January 5, 2006 Volume 10, Number 1 Oakland, California

SIGNALS™ provides detailed information on the regulations and activities of the US Federal Maritime Commission (FMC), and related developments in the ocean freight industry. For past issues, please consult our index.

DPI Predicts NVOCC Service Arrangements Will Be More Popular in 2006

At this time last year, we predicted the Federal Maritime Commission's decision to allow Non-Vessel Ocean Common Carriers (NVOCCs) to enter into confidential NVOCC service arrangements (NSAs) with their shipper clients would change the ocean transportation marketplace in 2005. We also anticipated that NSAs would not completely replace tariffs. While this past year very few NVOCCs have actually filed NSAs, our 2005 prediction was not completely wrong; NSAs have not replaced tariffs.

Nevertheless, here at DPI we remain convinced that the NVOCC community will soon realize NSAs are a far better tool for pricing their services than tariffs. So, for the most important change we expect in the FMC regulated sector of the ocean transportation industry for 2006, again we are going with NSAs.

Like ocean carrier service contracts, NSAs allow NVOCCs to price their services contractually and confidentially, outside of their common carrier tariffs. In an NSA, the NVOCC enters into a written contract with its shipper client for ocean or intermodal transportation services. This contract provides the shipper with customized pricing and defined service levels, and provides the NVOCC with a minimum quantity of cargo over a fixed time period. NSAs may also provide for non-performance penalties if the shipper fails to satisfy the volume commitment, or if the NVOCC fails to provide the service level.

Ocean carriers serving the USA continue to publish tariffs to govern the general rules of their services, and for surcharges applicable to all shipments, but they rely heavily on confidential service contracts as their primary pricing tool for ocean freight rates. During fiscal year 2005 the FMC received 50,200 new service contracts and 224,160 contract amendments from ocean carriers. For some ocean carriers, 95% of their volume moves under service contracts.

NVOCCs were authorized by the FMC to use NSAs in January 2005, yet according to the FMC statistics, only about 120 NSAs and 40 amendments were filed by NVOCCs in fiscal year 2005. While several hundred NVOCCs registered with FMC for the NSA option, very few have actually began using this option to price their services.

We have asked many NVOCCs why they are reluctant to take advantage of the new NSA option. One key reason is that initial FMC regulations limited NSAs to contracts between NVOCCs and cargo owners. However, as of October 28, 2005 the FMC amended its regulations: both NVOCCs and shippers' associations with NVOCC members may now act as shipper parties in NSAs. In other words, NVOCC-to-NVOCC contracts are now permitted. This change to the regulations will make NSAs far more popular in 2006.

Some NVOCCs are still not comfortable with the volume and service commitments required in NSAs. However, the FMC does not set minimums for these: an NSA for one cubic meter is possible.

Other NVOCCs have mentioned the filing and record keeping costs of NSAs. These costs are significant. The full details of each NSA must be timely filed with the FMC through its electronic SERVCON system. On the same date the NSA is filed, the NVOCC must publish a public tariff listing its five essential terms: origin, destination, commodity, minimum quantity, and its effective and expiry dates. Original signed NSAs, bills of lading, and related records must also be retained by the NVOCC for five years.

Due to these filing and record keeping costs many NVOCCs will continue to file freight rates in their public tariffs, but during 2006 we look for an increasing number of NVOCCs to begin to use NSAs as their primary pricing tool.

FMC Plans Upgrade to SERVCON System

The Federal Maritime Commission recently announced SERVCON, its service contract (S/C) and NVOCC Service Arrangement (NSA) filing system, is finally getting an upgrade. The new system is set to be up and running February 1, 2006. Due to the system upgrade all SERVCON filers will receive new logon passwords from the FMC through certified mail. User names required for logon will remain unchanged. The SERVCON system will continue to serve all filers of S/Cs and NSAs. FMC's SERVCON system has experienced system problems in recent years, and filers are hopeful that this upgrade will remedy those problems which sometimes resulted in error messages and uncertainty as to whether or not the system had processed filed items. FMC reports that although the upgraded system will have basically the same look as the old, it will now includes "major performance enhancements" such as "screen display cleanups," "faster retrieval," and "more reliable architecture."

One main difference between the current SERVCON system and the upgraded system will be the menu selection screens. SERVCON will no longer display access menus including FMC personnel only menu selections such as Management, Search, or View Flagged Contracts. Instead the new access menu is geared toward S/C and NSA filers only. The SERVCON system will continue to be available through the FMC's website, www.fmc.gov, and filers will still be required to logon with their current user name. Filers will receive their new SERVCON password by certified mail. Technical questions regarding the SERVCON upgrade will be handled by the FMC's Office of Information Technology at (202) 523-0854, or via e-mail at oit-helpdesk@fmc.gov.

SERVCON will continue to handle only the FMC filing S/Cs and NSAs. It does not provide any assistance with the requirement for publication of the essential terms. On the same day an S/C or NSA is filed through SERVCON, ocean carriers, NVOCCs, or their tariff publishers acting on their behalf, are required to publish five (5) essential terms of each S/C or NSA in publicly accessible tariff systems.

Panama Canal Charges To Increase May 1, 2006

The Panama Canal Authority is increasing full container vessel tolls as of May 1, 2006. This increase is the second phase of the Canal Authority's three phase plan to increase canal tolls. In order to pass these charges along to shippers, ocean carriers and NVOCCs must file them in their FMC tariffs. To cover administrative costs many carriers have filed canal surcharges at levels slightly higher than the tolls actually assessed by the Canal Authority.

Details of Panama Canal Surcharges currently imposed by major container carriers are as follows. The carrier members of the Trans Pacific Stablization Agreement (TSA Carriers) have already announced an increase to be effective May 1, 2006. Other ocean carriers and NVOCCs will likely follow suit.

PANAMA CANAL SURCHARGES

	From Asia to USA (TSA Carriers):	From USA to Asia (WTSA Carriers):
	USD 165 per container, valid thru 30Apr2006	USD 115 per container
	USD 192 per container, effective 01May2006	USD 6 per metric ton (W) - LCL freighted per W ton
		USD 2 per cubic meter (M) - LCL freighted per M ton

	Between USA and North Europe (TACA):
	USD 165 per container