maritime law distinguishes
between unpaid freight and paid freight. “Unpaid freights
can, by an admittedly strained but historically recognized
extension, still said to be part of a ship. Once freight is
paid, it can no longer be viewed as part of the ship.”
In the case at hand, Pacific Oil paid freight directly
to Odin Marine, which held the money not for Energy
Transport, but for purposes of forwarding the compensation to Oilmar. “In such circumstances, by no stretch
of the imagination could the freight be viewed either
as unpaid or as part of the ship,” Rakoff ruled, denying
Energy Transport’s bid for a maritime lien.
[Energy Transport Ltd., v. San Sebastian, et al.; U.S. District Court, Southern District of NewYork; docket number
03-Civ. 4193; Date of ruling: June 28, 2003]
Insurer’s nightmare
Fetasa Tijuana S.A. shipped 347 coils of galvanized steel
from South Korea to Ensenada, Mexico, in late 2000. Three
months after the shipment arrived on the Glorious Success, based on observed damage to the shipment, Fetasa’s
insurer Breffka & Hehnke GmbH paid Fetasa $925,000 to
cover the alleged loss. Then, in federal court, Breffka sued
the vessel’s owner and operator, Hanseatic Maritime and
Mitsui, and its time charterer, Pan Ocean Shipping.
U.S. Magistrate Judge Michael F. Dolinger, ruling after
repeated delayed dispositions, determined that “Fetasa
had apparently engaged in a form of insurance fraud
with Breffka as the immediate victim. While Fetasa was
claiming a total loss of the cargo due to rust damage,
and collecting accordingly from Breffka, it had filed a
separate claim of nearly $400,000 with the manufacturer
(of the coils) for partial loss of the same coils as a result
of a manufacturing defect, and unbeknownst to Breffka,
had collected $100,000 for that loss.”
“It also appears that, just as Fetasa withheld coils from
the manufacturer that contained rust damage in order to
hide the marine claim, it followed the same procedure with
the marine surveyors (from Breffka), that is, it withheld
from them any coils showing a manufacturer’s defect,”
Dolinger said. The court recommended that the insurer “be
precluded from proving the amount of any reduction in the
value of the cargo as of its receipt from the carrier” in any
subsequent trial. “If one suspects that our decision is strong
medicine, that is precisely what it is intended to be.”
[Breffka & Hehnke GmbH & Co. KG, et al. v. Glorious
Success, et al.; U.S. District Court, Southern District of
New York; docket number: 01 Civ. 10599; Date of ruling:
Nov. 24]
2004
3/18/04 2:08:13 PM
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Transplace was formed in 2000 through
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Gregory L. Quesnel, president and chief
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Menlo Worldwide, will retire July 6.
Quesnel has worked with the company
for 29 years, having been CEO since 1998.
He will also resign his board of directors
membership at CNF.
He joined the company in 1975 in Portland, Ore. as director of financial accounting
and was later promoted to executive positions in strategic planning and corporate
finance and treasury operations. He became
chief financial officer and later president
and chief operating officer.
In addition, Tom Madzy has been named
chief information officer, responsible for
overseeing the implementation of recent IT
investments at SEKO Worldwide and SEKO
Global Logistics Network.
Madzy served 12 years as vice president
of information technology for Associated
Global Systems.
Maritime
CP Ships
Frank Halliwell, chief operating officer,
will succeed Ray Miles as chief executive
officer of the Canadian-registered group
in May.
Miles, CEO since 1988, will become
chairman of CP Ships, replacing Lord
Weir.
Halliwell joined Miles at Canada Maritime as his deputy in 1991. He was appointed
executive vice president of CP Ships in
1995 and COO in 2001. Before joining CP
Ships, he worked for Mercer Management
Consultants and Barber Blue Sea.
Ian Webber will continue as chief financial officer.
Halliwell will be based mainly at Gatwick,
along with Webber. CP Ships said most of
the functions managed from its Tampa, Fla.
office will remain there.
Miles remains chairman of the Box Club,
the forum of CEOs of container shipping
lines, and of the Washington-based World
Shipping Council. He is also a director of
CP Ships (U.K.) Ltd.
Crowley Maritime Corp.
Alex Sweeney has been promoted to vice
president and general manager of its energy
and marine services business unit.
Sweeney will be based in Seattle and
report to Tom Crowley Jr., chairman,
president and chief executive officer. He
replaces Steve Peterson, who is leaving
the company.
Sweeney joined Crowley in 1980 and has
more than 23 years experience in marine
operations for Crowley on the U.S. East
and West coasts. Most recently, he was vice
president, Russian Far East operations.
Wallenius Wilhelmsen Lines
Christopher J. Connor will take over as
president of the Americas region, effective
in mid-summer.
Connor will replace Jan Eyvin Wang,
who has been named president of United
European Car Carriers, a Wallenius Linesaffiliated short-sea operation based in
Norway.
Connor spent the last three years at Wallenius Wilhelmsen’s world headquarters in
Lysaker, Norway, most recently as chief
operating officer of the ocean services
business unit.
SEKO Global Logistics Network
Stephen J. Russell has been named president of the network, which is modeled after
SEKO Worldwide’s partner network in the
United States. The global company includes
SEKO Worldwide’s partner networks in
North America, Puerto Rico, United Kingdom and more than 350 agents overseas.
Russell, a 25-year industry veteran,
served as senior vice president of global
sales for EGL after the July 2000 merger
with Circle International Group. He joined
Circle in 1998 as executive vice president of
global sales, and oversaw the integration of
Alrod International into the company.
He also founded the Hi-Tech Forwarders
Network, which he headed from 1989 to
1998. HTFN is a consortium of international
freight forwarders, airlines and third-party
logistics companies.
77_80AS04.indd 77
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Service Announcements
(800) 874-6422, FAX (904) 791-8836, e-mail [email protected]
TACA lines reaffirm westbound rate hikes
Shipping lines of the Trans-Atlantic Rate Agreement have reaffirmed their plan to raise westbound rates
$400 per 20-foot container and $500 per
40- or 45-foot box, effective April 1.
In a statement, the conference said 2004
market conditions will be similar to those of
2003, and carriers are experiencing a “high
level of forward bookings.”
Europe/Scandinavia trade (excluding Japan) warned the April 1
rate restoration would be $150 per TEU minimum, but that “the
final quantum will be decided nearer the time.”
Member lines of the Far Eastern Freight Conference are ANL
Containerlines, APL, CMA-CGM, Egyptian National Shipping
Co., Hapag-Lloyd Container Line, Hyundai Merchant Marine,
“K” Line, Maersk Sealand, Malaysia International Shipping Corp.,
Mitsui O.S.K. Lines, NYK, Norasia Container Lines, OOCL, P&O
Nedlloyd and Yangming Marine Transport.
COSCO adds Shanghai/Long Beach shuttle Med Shipping adds 4th Asia/Europe loop
COSCO Container Lines has started a weekly transpacific shuttle
service calling at only two ports — Shanghai and Long Beach.
The “CLX” service differs from virtually
all other transpacific services, which generally call four or more ports. The service has
a round-voyage rotation of just 28 days, as
compared to 35 or 42 days for most multiport
transpacific loops.
Transit time for the new service from
Shanghai to Long Beach is 12 days, while the transit from Long
Beach to Shanghai is 14 days.
The four 1,700-TEU ships used in the service come from
COSCO’s “China Southeast-CES” service, which ended. The
change represents a saving of one ship, as the “CES” service had
used five ships.
The “CES” service also made calls at Oakland, Ningbo and Yokohama westbound. It is not known whether “K” Line and Hanjin
Shipping, which had taken space on the “CES” service, will take
slots on the new “CLX” service.
In December, U.S. Lines started a similar transpacific shuttle
service that calls at Shekou, Hong Kong and Long Beach, and
employs five containerships.
Mediterranean Shipping Co. has added a fourth weekly container
service between ports in the Far East and northern Europe.
The “Lion Service” employs nine 5,000-TEU vessels with a
rotation of Busan, Shanghai, Xiamen, Hong Kong, Chiwan, Singapore, Antwerp, Hamburg, Bremerhaven, Antwerp, Singapore,
Chiwan and Busan.
Mediterranean Shipping said the new service will enable it to
reshuffle its existing “Silk,” “Dragon” and “Tiger” services. The
carrier launched an eight-ship “Tiger Service” connecting Asia with
the Black Sea and the East Mediterranean region last October.
The carrier is expected to announce soon the details of a future
joint transpacific services with CMA CGM that will employ five
new 8,000-TEU containership. The transpacific service is scheduled
to start in the second half of this year.
Yang Ming, ‘K’ Line, Hanjin add Pacific link
Yang Ming, “K” Line and Hanjin Shipping will start an additional
Asia/U.S. West Coast joint service April 14.
The “PSW-4” Pacific service will employ five 2,850-TEU ships.
Initially, the “PSW-4” service will have a port rotation of Qingdao,
Shanghai, Pusan, Los Angeles, Oakland, Pusan, Kwangyang and
Qingdao. However, Yang Ming said that, in view of the potential
development of the Ningbo market, a single direct call at Ningbo
will soon replace both the calls at Pusan. Ningbo will then be the
last port of departure from Asia in the rotation of the service.
COSCO Container Lines, the partner of the three Asian shipping
lines in the “CKYH” alliance, will charter slots on the service.
The CKHY alliance already provided the largest number of
transpacific liner services among global alliances and major carrier groups.
P&O Nedlloyd is leaving the weekly North Europe/East Mediterranean weekly “Southern Route” service it jointly operates with
Hamburg Sud, Ellerman and Senator Lines
in April. A spokesman for P&O Nedlloyd
confirmed the carrier will continue to operate
in this trade lane.
The revised service will remain weekly
using five ships. Hamburg Sud will instead
operate four ships on the service rather than
three, with Senator Lines providing the fifth ship.
At the same time new calls at Tunis are being added to the port
rotation, which will become Felixstowe, Hamburg, Antwerp, Tunis,
Alexandria, Beirut, Lattakia, Mersin, Izmir, Salerno and back to
Felixstowe. The vessel City of Tunis starts the revised service when
it departs from Antwerp on April 27, arriving at Tunis on May 3.
FEFC confirm westbound rate increase
Norasia targets Asia/Med with extra link
An announcement by NYK Line in Hong Kong confirms the Far
Eastern Freight Conference’s April 1 westbound rate restoration
will be an additional $150 per TEU for export shipments from Far
East origins, including Hong Kong, Macau and China to North
Europe, Mediterranean ports and Scandinavia.
It was also said, “under the FEFC Westbound Interim Tariff,
surcharge of $75 per TEU maintained apply to cargo to the United
Kingdom,” and that “an add-on of $300 per unit is applicable on
high cube containers in the above trade lanes.”
In December a FEFC announcement covering the Asia to North
Norasia Container Lines has joined the weekly Asia/Indian
subcontinent/Mediterranean “ADR” operated by CMA CGM
and Lloyd Triestino, marking the latest expansionary move in the
Asia/Europe trade by the Hong Kong-based carrier.
The addition of the service will increase to 12 the number of
weekly services provided by Norasia from the Far East to the
Mediterranean or northern Europe, according to ComPair Data, the
global liner-shipping database. All of these services are operated
under cooperative agreements with many other carriers, including
CMA CGM, China Shipping, Evergreen, Hanjin Shipping, APL,
78
AMERICAN SHIPPER:
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APRIL
U.S. Lines goes weekly in transpacific
Container shipping newcomer U.S. Lines, based in Sana Ana,
Calif., has upgraded its fortnightly transpacific services to weekly,
as originally planned.
The service now uses five 1,600-TEU ships and calls Shekou,
Hong Kong, Long Beach, Shekou and Hong Kong.
P&O Nedlloyd to exit Europe/East Med link
2004
3/18/04 3:04:03 PM
Hyundai Merchant Marine, MOL, Zim Israel Navigation Co., China
Shipping Container Lines and COSCO Container Lines.
Started in October, the ADR service uses seven ships of about
2,600 TEUs, with five ships provided by Lloyd Triestino and two
by CMA CGM. The port rotation for the “ADR” service is Ningbo,
Xiamen, Chiwan, Hong Kong, Tanjung Pelepas, Port Kelang,
Colombo, Taranto, Trieste, Koper, Venice, Rijeka, Taranto, Port
Said, Port Kelang, Singapore and back to Ningbo.
Lloyd Triestino’s sister company Evergreen Marine also take
space on this service.
Norasia, a subsidiary of Compania Sud Americana de Vapores,
has also recently started the Asia/Mediterranean/North Europe
“AEX2” service, in cooperation with China Shipping and Zim,
and a weekly westbound “Round-the-World” service, jointly with
China Shipping, Zim and Gold Star Line.
New U.S./India discussion agreement
A new-style discussion agreement between ocean carriers may
soon operate in the United States/Indian subcontinent transpacific
trade, after a gap of about a year.
Evergreen Marine Corp., Hapag-Lloyd,
Nippon Yusen Kaisha (NYK) and P&O
Nedlloyd have notified the U.S. Federal
Maritime Commission that they are setting
up a discussion agreement in the U.S./Indian
subcontinent trade.
The FMC said the agreement authorizes the carriers “to exchange
information and discuss and reach voluntary agreement on (a) variety
of commercial issues” in the trade. The geographic scope of the
agreement is from ports and points in India, Pakistan, Bangladesh
and Sri Lanka to all ports and points in the United States.
The agreement, filed with the FMC, can be blocked by the
agency on competition grounds.
Another carrier group, called Indamex, is also believed to operate
as a discussion agreement in the U.S./Indian subcontinent trade.
The Indamex carriers are Contship Containerlines, CMA CGM
and the Shipping Corporation of India.
The U.S./India trade used to be part of the geographic scope of
the Transpacific Stabilization Agreement, a carrier group to which
Evergreen, Hapag-Lloyd, NYK and P&O Nedlloyd belong. However, the TSA and the FMC reached a settlement last year to remove
the Indian subcontinent from the scope of the TSA agreement. The
settlement followed a high-profile investigation by the FMC into
alleged service contract malpractices in the transpacific.
New Africa/South America direct link
The A.P. Moller-Maersk group’s two liner-shipping subsidiaries,
Maersk Sealand and Safmarine, have jointly launched an unusual
container service connecting ports on the East
Coast of South America and in West Africa
without the need for transshipment.
The fortnightly service uses three 1,700TEU vessels, each fitted with more than 200
reefer plugs. The port rotation is Walvis Bay,
Lobito, Luanda, Pointe Noire, Libreville, Apapa, and Abidjan in West Africa; and Itajai, Buenos Aires, Montevideo
and Rio Grande in South America, returning to Walvis Bay.
Additional West African ports served by feeders will include
Tincan Island, Tema and Douala (via Abidjan); Cotonou and Lome
(via Walvis Bay); and Matadi (via Pointe Noire).
Maersk Sealand markets the service under the name “Sawa
Direct” and Safmarine calls it “Wasadi.”
Safmarine said the service has been introduced in response to the
growing trade between the two regions. The Belgium-based carrier
sees significant potential for growth in this trade, particularly with
regard to refrigerated shipments.
CaroTrans expands South Africa service
CaroTrans International has expanded its South African service
by adding a direct port calls to Port Elizabeth.
The Union, N.J.-based non-vessel-operating common carrier
hopes to take advantage of South Africa’s emerging auto industry
and other industrial sectors.
CaroTrans works with agent World Groupage Services in Port
Elizabeth.
CaroTrans offers a bi-weekly service to Port Elizabeth and a
weekly direct service to Durban, Cape Town and Johannesburg.
Internet Index
of Advertisers
Check out these locations on the World Wide Web
American Shipper www.American Shipper.com
ComPair Data www.compairdata.com
A.N. Deringer www.anderinger.com
Alabama State Port Authority www.asdd.com
American Airlines Cargo www.aacargo.com
Americas Systems LLC www.AmericaSys.com
Atlantic Container Line www.ACLcargo.com
Avalon Risk Management www.avalonrisk.com
Canada Maritime www.canadamaritime.com
China Ocean Shipping Co. wwwcoscon.com
China Shipping Container Lines Co.
www.chinashippingna.com
CSX World Terminals www.csxworldterminals.com
E.J. Brooks www.ejbrooks.com
Emirates Sky Cargo www.sky-cargo.com
Evergreen America Corp. www.evergreen-america.com
FedEx Trade Network www.ftn.fedex.com
Freightgate www.freightgate.com
Hamburg Sud www.columbusline.com
IES Ltd. www.iesltd.com
Intermarine Inc. www.intermarineusa.com
Jacksonville Port Authority www.jaxport.com
Lloyd Triestino www.lloydtriestino.it
Maersk Sealand www.maersksealand.dk
Manzanillo International Terminal www.mitpan.com
Mediterranean Shipping Co. USA Inc.
www.mscgva.ch
NAFTA Transportation Conference and Exhibition
www.kcsmartport.com
P&O Nedlloyd (USA) www.ponl.com
Port Authority of New York and New Jersey
www.portnynj.com
Port Everglades Authority
www.co.broward.fl.us/port.htm
Port of Pascagoula www.portofpascagoula.com
Port of Portland www.portofportlandor.com
Sea Star Line www.seastarline.com
Seaboard Marine Inc. www.seaboardmarine.com
South Carolina State Ports Authority
www.port-of-charleston.com
SSA Marine www.ssamarine.com
Swiss World Cargo www.swissworldcargo.com
TOC 2004 Europe www.toc-events.com
United Shipping www.unitedshipping.com
Virginia Ports Authority www.vaports.com
Western Fumigation www.westernfumigation.com
77_80AS04.indd 79
2004 79
3/18/04 4:16:24 PM
Security rating criteria in shipping
Shipping and product sourcing decisions are getting harder to make, as governments
prepare to tighten their controls on shipments made from unsecure ports or countries.
Shippers and buyers of internationally traded goods already had to weigh factors like
transport costs, delivery times, the speed of customs procedures in the countries of origin
and destination, the risk of theft during cargo transit, product manufacturing cost and landed
cost, and the reliability of suppliers.
Now, the latest additional criteria are security levels in the overseas country’s ports, how
the customs administration in the country of destination treats cargoes from a particular port
or country of origin, and the overall security of the supply chain.
Christopher Koch, president and chief executive officer of the World Shipping Council,
the Washington-based group representing liner carriers, warned that shippers should expect
consequences to cargo that passes through non-security-compliant port facilities after July 1
(see story, page 70).
It is no secret cargoes imported to the United States from countries like Indonesia are
already subject to additional inspections and checks. But if ports in Indonesia or other
countries fail to meet the July 1 deadline for implementation of International Ship and Port
Facility Security (ISPS) code of the International Maritime Organization, you can expect
further customs delays.
This is bad news for developing countries that do not have the means to implement the
required security procedures in their ports, particularly if they harbor terrorist groups.
Whether poor countries with no terrorism links will suffer from the increased port security requirements is not clear. But countries where terrorist organizations are known to
operate, like Indonesia, Yemen and Morocco, are bound to suffer a further marginalization
in international trade.
Just look at the problems faced by the container transshipment hub of Aden, in Yemen.
After terrorists attacked the tanker Limburg off the coast of Yemen in 2002, container shipping lines pulled out of the port of Aden and moved to more secure ports. One reason was
believed to be the increased cost of insuring their ships against potential attacks.
Product buyers and companies that consider where to set up factories already use ratings
on country risks produced by specialized agencies.
The same approach, measuring security compliance in transport, including ports, could
apply in logistics and shipping, with the resulting incentive to do business with secure
countries.
80
AMERICAN SHIPPER:
77_80AS04.indd 80
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2004
3/18/04 2:38:11 PM
LT_Ad_Places_AmShp.qxd
3/10/04
11:10 AM
Page 1
Going to more places,
more often...as requested.
In response to strong customer
areas and we have launched new
We like to talk to our customers and
demand, Lloyd Triestino is expanding
services, notably on the transpacific,
we believe in listening too.Based on
its global network. New services have
linking China and North America,
feedback, we are today researching
been launched and new ports have
and between China and Europe.
further new services so that we can
been added to our global network.
Most recently, we have improved
serve our customers better.
Lloyd Triestino was re-launched
our coverage of the eastern
For more information on Lloyd
onto the world shipping scene just
Mediterranean and Black Sea, we
Triestino services, please check
five years ago and since then, our
have
our website, or simply call our
progress has been remarkable.
coastal feeder services and we
Customer support has encouraged
have re-entered the Mediterranean
us to investigate new trading
- U.S. market.
inaugurated
European
local agent.
www.lloydtriestino.com
Lloyd Triestino
Since 1836
MAERSK_AmrcnShpr.qxd
2/2/04
12:25 PM
Page 1
Maersk Sealand now offers you
the fastest transit from the
Middle East & Indian Subcontinent
Maersk Sealand’s new and improved MECL service offers direct, non-stop transport from the
Middle East and Indian Subcontinent to the U.S. East Coast – featuring the trade’s fastest transits:
• India to Charleston in just 18 days
• Pakistan to Charleston in just 20 days
Sourcing your goods from the Middle East and Indian Subcontinent has never been quicker or easier!
Contact your local Maersk Sealand Sales Representative to find out how you can take advantage
of the quickest routes from the Middle East and Indian Subcontinent.
maersksealand.com

From field to dinner plate 30 USPS`s regulatory

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