May 1, 2009 Volume 13, Number 5 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.

Federal Maritime Commissioner Harold J. Creel, Jr. announced that he will leave the agency when his term ends on June 30, 2009.  Commissioner Creel is ending a nearly 15-year career with the Commission.  Commissioner Creel joined the FMC in 1994 after he was nominated by President Bill Clinton.  He became Chairman of the Commission in February 1996 and served in that capacity until August 2002.  His seven-year tenure as Chairman is the longest in the agency's history.  As Chairman he oversaw the revision of Commission regulations to implement the Ocean Shipping Reform Act (OSRA) of 1998.  He also guided major investigations into shipping practices of Japan and China.  In 1997, he took bold action against Japan by banning Japanese ships from U.S. ports in retaliation for unfair practices at Japanese ports.

The FMC’s 2003 investigation of alleged Shipping Act violations by the Transpacific Stabilization Agreement (TSA) was another major action in which Commissioner Creel took part.  As a result of this investigation, the Commission ordered the TSA Carriers to pay a record-breaking penalty of $1,350,000 – this was later reduced, but the group did remove the Indian Sub-Continent from the scope of its FMC agreements, and some observers thought the investigation helped level the playing field between carriers and NVOCCs.  In 2004, Commissioner Creel worked to give NVOCCs service contract authority in the form of Non-Vessel-Operating Common Carrier Agreements (NSAs).

"I have thoroughly enjoyed my time at the Federal Maritime Commission and working with my esteemed colleagues and staff," Commissioner Creel said. "I know that I leave the agency in good hands to carry out the important mission of the Federal Maritime Commission."  Creel will be joining the government relations firm of Alcalde & Fay in Arlington, VA.  After his departure, the five-seat Commission will be left with only two sitting Commissioners: Commissioner Joseph Brennan, a former Governor of Maine, originally appointed by President Bill Clinton in 1999, and Commissioner Rebecca Dye of North Carolina, appointed by President George W. Bush in 2002.  President Barack Obama has yet to nominate anyone to fill the remaining seats.  The FMC has been without a Chairman for almost three years now.  The last FMC Chairman, Steven Blust, left the agency in November 2006. 

A California U.S. District Court has temporarily halted some key provisions of the Clean Truck Programs at the Ports of Los Angeles and Long Beach.  Foremost among the provisions struck down by the court is the Port of Los Angeles’ employee-only mandate that would have eventually banned independent owner-operator truckers from the port.  This ruling is a victory for the American Trucking Associations, which took issue with the numerous trucker requirements outlined in the ports’ Clean Truck Programs.  The ATA argued that the Clean Truck Programs effectively re-regulate the trucking industry by requiring truckers to sign restrictive concession agreements that mandate everything from off-street parking to health insurance for drivers. 

On April 27, Justice Christina Snyder issued a preliminary ruling enjoining the ports from requiring trucking companies to use employee drivers exclusively, to provide drivers with health insurance and to pay annual port fees for registering trucks.  The court did not enjoin aspects of the concession agreements that it deemed safety-related, and it did not take any action to stop the ports from collecting the Clean Truck Fees of $35 per 20ft container and $70 per 40ft container that were implemented earlier this year.  Justice Snyder originally refused to grant the ATA’s request for a preliminary injunction, stating in her December 2008 opinion that the Clean Truck Programs’ public health benefits outweighed economic hardships to truckers.  However, she was forced to reverse her decision after the United States Court of Appeals for the Ninth Circuit ordered her to issue a preliminary injunction against “unconstitutional provisions” of the Clean Truck Programs.  A final ruling in the ATA case is expected by December 2009. 

While the ATA was victorious in L.A., the Federal Maritime Commission was not successful in D.C.  The U.S. District Court for the District of Columbia denied the FMC’s request for a permanent injunction barring portions of the Clean Truck Programs.  Judge Richard A. Leon declined to grant the FMC’s request, saying the Commission failed to demonstrate that the programs would result in a significant loss of competition.  The FMC had sought a permanent injunction of not only the programs’ trucking concession agreements and employee-only mandate, but also many aspects of the Clean Truck Fees.   The FMC has not appealed the Court’s decision and has indicated it is considering its options.

The carrier members of the Transpacific Stabilization Agreement (TSA), FMC Agreement No. 011223, serving the East Asia/USA trade lane announced increases to Bunker Adjustment Factors (BAF) calculated using its old monthly BAF formula.  Last month, the TSA announced a switch from monthly to quarterly BAF and a new calculation formula.  However, cargo moving under tariff rates and 2008-09 service contracts that extend beyond May 1, 2009 are still subject to BAF calculated using TSA’s old monthly calculation formula. 

June 2009 BAF calculated using TSA’s old monthly formula will increase to US$ 364 per 20ft container, US$ 455 per 40ft container, US$ 512 per 40ft hi-cube container, US$ 596 per 45ft container, and US$ 10 per WM (LCL). 

Quarterly BAF according to TSA’s new formula is as follows for the period of April 1 – June 30, 2009: shipments via West Coast Service - US$ 118 per 20ft container, US$ 148 per 40ft container, US$ 167 per 40ft hi-cube container, US$ 187 per 45ft container;  shipments via East Coast Service - US$ 247 per 20ft container, US$ 309 per 40ft container, US$ 348 per 40ft hi-cube container, US$ 391 per 45ft container.  The TSA’s 14 carrier members are American President Lines, CSCL, CMA-CGM, COSCO Container Lines, Evergreen Marine, Hanjin Shipping, Hapag-Lloyd Container Line, Hyundai Merchant Marine, "K" Line, Mediterranean Shipping, NYK Line, OOCL, Yang Ming Marine and Zim Integrated Shipping Services. The group’s web site at www.tsacarriers.org provides additional information.

The carrier members of the Transpacific Stabilization Agreement (TSA) announced new efforts to establish a floor on rates and stabilize freight revenues.  The group agreed to establish minimum rates of $1350 for West Coast and $2500 for East Coast all-water service for 40 ft containers, with rates for high cube containers $100 higher than standard 40 ft rates.  Minimums for selected mini-land bridge and inland point destinations are also planned.  The group also plans to expire all “spot rates” within 30 days and will make all 2009-2010 service contracts subject to full, floating bunker charges as per its new quarterly formula.  Additionally, the TSA Carriers have agreed all 2009-2010 contracts will expire no later than April 30, 2010 – presumably to make it easier to impose rate increases effective May 1, 2010.

In March the TSA Carriers announced a two-step plan to stabilize rates.  That plan consisted of expiring reduced short term/spot rates by the end of June and increasing rates for 40-foot containers by $500 - $600 in 2009-10 contracts.   However, the group admits these efforts failed to curtail rate volatility, forcing its carrier members to take more drastic actions.  “Recent developments in the Asia-U.S. freight marker are truly disappointing,” said TSA Executive Administrator Brian Conrad.  “The unnecessary panic mentality that set in during the winter months will cost this industry heavily, if the rates we have been seeing continue to slide and are locked in over a period of months in new contracts.”  The group also noted that independent UK-based industry analyst Drewery Shipping Contacts forecasts that the global liner shipping sector will lose $68 billion in the coming year if current rate trends are not reversed.