<div class="phx-topic abstract-wrapper">Mediterranean Shipping Co. is finally living up to its name. For years, the company relayed cargo to</div>

Mediterranean Shipping Co. is finally living up to its name. For years, the company relayed cargo to

<div class="phx-topic">Mediterranean Shipping Co. is finally living up to its name. For years, the company relayed cargo to Italy and other Mediterranean points through Antwerp. "People would laugh and say 'Mediterranean Shipping Co.? My goodness, you are not calling the Med on a direct basis,'" said Allen Clifford, senior vice president for sales and marketing.Not anymore. In November the company reconfigured its trans-Atlantic services so that one of its services, which calls Boston, New York, Baltimore and Norfolk, will sail into the Med after calling ports in North Europe.The service is among several that Geneva-based Mediterranean Shipping has introduced while expanding capacity in recent years. According to the Alphaliner.com information service of shipbroker Barry Rogliano Salles, MSC has vaulted into second place among carriers in container ship capacity, from fifth in September 2001.Mediterranean Shipping's fleet capacity has increased to 415,000 TEUs from 269,000 TEUs in September 2001. The expansion puts MSC second only to Maersk Sealand, and ahead of Hanjin-Senator, Evergreen and P&amp;O Nedlloyd.Much of the growth has come from the addition of 10 new 6,700-TEU ships that the company has deployed in the Europe-Asia trade. Six similar ships are planned. Alphaliner said the only major container carrier with comparable growth in capacity has been CMA CGM, whose capacity increased by 40 percent in 12 months to 240,000. Maersk Sealand has the largest fleet, with capacity of 800,000 TEUs."They continue to surprise much of the marketplace with their success," said Lou Policastro, vice president, ocean, at Wilson Logistics. "It is proof in the marketplace that you don't have to be part of a large state-owned company or global empire to grow and progress in the maritime business."MSC was founded in 1970 by Gianluigi Aponte, who remains chief executive and owner of the privately held company."They've come a long way, and it is a credit to their people that they have been so successful," said Michael Troy, chief executive of Troy Container Line, a non-vessel-operating common carrier based in Red Bank, N.J. "Everything from their intermodal department, to their documentation, to scheduling and equipment availability is tremendous."Mediterranean Shipping traditionally has relied heavily on NVOs to generate cargo that more-established carriers generate with their in-house sales forces. Clifford said MSC's links with consolidators remain important but that as the company has grown it works with more proprietary shippers.Joseph T. Saggese, executive managing director of the North Atlantic Alliance Association, a shippers association of NVOs, said that between 1992 and 1998, his group had a contract with the Trans-Atlantic Conference Agreement, to which MSC belonged. Although NVOs were free under that contract to ship with any TACA member for the same rate, "MSC consistently was, year after year, the top carrier for our group. That in itself was a testament to the fact that they were well-liked by the NVO community."Saggese said that when his association's TACA contract expired, his group signed multi-trade contracts that don't include MSC on the trans-Atlantic. But the association continues to use MSC on routes to the East and West coasts of South America, the Caribbean and Central America for relay service into the Middle East, and in the eastbound trans-Pacific.Mediterranean Shipping has added routes in response to customer demand for global services, Clifford said. "When you go after major proprietary clients, you have to offer them one-stop shopping," he said. "Major corporations, their logistics departments have been minimized and devastated over the years. Many are no more than two or three people, if that. They don't have time to choose between 20 and 30 carriers anymore. They need a couple of carriers who can do everything."Much of the work MSC does for American companies is for cargo that never moves in or out of the U.S. "There is a real globalization of accounts," Clifford said. "You want to go into the corners of Africa, you can do that with MSC; you want to go into the Indian Ocean, you can do that. We think this Western Mediterranean service is one more link in doing that."Clifford said, though, that MSC is cautious about entering new trades. "We do not just jump into anything in a haphazard way," he said. "Once we are in a service, we never leave."He cited Boston, where the Massachusetts Port Authority has struggled to convince other carriers to maintain direct calls. MSC has been at the port for about 15 years. "Other carriers have come and gone, but MSC has been the only primary container carrier service that has not left," Clifford said. However, the company is planning to suspend outbound calls from Boston because of winter weather.Troy said MSC's approach contrasts with some of the line's rivals. "I've found in the last five or six years, especially, carriers go in and out of markets," he said. "Through vessel-sharing agreements, they test markets and decide whether they are going to go in or not. Whereas MSC studies a market and commits itself to a market."Clifford said that key to MSC's global network is the efficient use of hubs such as Freeport, Antwerp, Singapore, Hong Kong, and Durban, South Africa."We were one of the originators in perfecting the hub-and-spoke system, and we are today one of the leaders in perfecting it," he said. "It allows us the most efficient use of vessels worldwide." MSC has been investing in terminals and is building a new one in Naples with China Ocean Shipping Co.In May, MSC converted its trans-Pacific service, which had turned around in Los Angeles, into a pendulum service that also calls Manzanillo, Mexico; Freeport, Bahamas; Savannah; and New York. Clifford said the Manzanillo call gives Asian customers access to the fast-growing Mexico market and opportunities to relay Far East cargo to and from the west coast of South America. Likewise, Freeport is a major hub for MSC to the east coast of South America and the Gulf of Mexico.The pendulum service was boon for MSC during the recent port shutdown on the West Coast. MSC was able to bypass Los Angeles and keep its vessels moving - discharging cargo for some clients in alternate ports in Mexico, Freeport, or on the East Coast. MSC has a few space-charter agreements with other carriers - for example, it swaps slots with Atlantic Container Line in the North Atlantic and with Maersk Sealand to and from South Africa. But Clifford said the carrier does 99 percent of its business on its own vessels.Troy said that is a benefit. "It's nicer to deal with the landlord instead of the tenant," he said. "You are dealing with someone in the shipping business who actually owns ships."</div>

Forwarding

The quiet carrier

<div class="phx-topic abstract-wrapper">Four decades after it opened, the St. Lawrence Seaway and Great Lakes navigation system remains one </div>

Four decades after it opened, the St. Lawrence Seaway and Great Lakes navigation system remains one

<div class="phx-topic">Four decades after it opened, the St. Lawrence Seaway and Great Lakes navigation system remains one of the world's great engineering achievements - a 2,300-mile link between the Atlantic and North America's industrial heartland. But the waterway has fallen behind in competition for international cargo. After years of declining or flat volume, Seaway boosters are struggling for solutions.A U.S.-Canada working group will meet in Washington this week to discuss a proposed $20 million study of the engineering, economic and environmental feasibility of rebuilding the system to accommodate larger ships and possibly year-round navigation. Improvements to be considered would include new, bigger locks, and wider and deeper channels that could handle ships large enough to fit through the Panama Canal."The Seaway is at a crossroads," said Albert Jacquez, administrator of the U.S. St. Lawrence Seaway Development Corp. "It's an aging system and the political leaders of both countries need to decide what investments in infrastructure are needed."Containerization is being considered as one element of the waterway's future. Some Great Lakes port directors, who have watched their general-cargo gravitate to Montreal, Halifax or U.S. East Coast ports, have talked for years about the possibility of attracting containerized cargo. Most shipping executives call the idea impractical."I think they're crazy," said Ross Kennedy, president of Robert Reford Ltd., a Montreal shipping agency. From Montreal or East Coast ports, "the rail connection is immediate. The volume is huge. An importer in the U.S. Midwest, or an exporter, is not going to accept a load or a discharge with the transit time of the Seaway. There's no way."Bill Behrens, president of Associated Transport Systems, an international supply-chain consulting firm in Chicago, agrees. "By utilizing the ports of Montreal or Halifax or Boston or New York, or even Baltimore, transit time from Europe is six or seven days, and to here in the Midwest it is two to two-and-a-half days more by rail," he said. "So if I'm importing, I have nine or 10 days total transit time as opposed to three weeks (through the Seaway). In today's market, with ocean rates continuing to fall, it becomes even less economically feasible to move containers into the Great Lakes."Containerized cargo volume through the Seaway totaled only 16,471 tons last year, according to the U.S. and Canadian Seaway authorities. In each of the last six years, containerized cargo's percentage of overall Seaway tonnage has been rounded off at 0.0 percent.The paucity of containerized cargo has been frustrating to Lakes ports. They say their efforts to attract containers have been hampered by infrastructure as well as geography.When the Seaway opened in 1959, containerization was in its infancy and most general cargo was still handled by the piece or the pallet. The waterway's locks, which can handle ships drawing up to 26-feet, 3 inches, were ample for the smaller ships and more leisurely schedules of that era. They're grossly out of date for today's container ships, many of which require drafts exceeding the 39.5 feet that the Panama Canal can accommodate.The U.S. and Canadian governments have been trying to work out a memorandum of cooperation on a five-year, $20 million study of several options for the Seaway-Lakes system. If this week's meeting in Washington produced such a memorandum, the next step would be a bilateral agreement early next year to begin the study.Although the proposed study faces opposition from environmental interests on both sides of the border, industry officials generally support the study's goal of modernizing the Seaway and possibly extending its navigation season, which now is closed for two-and-a-half months each winter. But developing container business is another story.The Lakes-Seaway system remains an important conduit for bulk cargo and, to a lesser degree, breakbulk shipments such as steel. Last year the Seaway handled 41.7 million tons of cargo. During the last 20 years, annual volume has been as high as 60.9 million tons in 1984 and as low as 41 million tons in 1993. In recent years, volume has been hurt by the decline of the U.S. steel industry, the loss of grain markets, and by general economic slowdowns. The Corps of Engineers, which calculates waterborne commerce throughout the Lakes and Seaway at 232 million tons in 2000, said that even without improvements, the waterway system's volume is expected to increase to 276 million tons in 2020 and to 336 million tons in 2050.The corps has proposed rebuilding the Seaway locks and deepening Seaway channels to 35 feet at the locks, and deepening U.S. ports to 30 to 35 feet. Seaway locks, now 80 feet wide and 766 feet long, would be 110 feet wide and 1,200 feet long. The corps hasn't estimated the cost, but it is likely to total several billion dollars.The agency's preliminary study estimates "potential benefits" at $800 million to $1.4 billion but does not offer specifics. It added that those benefits would be "dependent on feasibility of container service."The agency said wider and deeper channels and locks could produce container traffic of 2.23 million TEUs by 2010 and nearly 3 million in 2020. Bulk freight demand would rise as well, though not nearly so dramatically, "mostly for export grains."Few industry executives take issue with the bulk-cargo projections, but hardly anyone accepts the corps' estimates of possible container traffic, which would approach the 3.32 million TEUs handled by the Port of New York and New Jersey last year.Guy Veronneau, president of Canada's St. Lawrence Seaway Management Corp., and Jacquez, his U.S. counterpart, strongly favor the feasibility study for improving the Seaway-Lakes system, but they are circumspect on the issue of container shipments through the waterway.Veronneau wants a comprehensive study that provides "a clear, intelligent, businesslike answer as to what we do with the St. Lawrence Seaway." He said Canada's government calls the system "a strategic route for Canada," but has been frustratingly slow at endorsing the study."Users will have to renew their fleets, and they will have to know the dimensions and capacities of the Seaway in the future and whether they want to use it," he said. "I'm not sure Panamax-size ships are the answer. I believe extending the season might have a more positive impact than anything else, but we must have the study and there are no preconceived answers."Jacquez said the waterway's future may or may not include container traffic, but the countries need to conduct a full-dress study.Davis Helberg, head of the Duluth Seaway Port Authority for 24 years, said prospects for containerized traffic shouldn't be dismissed out of hand. "I'd like to think that there would be positive findings" about the prospects for container traffic, he said."The East Coast container hub ports are getting congested with trucks, as are North American highways, so I'm not so sure how well just-in-time is working anyway," Helberg said. "Shippers are frustrated. Traffic nightmares are coming if trade, as projected, doubles and triples. Boston-to-Baltimore is one great urban area now and land is scarce. The hub ports will have to find a way to create feeder shipping, or move to the roads."Among the handicaps Great Lakes ports have faced in attracting containerized cargo is the annual closure of the system during the icebound winter. Ray Johnston, president of the Chamber of Maritime Commerce in Canada and former president of Canada Steamship Lines, recalled that CSL once handled a large volume of breakbulk cargo through the region. "One of its downfalls was the lack of service during the winter season. That remains one of the biggest obstacles to be overcome." </div>

Out in the cold

<div class="phx-topic abstract-wrapper">How big of a deal was the European Commission's decision this month to grant the Trans-Atlantic Conf</div>

How big of a deal was the European Commission's decision this month to grant the Trans-Atlantic Conf

<div class="phx-topic">How big of a deal was the European Commission's decision this month to grant the Trans-Atlantic Conference Agreement its long-sought exemption from European Union competition rules? Take your pick.On one hand, it won't make any immediate difference. "We have operated under this presumption for the last three or four years. Shippers will see no difference at all," said Olav Rakkenes, chairman of TACA, the conference for liner carriers operating between Northern Europe and the United States.On the other hand, the decision may be the start of a voyage into new regulatory waters. European Competition Commissioner Mario Monti used the occasion to announce, "We must now turn our attention to the future and consider carefully whether the generous EU block exemption that the liner shipping sector has enjoyed since 1987 is still justified today."The Shipping Act of 1984, which gave legal sanction to shippers' associations, and the Ocean Shipping Reform Act of 1998, which allowed confidential shipper-carrier service contracts, have quieted the drumbeat for elimination of antitrust immunity for the liner carriers in the U.S.But it now appears possible that reformers in Europe will use the review Monti mentioned either to match the U.S. regulatory system on all trades touching Europe, or to go further and leapfrog the U.S. by seeking an end to antitrust immunity for carriers.Then again, that may be making too much of the EC decision.For the moment, TACA members are just happy for an end to a decade of controversy that began in 1993 when TACA's predecessor, the Trans-Atlantic Agreement, was established by 12 members that dominated the North Atlantic trade lane and began a campaign to significantly raise rates. That group was ruled illegal in 1998 by the EC, which fined the carriers $274 million.The EC's recent decision is welcomed by the remaining members of the conference - Maersk Sealand, Hapag-Lloyd, P&amp;O Nedlloyd, NYK Line, Atlantic Container Line, Mediterranean Shipping Co. and Orient Overseas Container Line. "It clarifies the situation for us and for everybody," Rakkenes said. "It is the end of a successful discussion with the commission and TACA that has gone on for years and years," he said.John Pheasant, a London attorney for the carriers, said the decision grants carriers a six-year exemption from antitrust laws, beginning in January 1999 when the revised TACA was first presented to the European Commission. Pheasant said the commission's decision to bless the agreement through early 2005 "is clearly envisioning the market will not change for the next few years so dramatically that the exemption granted today would not be unjustified."He added that in announcing its approval of the TACA agreement, the European Commission "mentioned aspects of TACA, which it regards as being pro-competitive and which it is suggesting all liner conferences should adopt, so to that extent the major features of the exempted TACA are a blueprint."In announcing its recent decision, the commission said certain features of TACA are "unequivocally pro-competitive and should therefore be emulated by all conferences operating on EU liner shipping trades."Specifically, it said that conferences should refrain from inland price-fixing; that conference members should not be restricted from signing confidential service contracts with shippers; and collective regulation of capacity by conference members is permissible only where necessary to adapt to short-term fluctuations in demand, and must not be combined with a price increase.Inland price-fixing and the right to enter service contracts with shippers are keystones to shipping policy in the U.S. The EC decision also noted that its decision to exempt TACA is "predicated largely on the very competitive conditions on the trans-Atlantic liner shipping market." Conference members carry less than half of trans-Atlantic cargo, down from 60 percent in 1998 and 70 percent in 1994. As a result, the commission said its ruling "has only limited relevance for conferences operating on less-competitive markets."Nicolette van der Jagt, secretary general of the European Shippers Council, was pleased that the EC's latest TACA ruling held open the possibility of further review of carriers' exemption from antitrust laws. She said shippers are "looking forward to the review of the liner shipping block exemption regulation in light of current regulatory and trading conditions."Everyone will recognize that the existing regulations and exemptions have helped no one and caused considerable mistrust," said van der Jagt, whose organization is the European equivalent of the National Industrial Transportation League in the U.S. "It is our intention to show that the liner shipping industry and their customers would be better off if they focused on customer relations and an enlightened business approach rather than regulations that prevent this, protect them from commercial realities and stop them from realizing opportunities to grow their business." If the review does eventually lead to the end of conferences, it would mark the end to one of the longest-lived institutions in the shipping business. Conferences trace their origins back to the opening of the Suez Canal in 1869, which precipitated a rate war between steamships and sailing ships. Faced with competition from steamers offering faster transit times and reliable schedules, owners of sailing ships slashed rates sharply to make their long voyages around the Cape of Good Hope attractive to shippers.The steamship companies tried to match the lower rates, but eventually owners in the London-Calcutta trade held a conference in 1875 and agreed adopt uniform freight rates. Carriers on other trades, including the trans-Atlantic, also formed conferences.In the early 20th century, governments began to regulate conferences - granting antitrust immunity, but outlawing tactics such as the use of deferred rebates and "fighting ships" to destroy independent owners who operated outside of the conferences. In the U.S., the 1916 Shipping Act legalized antitrust immunity for the shipping industry.Although conferences' clout has diminished, they still "benefit from an EU block exemption for collective rate-setting, capacity regulation and other related activities," the European Commission noted. Under European law, conferences are the only means by which carriers may discuss rates or restrict capacity. While that block exemption "mirrors that granted by most other developed economies, such as the United States and Canada," the EC said that "the exemption for collective price-fixing by shipping lines has been the subject of heated debate in recent years." It cited a report this year by the Organization for Economic Cooperation and Development, which concluded that "justification for maintaining that exemption was weak or non-existent.""The commission has accordingly decided to launch a review of the main EU competition regulation in the maritime sector," the statement continued. It added that "this initiative is all the more necessary because no review of the block exemption has been undertaken in the more than 15 years that it has been in force, while market conditions have changed dramatically."The EC said the first step in the review process will consist of a "consultation paper" on maritime policy that it plans to publish by year-end. It is inviting comments from governments, industry and other interested parties.The commission said the review process and the decision to exempt TACA "are two separate matters and should not be confused." Pheasant, however, said, "While nothing in economic terms is cast in stone and market conditions may change, clearly today's exemption is a very relevant factor in any future review." He predicted that carriers will be able to make a good case that with the TACA exemption the burden of showing why things should be changed "will be on the shoulders of those who are proposing change." </div>

Europe dances around antitrust

<div class="phx-topic abstract-wrapper">As the queues of ships outside West Coast ports have diminished following the 10-day lockout of long</div>

As the queues of ships outside West Coast ports have diminished following the 10-day lockout of long

<div class="phx-topic">As the queues of ships outside West Coast ports have diminished following the 10-day lockout of longshoremen in late September and early October, container carriers are tallying the cost of the port shutdown and the resulting congestion and delays."It is going to have a massive effect," said Trevor Crowe of Clarksons, the London shipbroker. "Nobody has been making a great deal of money on the Pacific this year to begin with. This is going to make it look worse for them because they obviously incur a lot of costs. The bottom line will receive a bit of a dent."How much? No one knows for sure, but Gunther Casjens, a member of the executive board of Hapag-Lloyd, estimated that his company will incur costs of $10 million to $15 million from the West Coast shutdown and its aftermath. Hapag-Lloyd accounts for only about 2.5 percent of the cargo moving through West Coast ports. If other carriers' losses are proportionate to their West Coast volume, total losses to carriers could be $400 million to $600 million."It's definitely going to hit their bottom line quite hard because some of these carriers are stretched already," said John Fossey, an analyst at Drewry Shipping Consultants in London. Will some be so stretched that they consider merging or going out of business? "I don't know," Fossey said. "But it could force some to think about alternative strategies, simply because some carriers are moving in that direction already."James Winchester, an analyst with Lazard Freres, said most carriers' owners have equity they can draw on to see them through the current downturn or are active in trades unaffected by the West Coast port troubles. "We doubt companies will be sold off at the bottom of the cycle by their present majority shareholders," he said."I don't see how it is going to bust anyone," said Dan Clague, an investment banker at SG Hambro in London. "But $10 million or $15 million is the difference between a profit and a loss for a lot of lines, such is the wafer-thinness of profits in the trade this year. It still is terrible."Estimates of carrier losses from the lockout and its aftermath vary widely. China Ocean Shipping Co. moved more than twice as many containers through West Cost ports in 2001 as Hapag-Lloyd, but Gao Weijie, an executive vice president for the company, has been quoted as estimating losses of $10 million to $15 million, similar to those estimated by Casjens.On the day after the lockout ended, Fleming Jacobs, chief executive of APL Ltd., estimated that "additional costs due to disruption and clearing and repositioning of vessels and containers were in the order of $9 million to $10 million." APL moves 42 percent more cargo through West Coast ports than Cosco does.Fossey said estimates of $1 million for each day the shutdown lasted sound reasonable for medium-size carriers. For carriers with the most exposure to West Coast ports, the costs could be higher.Maersk Sealand, the world's largest carrier, also has the largest West Coast volume of any carrier. Last year Maersk Sealand moved 1.18 million TEUs through West Coast ports, according to PIERS, the Port Import-Export Reporting Service of The Journal of Commerce. Though Maersk Sealand hasn't issued an estimate of its lockout-related losses, they're likely to be considerable. However, the company is unusual among carriers in that it has neither declared force majeure nor announced congestion surcharges. "Our customers took a service hit and we did not want to impose additional costs on them," a spokesman explained. Maersk Sealand also delayed some sailings from the Far East rather than have ships sit in long queues at the West Coast ports.While it is the largest user of West Coast ports, in another sense Maersk Sealand is better-positioned than some rival carriers because its West Coast services account for a relatively smaller proportion of its global volume.Though Maersk Sealand doesn't publish global volume statistics, Drewry estimates that the carrier moves about 9.4 million TEUs a year. If that figure is accurate, the 1.18 million TEUs moving through West Coast ports would account for only 12.6 percent of the carrier's global liftings.Another major global carrier, P&amp;O Nedlloyd, is an even smaller factor in the trans-Pacific. Its West Coast cargo accounts for only 8.4 percent of the 3.2 million TEUs of global volume estimated by Drewry.The lines with the biggest proportional exposure to the West Coast are Hanjin Shipping and its Senator Lines affiliate, Hyundai Merchant Marine and APL. Each of these carriers move about a third of their business through West Coast ports.Even more exposed are domestic carriers such as Totem Ocean Trailer Express, which operates exclusively between the Pacific Northwest and Alaska, and Matson Navigation, the dominant carrier operating between the West Coast and Hawaii. A third domestic carrier, CSX Lines, participates in both those trades as well as to Puerto Rico from the East Coast.Last year Matson moved 149,636 containers of 24-foot, 40-foot and 45-foot lengths, and 122,389 motor vehicles to and from Hawaii, and another 17,225 containers and 2,750 automobiles to and from Guam.Matson and CSX Lines are subsidiaries of public companies, but neither has issued estimates of the cost of the port shutdown. Spokesmen explain they don't want to do so while the situation is still uncertain and also say there is a danger that shareholders or analysts might try to project interim estimates over a longer period.The 10-day management lockout of West Coast longshoremen, followed by weeks of cargo backups and scrambled sailing schedules, affected carriers in many ways. But the most visible costs - additional crew, fuel and capital costs on idled ships - are just the tip of the iceberg.Mark Page, an analyst at Drewry, said estimates are difficult, "not in the least because the trouble is ongoing and the costs are still mounting." But he lists several costs that carriers are incurring:-- Ship-operating costs. Page said $25,000 is a reasonable average per ship per day for trans-Pacific vessels. About 200 ships were waiting for berths on the day the ports reopened, so carriers were incurring several million dollars worth of losses due to this factor alone.-- Additional costs at terminals, where equipment was idled during the lockout and union overtime resulted while the backlog was being worked off.-- Additional distribution costs on railroads, roads and feeder vessels.-- Additional equipment costs. Containers couldn't be emptied promptly and delays in the return of empty boxes forced lines to incur higher leasing costs and maintain larger equipment inventories.-- Additional storage costs.-- Additional costs for repositioning empty containers.-- Losses due to lost or deferred cargo because of the insufficient space. Some cargo was switched to air-cargo carriers, sourced from other locations, or canceled. Some carriers expect most of this revenue to be delayed, not lost, with the traditional lull around Christmas likely to be busier than normal.Against those costs, Page said, "carriers might have saved some bunker costs and some port costs - small beer in comparison."Some carriers were able to bypass congestion at U.S. West Coast ports by discharging containers at ports in Mexico, Canada, Panama or the Caribbean. Several declared force majeure, which releases carriers from contractual obligations, and will charge shippers to move the containers to their final destination. But carriers say additional charges under force-majeure clauses or congestion surcharges won't fully offset the lines' losses.Because equipment was tied up on the West Coast, shortages of containers or chassis have been felt in points as distant as New York, China and Europe, where carriers are scurrying to round up empty boxes for repositioning to Asia. </div>

Who was hit the hardest?

<div class="phx-topic abstract-wrapper">The shutdown of West Coast ports last month has created tremendous congestion and additional costs f</div>

The shutdown of West Coast ports last month has created tremendous congestion and additional costs f

<div class="phx-topic">The shutdown of West Coast ports last month has created tremendous congestion and additional costs for shipping companies. In response, many carriers have been announcing new surcharges on shipments moving through West Coast ports, or extending seasonal surcharges to help defray those additional costs.The Federal Maritime Commission is cautioning carriers that shippers have to be given 30 days notice if surcharges are going to be imposed.Bryant L. VanBrakle, secretary of the Federal Maritime Commission, said he has seen queries from 10 to 12 shippers asking about the legality of surcharges that have been proposed or have already been assessed by carriers."Anytime there is a price increase, somebody starts asking why," VanBrakle said. In response to those queries, the FMC issued a notice at the end of October reminding carriers that the Shipping Act of 1984, as well as its rules on tariffs, "generally prohibit any change in an existing rate that results in an increased cost to the shipper from becoming effective earlier than 30 calendar days after publication."VanBrakle said the FMC would prosecute if it "became aware of a carrier who was assessing or collecting a surcharge without so providing in an applicable tariff or service contract."He added that if a shipper has a service contract with a carrier and there is some ambiguity in the contract as to whether a new surcharge can be applied, "that is something a shipper should take up with their counsel.""If your service contract has a clause that says it is governed by the carrier's tariffs then, yes, all the carrier has to do is add the surcharge to his tariff on 30-days notice and it automatically applies to the service contracts. That is unless the contract is amended to say that this congestion surcharge does not apply," said James E. Devine Jr., president of Distribution Publications Inc., an Oakland, Calif., publisher of ocean and intermodal freight tariffs. "You will see some contracts that have some sort of a clause that say these are the rates and no additional surcharges will apply no matter what is filed in a carrier's tariff," Devine added. "But that is pretty unfavorable to the ocean carrier, and you won't see many contracts like that."There is no mystery why carriers would want to impose surcharges in a situation such as this. Last week, more than a month after employers decided to close West Coast terminals in the face of dockworker slowdowns, ships outside the ports of Los Angeles and Long Beach were still waiting more than a week for berths to discharge and load cargoes.Intermodal facilities have become clogged as carriers strive to deal with the backlog of business and reposition containers that have been discharged in ports other than where they were originally destined. And with hundreds of thousands of additional containers still in the U.S., carriers are experiencing severe shortages of equipment in the Far East."Those are not costs we are having tomorrow or in 30 days. Those are costs that we are having today, and we have to cover those additional costs," said a spokesman for Hapag-Lloyd.Hapag-Lloyd and CMA CGM asked the FMC under a "special permission procedure" to waive the 30-day waiting period and impose congestion surcharges on an expedited basis. "The surcharge is only for the additional costs we have and we have given the FMC a very detailed calculation basis so they could understand," said the Hapag-Lloyd spokesman. The FMC, however, turned down the requests by Hapag-Lloyd and CMA CGM last week."Of course we are disappointed," the spokesman said. Instead Hapag-Lloyd will impose the surcharge on Nov. 9 for European services and on Nov. 15 for trans-Pacific services, 30 days after it first gave notice of its plans. The spokesman said he was not sure how long the congestion surcharge will be in place."The situation on the West Coast is not settled at all," the spokesman added, with vessels in Los Angeles-Long Beach still waiting eight to 12 days for a berth."We have schedule interruption, we have to speed up ships, and that will continue for some time. But we will observe very closely and discontinue the moment that those additional costs are not coming in anymore," the spokesman said.Hapag-Lloyd, like many other carriers, has declared force majeure, and in some cases has had ships fully discharge cargo at West Coast ports other than where their cargoes were originally destined. Some shippers and attorneys have questioned whether carriers have the right to continue to invoke force majeure, contending that the labor dispute on the West Coast was a management lockout, not a strike, or that the force majeure situation ended when the ports reopened."I'm a little surprised by it. Everybody knows why this lockout has happened," said the Hapag-Lloyd spokesman. "I do not find it very fair. There was a slowdown and a slowdown is the worst that can happen to a shipping company, and it was blatantly done and the lockout was the logical consequence, which was communicated and people knew."Many carriers are planning to impose much higher fees than the relatively modest congestion surcharges of $110 to $180 per TEU that Hapag-Lloyd is planning to impose on shippers. They are "all over the place," Devine said. "Lots of wild and crazy things are happening."He has seen surcharges as low as $100 per TEU from a South American carrier that calls at West Coast ports, but he said most carriers moving cargo to and from the Far East are imposing congestion surcharges of $500 for 20-foot containers and $1,000 for all other containers. Surcharges on less-than-containerload cargo of $25 per freight ton - 1,000 kilos or one cubic meter - are common.One Far East carrier has announced a surcharge of $1,125 for a 20-foot container, $1,500 for a 40-foot container, $1,688 for a 40-foot high cube, and $50 per freight ton. Which company? "I'd rather not say," Devine said, "Especially because I would bet that on Nov. 11 when this is effective, they will cancel this, postpone it or reduce it. There has been a lot of that."Furthermore, he suspects the carrier "might be trying to bundle port congestion with peak season or some other surcharge. There are lots of new surcharges that are appearing," he said, including inland freight and equipment-repositioning fees for cargo moving beyond the port. He has seen inland charges ranging from $140 to $720 per 40-foot container.In addition, Devine said some carriers have extended the peak-season surcharge, originally slated to end anywhere from the end of September to the end of November or December.Devine believes there is another reason why carriers may be imposing surcharges. Many carriers have invoked force majeure clauses in their tariffs and bills of lading that allow them to pass along any expenses associated with the force majeure event. But Devine said that under force majeure, carriers have to fully document what the expenses are in order to pass them along. "That's a very difficult thing to do with all the fixed costs of operating a regular liner service and all your container costs," he said.By imposing a fixed surcharge, the carrier does not have to document those costs, but can impose a fee the carrier believes will allow it to recover its costs. But the carrier is subject to the 30-day notice requirement of the FMC."NVOCCs are in a different position, because for them, if an ocean carrier presents them with a $1,000 invoice for a surcharge, that really is an expense that has been imposed on them by a third party, and some of these NVOCCs are saying, 'Why can't we declare force majeure and pass on this surcharge that we have been hit with.' I don't doubt that some NVOCCs are going to pass this along if they can prove that is what the ocean carrier is charging," Devine said.Will carriers get these charges?"The export trade is so weak, it is hard to imagine that carriers are going to get this kind of money on exports," Devine said. But he said that inbound volumes are still strong. </div>

Recovering costs of the slowdown

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The world of LTL is slow to embrace change. Business anachronisms permeate current supply chain processes. These vestiges of the way things used to work define the LTL freight transportation procurement process of many modern shippers.David Knuth, logistics specialist at IEWC, a global supplier of cable and wire based in Wisconsin, is happy to have modernized the RFP process, automating the entire LTL bidding procedure with Bid$ense, SMC³’s automated truckload and LTL freight transportation sourcing solution. But when prompted, he can still recall what once was.In his previous job, a large part of his duties were consumed by creating an intermodal bid package for carriers. In a spreadsheet, Knuth detailed the company’s volumes lane by lane, taking care to delete any errant keystrokes or misleading data. He would then email out the information to each carrier, taking time to respond to detailed technical questions about the spreadsheet data. Finally, he had to compile all the results, create an algorithm that would compare the carriers on each lane, and award the business.“It was a huge undertaking. It took about four months to do,” Knuth said of the old process. “It was almost a full-time job for that part of the year, every year.”In his new job at IEWC, he sat down with Bid$ense on day one and was amazed at the capabilities. Knuth had never before used a bid tool. SMC³’s latest versions of Bid$ense automate the process even further, taking truckload and LTL RFPs entirely online. The tool draws on RFP best-practices protocols to streamline the bidding communication process, enabling bidding carriers to respond accurately and promptly to shipper requests. The solution also does all the distribution work automatically, electronically submitting shipper bid data to carriers based on their actual service capabilities and performance records. Carriers are alerted with timely prompts for RFP deliverables, so shippers aren’t waiting by the phone for responses.Another benefit of automating the process is the data-cleansing assistance. When Knuth sent spreadsheets to carriers, data errors might cloud the bidding process; he might have to resend data or simply accept a price that did not truly reflect the costs of doing business. Data cleansing is incredibly beneficial, he said.The spreadsheet technique also made bidding analysis an onerous task. Since Bid$ense automates and streamlines the entire RFP process, intensive examination is now simple. SMC³ knows that each bid has more than one best outcome. With uniform responses from each carrier, shippers can quickly rank results and create an unlimited quantity of what-if scenarios to make the optimal procurement decision.Jesse Burnett of Central Garden &amp; Pet experiences many of the same benefits. Founded in 1980, Central Garden &amp; Pet has spent the last three decades growing from a small garden supply company to a provider of a range of products from dog chews and bird seed to soil supplements and natural insecticides. For much of its life, the company shipped these disparate goods via LTL and truckload carriers to retailers throughout the country, relying on each business unit to negotiate directly with their freight transportation providers. This arrangement worked fairly well for a small company, but as Central Garden &amp; Pet expanded, leadership decided to consolidate decision making.Burnett helped centralize the transportation decision making in 2015 with SMC³’s Bid$ense. Before Bid$ense, every business unit operated independently as far as negotiating with carriers.“There were a lot of different things just floating around,” he said. “We didn’t have master agreements in place; no national pricing at all. The pricing from carriers was just all over the place, depending on where you were.”The transformations he saw with Bid$ense were immediate. Burnett has been using the tool about every other year since its implementation at the company. Central Garden and Pet’s $19.6 million 2019 LTL bid saved the company just more than 9 percent when compared to its historical average. For Burnett, though, bid automation extends far beyond savings.“We knew that we weren’t getting the best pricing offer from our carriers just because nothing was centralized,” he continued. “We knew that if we combined everything from all these business units and paired it with one corporate offering, then it would drive some cost benefit with it.”When the company initially decided to centralize bid procurement, executives researched a number of different methodologies and technologies. In the end, though, Burnett found that Bid$ense was both widespread and well known, and that his carrier partners already knew how to use the application. Burnett also highlighted the data-cleansing process as a major benefit, saying the rigorous process ensures that carriers always return the best price.“It definitely has helped drive savings,” he said. “Any time you go out there and you drive that competitiveness with the carriers and they know they’re in a bid environment, it seems to sharpen their pencils.”Transportation procurement is an integral part of the modern supply chain. With Bid$ense, shippers can develop a strategic implementation plan that saves them time and money, but also helps them create strong relationships with their carrier partners. These carriers appreciate the solution’s data-cleansing process; when carriers receive a complete shipment history and future volume forecast, they don’t have to guess on pricing. Carriers that receive more data from shippers get a complete picture of that shipper’s freight, allowing them to accurately plan instead of simply preparing for the worst-case scenario. Clean data presented through an automated system can lead to both bigger shipment savings and a lasting partnership between carrier and customer.Whether customers are looking to streamline over-the-road transportation bidding by automating the RFP process or create an entirely new, centralized sourcing process, Bid$ense has the analytical horsepower to get the job done.SMC³ 2020 Customer Case Study

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Shippers save money, time with automated transportation bidding tools

If there’s one immutable truth in the world of logistics, it’s this: LTL is an inherently complex form of transportation. Tariffs, rates, DIM weights, transit times — it’s enough to confuse even seasoned logistics professionals. The solution to this knowledge gap has historically been on-the-job training or university supply chain education, but for a variety of reasons there is now a pressing need for third-party, remote LTL training that prepares logistics workers for transportation success. Global Scope Can Overlook Local Intricacies In the past, professionals looking to move into a supply chain career learned about the basics of supply chain from universities. However, many of these college supply chain programs are now global in scope, focusing on worldwide supply chain management instead of the intricacies of specialized domestic transportation. And even these programs, which used to be widespread, are becoming less common. LTL is not an industry of broad-brush strokes; supply chain professionals really need a pointillistic understanding of the logistics of LTL in order to excel in the industry. Accelerating Need for Dedicated LTL Education This lack of specified training put the onus on employers to prepare new hires with the LTL knowledge needed to do their jobs. Dedicated LTL study is a necessity, not a luxury. At the same time, changes in LTL and the broader supply chain world are accelerating. The reliance on e-commerce has ballooned since the start of the pandemic, and last-mile LTL shipments and related e-commerce strains on the supply chain won’t diminish once social distancing abates. That genie isn’t going back into the bottle. So supply chain employers need logistics workers that are fully versed in all aspects of the industry, ready to solve unique shipping and delivery problems based on their extensive supply chain knowledge But why care about LTL? It’s been reported that some shippers in today’s world are no longer concerned with what mode is used to ship their goods. A Multimodal Approach Ensures On-Time Delivery This mode agnosticism means supply chain stakeholders have to be well versed in all modes of transportation. As unforeseen weather events and other disruptions, such as protests, become more common, savvy logistics employees will need to be armed with familiarity of all modes, not just the most popular, to ensure that freight is delivered on time, without damage, and in the most financially expedient way possible. Offerings like SMC³’s LTL online education courses cover a wide range of topics from LTL basics and operations to more advanced concepts like pricing analytics and transportation law. The company also has plans to continually refresh content, adding new expert presenters and taking the feedback of students to make the courses even better as time goes on. Learn more about&nbsp;<a href="https://logisticstrainingcenter.com/smc3-courses/" rel="noreferrer" class="joc_admin__link">SMC³’s LTL Online Education program</a>&nbsp;and view the 2021 hybrid schedule, featuring live industry experts,&nbsp;<a href="https://www.smc3.com/onlinelearning2021/" rel="noreferrer" class="joc_admin__link">here.</a>

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Filling the Supply Chain Education Gap with LTL Education Courses

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Quarterly Intelligence

<div class="phx-topic abstract-wrapper">Senator Lines, the shipping company formed in 1994 after the unification of Germany through the merg</div>

Senator Lines, the shipping company formed in 1994 after the unification of Germany through the merg

<div class="phx-topic">Senator Lines, the shipping company formed in 1994 after the unification of Germany through the merger of Deutsche Seereederei Rostock, an East German carrier that had been privatized and Senator Linie, a brash West German upstart, will sharply reduce its trans-Atlantic and trans-Pacific services at the end of the year.Senator has yet to make clear its plans for the future, but last month it issued a statement saying that market conditions are forcing it to substantially cut back its operations. "The current market situation of low rates and huge trade imbalances is not satisfying and forces Senator Lines to reconsider its status as a global carrier," the carrier said. "Non-profitable transport routes shall be restructured and partly sized down at a temporary basis."Senator, which is 80 percent owned by the South Korean carrier Hanjin, operates on more than two dozen trade routes around the world. It said, "These streamlining measures will mainly affect the trans-Pacific and trans-Atlantic routes, but it is guaranteed that existing service contracts with our customers will be honored without reservation."Non-vessel-operating common carriers, or NVOCCs, upon which Senator has heavily relied, say they have been told that current contracts will continue to be honored, but once those agreements expire, business will not automatically be transferred to Hanjin."There was a lot speculation that maybe Senator Lines would be absorbed in or rolled into the Hanjin operation, but that obviously is not going to be the case," said Louis Policastro, vice president at Wilson Logistics, who says his company is active with Senator both on services in and out of the U.S. and in Europe.Even if it discontinues services on the trans-Atlantic or trans-Pacific trades, Senator will apparently continue services on many or all of its other routes to and from Europe, the Mediterranean, Asia, Middle East and South America.The online information service Alphaliner.com says rumors about possible release of ships chartered by Senator are unfounded and that some vessels may be transferred to Hanjin.Last month, China Ocean Shipping Co., Yang Ming Line, "K" Line and Hanjin announced plans to restructure their trans-Pacific and trans-Atlantic strings. While trans-Pacific capacity will be little altered, the carriers will reduce average weekly capacity on the trans-Atlantic from two loops totaling 6,917 TEUs to a single loop with 3,800 TEUs of weekly capacity, according to Alphaliner. Senator has said its twice-weekly service between Montreal and the Mediterranean, in a space-sharing agreement with Canada Maritime, will continue without alteration. NVOCCs say they understand many Senator employees will lose their jobs at the end of the year. "I don't like to see any company go, whether it is a steamship line, a forwarder or an NVO. Some people may look at it as a cleansing process, but I don't like to see any reduction in tonnage. But it may be a sign of the times and perhaps we may see some more," said Michael Troy, president of Troy Container Lines, an NVOCC based in Red Bank, N.J."They have had their ups and downs as most of the liner carriers have in the last 10 or so years," said Policastro.While some carrier executives have viewed Senator as an aggressive rate cutter, he said, "I never perceived them as bottom feeders. They were in the category of more competitive and, in many cases, more flexible. And they did have to earn their way into market share in the first third of their activities in and out of the U.S. trade lanes. But I didn't view them as the take-it-at-any-cost end of things or the most disruptive in terms of pricing." </div>

Senator Lines pares back

<div class="phx-topic abstract-wrapper">Less than 24 hours after West Coast ports reopened following the 10-day lockout of longshoremen, a H</div>

Less than 24 hours after West Coast ports reopened following the 10-day lockout of longshoremen, a H

<div class="phx-topic">Less than 24 hours after West Coast ports reopened following the 10-day lockout of longshoremen, a Hyundai Merchant Marine ship unloaded 400 containers in Long Beach that were intended for Oakland and Tacoma. It was the first of what would become a major logistical headache.Since the lockout ended on Oct. 9, thousands of containers continue to be stacked up where they shouldn't be, forcing shippers to hastily arrange truck or rail transportation to the proper port or final destination.The backup has generated proposals that containers be relocated by coastwise ships or barges. Tempting as the solution sounds, it's easier said than done. The reason is the Jones Act, the 1920 law that prohibits the movement of cargo between U.S. ports by foreign-owned, foreign-flag ships.Most ships calling West Coast ports are foreign-flag vessels. Hyundai's vessels fall into that category. The South Korean carrier sought temporary relief from the Jones Act so it could load the stranded containers on another one of its vessels to move them to their intended port. Although the Jones Act is administered by the Maritime Administration, it is enforced by Customs. Hyundai asked Customs to issue an "administrative non-enforcement order" - in effect, a legal sanction for Customs officials to look the other way.While a Jones Act waiver and an administrative non-enforcement order appear to be effectively the same to the layman, there's a distinction, said Larry Burton, an attorney with Customs' Office of Regulation and Rulings. Under a 1950 law, waivers are allowed only for purposes of national defense, and Customs has to have the assent of the secretary of defense to do it. Customs can issue the administrative order on its own volition.After Hyundai requested a non-enforcement order, other carriers waiting at anchorage off Los Angeles and Long Beach quickly followed suit. The Japanese government also requested the waiver on behalf of its nation's carriers. On Oct. 11, Customs was willing to issue a blanket non-enforcement order under emergency conditions after the lockout ended. Marad objected, and after discussions between Maritime Administrator William G. Schubert and Customs Deputy Commissioner Douglas Browning, Customs agreed to scale back.Customs said that if a foreign-flag ship unloaded cargo on a West Coast dock as an emergency before the lockout began, a ship of the same company could move stranded containers to their destination. But Customs said that if the ship arrived after the lockout, where a carrier landed its cargo was "a commercial decision.""The Maritime Administration does not believe that these current circumstances meet the definition of the interest of national defense, and hereby requests that the Customs Service instruct all of its personnel to enforce the provisions of the Jones Act," Schubert wrote in an Oct. 9 letter to Customs Commissioner Robert C. Bonner."The Maritime Administration is carefully evaluating all potential alternatives that would alleviate congestion in the ports, and expedite the delivery of cargo to its final destination," Schubert said. "We would strongly encourage all non-Jones Act qualified carriers to consider utilizing the available domestic carriers for this purpose."Schubert said Marad objected to a wholesale non-enforcement order because it would not alleviate congestion, and it would do nothing to speed cargo to shippers, which in many cases are arranging transportation of the stranded containers on their own. Since the lockout, ships have laid at anchor, waiting to get into West Coast ports. Stranded containers loaded onto a coastwise ship would be subject to another wait outside port, causing further delays.Schubert also cited another reason: There was Jones Act tonnage available to fill the need for coastwise transportation. "We determined there were domestic shipping assets available, and accessible to underutilized ports." He said ships and tug-barge combinations were available, and that shallow-draft barges would be able use port facilities that larger ships could not enter. "Our position was not arbitrary or capricious," Schubert said.On Oct. 23, the National Industrial Transportation League weighed in, asking that Customs waive the Jones Act for 90 days. Edward M. Emmett, the NIT League's president, said the waiver was justified by national-defense interests and the threat to the economy. "President Bush himself proclaimed that the employee lockout at West Coast ports 'threatens our national defense,' in announcing his decision to invoke the Taft-Hartley Act" to reopen the ports, Emmett told Customs.Jones Act defenders, led by domestic carriers and seafaring unions, are having none of it. They denounced the NIT League's request as an effort to undermine the law, which has been subjected to repeated attacks as a protectionist relic. "Instead of assisting in the national defense, a waiver of the Jones Act would be detrimental to the interests of national defense and might seriously increase the risk to national security," said Gunnar Lundeberg, president of the Sailors' Union of the Pacific. He said ships used by foreign carriers "typically fly flags of convenience. This notorious system facilitates secret ownership, has been repeatedly connected to terrorist activity, and is known to transport weapons."NIT League officials deny any negative intent. "Our effort is not intended to alter the act in any way, shape or form," said Peter Gatti, the NIT League's vice president for international policy. "We are not trying to undermine the Jones Act. We're trying to help a small number of shippers get around some obstacles."Gatti said shippers "are pretty powerless when their freight is caught in the pipeline." Securing transportation on a Jones Act-qualified vessel is difficult, and time-consuming, he said. "We're talking about shippers with five or 10 boxes. They're not going to get a whole ship."No one seems to know exactly how many containers have been dropped off at the wrong port. The number probably changes quickly, as shippers arrange land transportation for some containers, while new ones land on the waterfront.Paul Stevens, executive vice president of Matson Navigation, the dominant carrier in the trade between the U.S. West Coast and Hawaii, said moving a container by water between Los Angeles and Oakland costs about $1,000, compared with $800 to $1,000 by truck, said."I'm trucking freight between Oakland and Los Angeles. It's available, but it's not free," Stevens said. Matson has provided coastwise service for years between Seattle and Oakland. It saves foreign carriers a U.S. call. However, the company does not have direct service between northern ports and Los Angeles-Long Beach.Stevens said he's received a few inquiries from foreign carriers about shuttling containers. "The $64 million question is whether or not they want to pay the money," he said. Even if there are a few hundred containers involved, a ship chartered and loaded for a voyage from Oakland to Los Angeles still would have to wait in a queue behind a few dozen other ships to unload. Per-diem charter would accrue while the ship rode at anchor.John McCown, chief executive of Trailer Bridge, which operates between Jacksonville and Puerto Rico, said the use of small tug-barges would help relieve congestion. He said Trailer Bridge has three container-carrying barges laid up. It would take six or eight weeks to deploy them to the West Coast, but "nobody has approached us." </div>

Ready, willing and able

<div class="phx-topic abstract-wrapper">When trans-Pacific carriers announced proposed rate increases for westbound shipments, U.S. exporter</div>

When trans-Pacific carriers announced proposed rate increases for westbound shipments, U.S. exporter

<div class="phx-topic">When trans-Pacific carriers announced proposed rate increases for westbound shipments, U.S. exporters surprised the lines by offering virtually no resistance.Shipping lines intend to raise their rates on refrigerated cargoes by $600 per FEU by April 1. Bob Weiss, an independent administrator of the Food Shippers Association, based in Bellevue, Wash., said his members are willing to accept an increase. "As long as everybody pays the same amount, that's OK," Weiss said.Shippers of wastepaper face a $200 general rate increase even earlier, on Nov. 1, and they aren't squawking either. "As long as demand is strong, we can pass the increase on to our overseas customers," said Jerry Lucey, division manager at Paper Tigers in Richmond, Calif. He said pent-up demand in Asia has resulted from the West Coast port shutdown.But shippers' acceptance of the increases and carriers' need for them may not be enough for the lines to get everything they want. In the past, carriers have cut rates without being asked. What usually happens is that a carrier will cut rates to attract cargo it needs to reposition containers to Asia or merely to fill empty space. The word quickly gets out, and other lines lower their rates to maintain market share.For many shippers, this cycle of rate-cutting is more destructive than a general rate increase that all exporters in the trade must pay. With westbound rates at or near all-time lows, most shippers recognize that carriers can't survive if they continue to charge rates that don't even cover the cost of loading a container aboard a ship and carrying it back to Asia.Most shippers say they're more interested in dealing with carriers that are financially sound and committed to the trade than in seeing the lines engage in a rate war that could drive weaker carriers into bankruptcy. Shippers also want to know that their rates will remain steady for the duration of the contract, so that the sales they make today will move at the quoted rate six months later. Most of all, they want to know that competitors who export the same products and volumes are not getting better deals.The export trade from the U.S. to Asia has been subsidized for years by the more prosperous eastbound trade, which itself has produced huge losses for carriers. U.S. exports to Asia are dominated by low-value U.S. exports such as wastepaper and agricultural products. These low-rated cargoes can't bear the rates that carriers are able to charge for the higher-value consumer goods that the U.S. imports from Asia.In good times, shipping lines charged $3,000 or more to carry a 40-foot container of electronic goods to the West Coast, but only $500 to $600 to carry a container of wastepaper to Hong Kong or Japan.In recent years, though, carriers built too much capacity even for the eastbound trade, and rates on imports from Asia have dropped dramatically. Therefore, carriers can no longer afford to subsidize the westbound trade with their eastbound rates - especially since eastbound rates also have dropped, to an average of $1,500 to $1,800 per FEU.Shipping lines build vessels for the eastbound trade, where they not only get higher revenue but they also achieve much better utilization of their ships. Eastbound vessels normally operate at more than 70 percent of capacity in the slack winter months, and during the peak shipping season, they are full. The same vessels return to Asia with a capacity utilization in the low 60 percent range.The recent announcements of rate increases came from the Westbound Transpacific Stabilization Agreement, whose 12 member lines have antitrust immunity to discuss rates and establish voluntary guidelines for members. WTSA members are free to charge whatever rates they want in their confidential contract negotiations withshippers.In announcing proposed general rate increases of $200 per FEU on dry cargoes and $600 per FEU on refrigerated cargoes, the WTSA did not cite space shortages on vessels as the reason for the increase. "It's really about the need for revenue," said Niels Erich, spokesman for the WTSA.In recent years, the WTSA guidelines have rarely held up. Last spring, for example, the carriers announced their intentions to raise rates on apples and citrus - refrigerated commodities for which rates are among the highest in the trade. Instead of increasing, rates actually fell slightly below their former levels, Weiss said. Freight rates on apples are now about $1,800 to $1,900 per FEU.Freight rates on cotton, a lower-rated dry commodity, have broken psychologically important barriers - $400 per FEU to Thailand and $500 to Indonesia. Rates to those distant destinations used to be over $2,000. On the heavily traveled trade lanes to Taiwan, Japan and South Korea, cotton rates have been in the $350 to $450 range. The WTSA announced a $200 general rate increase on cotton to take effect Dec. 1.Some exporters say the WTSA will have little more success with its recently announced increases. Blue Diamond, a California-based almond exporter, signed its annual contracts in August. "There was no increase," said Jil Morley, Blue Diamond's supply- chain manager.The WTSA's proposed rate increases would produce substantial percentage increases for some commodities. Freight rates on wastepaper exports to some destinations have fallen to $250 or lower, so the $200 GRI would translate to an increase of almost 100 percent. But as Erich pointed out, "When rates are that low, talking about a percentage increase is meaningless." </div>

Westbound carriers try again

<div class="phx-topic abstract-wrapper">Edward M.</div>

<div class="phx-topic">Edward M. Emmett, president of the National Industrial Transportation League, the nation's oldest and largest shippers association, met with The Journal of Commerce editorial board in New York recently. He was asked about several issues the influential NIT League has taken up, including its leading role in pushing Congress to further deregulate ocean shipping.In a wide-ranging interview, he also spoke about the UPS strike and its impact on NIT League members, shippers' growing interest in air cargo policy, and why his association looks favorably on CSX and Norfolk Southern's plan to divide up Conrail. * * *Q What is the outlook for liner shipping deregulation?It's going to happen; I wish I could tell you when. What's been frustrating about it is the changing nature of the opposition. If you go back two years, when we first proposed doing away with the Federal Maritime Commission, eliminating antitrust immunity for ocean carriers, and just completely deregulating, we had all kinds of people coming out of the woodwork saying that you are going to kill the U.S. flag fleet. Chief among those was Helen Bentley (former FMC chairwoman) So we did what I thought was the sensible thing to do and get together with the U.S.-flag fleet (APL, Sea-Land, Crowley) and work out a compromise.The real controversy right now was that the bill, S. 414, as it was heard in committee, allowed individual shippers and individual carriers to have confidential contracts. And it said if your conference or agreement has antitrust immunity, than you don't get to have a confidential contract. That was fine with us. It is still fine with us. But the Senate staff decided that they couldn't make the distinction between an individual contract and a group contract, so the latest version now says all of them will be treated confidentially except for certain essential terms. That has given some of the ports, particularly the Port of New York and New Jersey, some heartburn. Their concern is not over individual shippers having confidential contracts with individual carriers, but over the collective type contracts. That appears to be the biggest area of controversy right now.* * *Q Should the number of port calls by carriers really be an issue in this debate?The whole question of port calls is going to occur with or without this legislation. Whether or not there are fewer port calls will depend on the size of the ship making the call, and that has nothing to do with this legislation.* * *Q Why do you think foreign flag carriers are against deregulation?There are several theories, and not all the foreign flag lines are opposed. ''K'' Line is not. They're in favor of it. A lot of the foreign flag carriers just don't want any change. They think somehow this is going to benefit the U.S.-flag carriers.* * *Q Isn't there a legitimate concern among small shippers, though, that with confidential contracts, large volume shippers will get much better rates?Under the current system, the small shipper is guaranteed to pay a higher rate than the big shipper, because they can't match their volume. Under a deregulated system, what you frequently find is that small shippers have an ability to find a niche. A carrier might have space for two containers, and he'll take those two containers on almost a spot market situation.Under today's situation, if the carrier takes those two containers and gives a low rate just to take them, then he has to offer that same rate to a big shipper. And he doesn't want to do that. Furthermore, you have to look at where the small shipper concern comes from. It was the same argument in the fight against trucking deregulation: 'Small shippers are going to be hurt.' But if you look at who made the argument, it wasn't small shippers. It was the middleman. And that who is making the argument today on behalf of the small shippers. It is the so-called shipper associations, and their law firms, who get a cut.* * *Q What about the point that deregulation will exacerbate rate declines in major trade lanes, possibly leading some carriers to close their doors and a situation where shippers lack needed service?The carriers set those rates totally on their own. We had the same argument with trucking, railroad and airline deregulation. They said, 'Left to our own devices we are going to price ourselves out of existence.' What makes the ocean carriers so dumb that they are going to price themselves out of existence?Anyway, prices have never been the driving force behind deregulation. Of much more interest to us is the way service contracts are structured; the ability to structure a worldwide service contract, the placement of containers, all kinds of issues that don't have anything to do with price. It is a continuing frustration to hear people worrying so much that these carriers are not going to be able to stay in business.That is just hogwash. Somebody is going to stay in business. There is freight to carry. It's like saying the whole world is going to collapse. It's not going to happen.* * *Q But look at the consolidations you have. You have eight lines that have turned to four, and (John) Clancey (president and CEO of Sea-Land Service Inc.) told us that there are going to be two more consolidations.Look at any other industry and try and argue that somebody has got to protect them from themselves. Take grocery stores. Nobody goes out and tells grocery stores, 'We have to help you prop up your prices.' Once you got rid of (regulation) those industries (rail, truck and air) flourished. The history is there.* * *QWith that in mind, what is you opinion of Neptune Orient Line buying APL Ltd. (the second-largest U.S. flag container line behind Sea-Land)?I don't know that we have a particular position. But it is a continuation of a trend that has occurred under the current regime. (Consolidation) hasn't occurred under deregulation. It sort of proves my point that the U.S. flag is going to continue to go away unless we make some changes. The bottom line of what we are trying to do is increase the amount of freight that comes in and out of this country.* * *Q What about the argument that there is a fundamental difference between an industry that is deregulated on a national basis (like trucking and airlines) and an industry that exists in an international environment like ocean shipping?They're not terribly different. Keep in mind bulk shipping. Eighty percent of freight (by volume) that goes in and out of ports is already deregulated, and has that been a disaster? Have all the bulk shipping lines gone out of business?* * *Q What is the NIT League really after here?The bottom line is that shippers want to be able to do business with ocean carriers the same way they do business with other modes of transportation, and the same way they do business with ocean liner companies everywhere else in the world. The (deregulation) bill, in all its various incarnations, really just reflects what exists everywhere else in the world.You have confidential contracts and tariffs that are not enforced in the sense they are here. Our system is a throwback to an earlier era and eventually it is going to go away. All we're doing is trying in to get a situation that provides a level footing for U.S. shippers vs. shippers in other parts of the world.* * *Q What are some of the benefits?Efficiency and uniformity. For example, you would like to be able to create worldwide transportation contracts that don't have this one little blip in the U.S. trades that is totally different from everywhere else.* * *Q When it comes to deregulation, China appears to be moving in the opposite direction by requiring, through the newly created Shanghai Shipping Exchange, that ocean carriers publish their tariffs and keep their rates within a defined band. What's your take on that?They're a communist country; what can you say? They like that sort of stuff. It is not just the tariff filing, but the whole idea that the government is somehow going to be in the business of dictating rates. Minimums and maximums tend to be setting rates. That is the old system we had in transportation, and it didn't work.* * *Q What plans does the NIT League have to cooperate closer with its Canadian counterpart and shipper groups in other countries?The Canadian Industrial Transportation League is going with us to the tripartite meeting (in Dunblane, Scotland). Whether we ever become one organization remains to be seen, but I think you will see a much more cooperative relationship. But there is no counterpart in Mexico. There is no counterpart in most South American countries. We will probably start looking to do a summit of American shippers. We have member companies who have facilities all over, and sooner or later they will realize that there is some benefit to having an umbrella organization we can all talk through.* * *Q Air cargo has been in the news a lot recently, after TWA 800 and other major accidents. Have these triggered a greater interest in air cargo at the NIT League?If there is a growing area of interest for shippers, it is going to be in air cargo. The biggest problem is that a lot of policy-makers - and this is not criticism as much of a statement of fact - have never dealt with shippers before. When the FAA started looking at air cargo security after TWA 800, their original proposals would have been a nightmare. (One early recommendation) was to separate all cargo from passenger flights.Never mind that none of the terrorist acts had ever involved cargo; it had always involved checked baggage. Another of the early proposals would have had the named shipper accompany every package to the airport. Well, Roger Wigen was the named shipper for 3M (as manager of policy and industry affairs). He would have to go with every shipment to every airport in the country. That obviously wasn't going to work. Those issues are going to be more and more important.* * *Q Hasn't the pressure on air security eased somewhat?It is always going to be there. What shippers are figuring out is while they may know real well how to handle trucks, railroads, or ocean shipping, air has been one of these things they took for granted. They are going to have to learn how to handle air freight. All of the middlemen in the air freight business, the international forwarders, have had that business so tightly wrapped up that if you so much as mention the idea of a shipper dealing directly with an airline, airlines get beat over the head (by forwarders, who say), 'How on earth can you deal with shippers directly?' All of that is going to come to the fore.* * *Q What are some of the big rail issues NIT League members are dealing with?There are big problems out West. We started getting phone calls (in August) that shippers in the Houston area were very concerned over the UP's poor rail service. We started checking and found out there are shippers who have horror stories like a rail car they expected in five days was taking five weeks, (or) some not showing up at all.* * *Q What's your take on the CSX and Norfolk Southern's plan to divide up Conrail?Not everybody is going to get better rail service, and not everybody is going to get more service, but if you look at the big picture they (CSX and Norfolk Southern) are doing what shippers have asked to have done for years. If you are sole-served by Conrail now, and you will be sole-served by Norfolk Southern after the merger, are you happier? They all say 'yes.' I'm not picking on Conrail, but that is the general feeling.The only shippers who seem to have some difficulty are around Indianapolis, where they are going from two (railroads) to one. The Buffalo area also has some concerns. They're upset about their switch charges. And then there are some individual shippers that right now have interline service that when this is all said and done are going to have single line service with one railroad, whereas before they were able to set competitors off against each other. All in all, it is an entirely different situation from any of the other mergers because it is eliminating a monopoly and putting two railroads in.* * *Q Do you think there will be a merger of east and west railroads? John Snow (chief executive of CSX) told us he thought that would eventually occur.I think it will happen. But there is no reason for it to happen. If you look at traffic patterns, West Coast to East Coast traffic is not that big a deal. But the first time there is one merger, then you will see a second merger. My prediction for years was that you would have two east-west and one north-south railroad down the middle of the country.* * *Q What other rail issues do you see coming up?The discussion of rail transportation is always interesting because shippers have never had a choice of railroads in terms of who comes to your plant. There are very few shippers that are big enough to have two railroads come to their plant, so does it matter that there are 40 others in the country, or three others? That is what shippers are wrestling with. They don't know the answer to that. I don't know the answer to that.It is interesting that the Staggers Act (deregulating railroads) was passed when there were 40 Class-1 railroads, and now we are getting down to a handful. Do you need a different type of approach in terms of what is a captive shipper? I think that is what various coalitions like the Alliance for Rail Competition are going to be looking at.* * *Q You mean a different approach in terms of new regulations?We've always said in the case of railroads that you've got to have some form of regulation because you don't have freedom of entry. You don't have a free market system. You have some shippers in the extreme who think they want open access: One railroad rolling up and down another railroad's tracks. A whole lot of shippers have looked at that and said 'that ain't going to work. I'd like to know which rail operator is coming into and out of my plant.' They don't want just anybody showing up at the gate driving a locomotive. And would that allow the biggest railroad to pick and choose where they use their power units around the country? And would that leave other rail shippers completely out?Right now what we have is mainly anecdotal information about rail-to-rail competition. In the next couple of years I think you are going to see people develop real hard information. AAR has been saying for quite some time that rail rates have gone down dramatically. We don't know for sure that there is a big problem, but it is something we need to look at.* * *Q How do the short lines fit in when considering new railroad regulations?Short lines are excellent at what they're doing, but short lines become more like shippers than they do railroads. A short line to a Class-1 railroad is a shipper; it is not a railroad. How do they fit in? All those questions have to be answered, and I don't think it is going to be an adequate answer to form some group called the Committee Against Revising Staggers at all costs.The Staggers Act is approaching 20 years old. The industry has changed. There may be some changes, but I sure wouldn't want to go out and say we want to do this or that at this point. We need to find out what that is.* * *Q How did the UPS strike affect your members?A lot of our members made arrangements. They didn't want to have to deal with this on a long-term basis. That was the concern. If the strike had gone on much longer, somebody was going to have to step up to the line, whether it was FedEx or one of the other companies, and they were going to have to invest in equipment which would have required major shippers giving them long-term contracts. The bigger concern I heard from our members was about what this might mean for next year, for the national LTL (less-than-truckload) freight agreement (with the Teamsters). And if I'm Roger Curry (chief executive of Consolidated Freightways Corp.), Mike Wickham (chief executive of Roadway Express Inc.) Or Maurice Myers (chief executive of Yellow Corp.), I'm sweating bullets right now. They have to be. I have all due respect for those guys, but I wouldn't want to be in their position because shippers who are redoing their contracts are going to be looking at what the Teamsters just did, and asking themselves whether they really want to subject themselves to that.If I were the Teamsters and the carriers, I would try to get a settlement in the next couple of months. There are an awful lot of nonunion carriers out there. Even if shippers still maintain their contract with the unionized carrier, they are all going to have a backup contract with a nonunionized carrier for next year.* * *Q Does the Post Office come out of this as a more viable alternative?I don't think they changed a whole lot. At no time at this whole process did anyone from MTAC (Mailers Technical Advisory Committee, a Post Office unit that interacts with industry) contact us, and it would have been a perfect time for them to really make some hay. They really missed it on that.EDWUARD M. EMMETT: PROFILETITLE: Since 1992, president and chief operating officer of the National Industrial Transportation League, the nation's oldest and largest association of transport users. Known principallyfor defending the interests of large corporations, the NIT League's advocacy spans the transport spectrm from rail to intermodal in both domestic and international spheres.AGE: 48FORMER: Commissioner and vice-chairman, Interstate Commerce Commission (1989-1992); Republican state representative, Texas Legislature (1979-1987); executive director, Texas Association to Improve Distribution (1986-1989); executive director, North Houston Association (1983-1986); policy analyst, Exxon U.S.A. (1976-1979); special assistant to the U.S. Secretary of Health, Education and Welfate (1975-1976). Graduated from Rice University.PERSONAL: Currently resides in Bethesda, Md., with his wife and four children.</div>

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