Digital Edition

Apr.3, 2017

Issue link:

Contents of this Issue


Page 29 of 57

GOVERNMENT WATCH INTERNATIONAL | WASHINGTON | CUSTOMS | SECURITY | REGULATION 28 THE JOURNAL OF COMMERCE APRIL 3.2017 By Reynolds Hutchins A MEMBER OF the US Federal Maritime Commission wants to expand the author- ity of agency to, at the very least, encourage carrier alliances to establish emergency funds to protect against another Hanjin Shipping-style bankruptcy. Only one of the three restructured alliances to start operations on April 1 has a fund to recover stranded cargo. FMC Commissioner Daniel Maffei told The Journal of Commerce he plans to talk with lawmakers in the House and Senate about the move, which almost certainly would require changes to the Shipping Act of 1984. It's unclear how responsive Cong- ress would be to such a request, especially in light of many lawmakers' fuzzy under- standing of the agency's responsibilities and the Trump administration's deregulatory rhetoric. The Shipping Act has been reopened only once since 1984 — in 1998 — and there has been relatively little discussion on further adjustments since those changes were made to the law. Commissioner William Doyle wasn't warm to Shipping Act changes — and he has been a vocal proponent of so-called emergency funds. "I believe the THE Alliance has taken the most responsible course of action by ensuring through a trust instrument that cargo is unloaded at its intended port," Doyle told The Journal of Commerce. "As for the other alliances, it's on them. If we a have another Hanjin- type situation where US companies, small businesses, service providers, consumers, and exporters suffer, then the light shined on the import industry is fair game. We all know the risks." Maffei was clear that he didn't want to force carrier alliances to adopt such emergency funds. "Nobody wants to require this of the carriers. Not only do I realize that, but I agree with it. Certainly, we'd like to see them do it on their own. But, when it looked like they were not only not doing it on their own, but being dismissive, that's when I got concerned," he said. Maffei said he was disappointed to learn that both the 2M and Ocean alliances had decided to forgo emergency funds to protect cargo if one or more carriers collapsed. Only the THE carriers — Hapag-Lloyd, "K" Line, MOL, NYK Line, and Yang Ming Line — will have a failsafe in place on April 1 to protect shippers' cargo. "I think THE Alliance is stronger for having a plan," Maffei said. "That means, even if the unexpected happens, there's still a way to get your cargo." Although the Hanjin collapse may have seemed inevitable in retrospect, Maffei said that at the time, it was a shock to the industry and industry spectators. "It was right in the middle of the revenue streams then," he said. "It wasn't the one, it maybe wasn't even the (South) Korean carrier, that people thought would go under first." Hanjin's bankruptcy stranded some 540,000 containers, equating to approx- imately $14 billion in goods, last year. It wasn't merely Hanjin customers that were impacted, considering many containers stranded were owned or leased by other members of Hanjin's CKYHE Alliance. As many as 200,000 containers leased by Hanjin have still not been recovered. "Little Hanjin caused all this trouble," Maffei said. After Hanjin's August collapse, bene- ficial cargo owners began to scrutinize the financial stability of their carriers and their corresponding alliances more closely, looking not only at profit and loss, but also at debt loads, the strength of support from home governments, and whether they were paying their bills, particularly to f uel suppliers, on time. Citing t hose concerns, the THE Alliance announced in December it was developing safeguards, including an emergency fund with an undisclosed a mount, to help recover stranded cargo if one of the members collapsed. Maffei said he, among others, expected market forces to compel the remaining carrier alliances to follow suit. The 2M and Ocean alliances not only declined to follow suit, but also dismissed the concept outright, suggesting it was for financially unstable carriers and carrier alliances. "In the Ocean Alliance, customers look at the four players and are generally aware of their financial sustainability. We don't have an emergency fund, largely because we don't think we need to have one," Alan Tung, chief financial officer of Orient Overseas (International) Ltd., parent company of Orient Overseas Container Line, said at the company's annual financial briefing in Hong Kong in March. OOIL reported a $273 million loss for OOCL in 2016, and all but one Ocean Alli- ance carrier posted a loss in 2016. The lone carrier that hasn't posted a loss, Evergreen Line, hasn't reported its financial results yet. And, although 2M carrier Mediterranean Shipping Co. doesn't disclose its financial results, its partner Maersk Line reported an annual loss of $376 million for 2016. According to the commissioner, the 2M and Ocean alliances could pose a significant, or far greater, risk to the supply chain if one or more carriers were to go under. The PLANNING FOR THE WORST FMC official advocates emergency funds for all three restructured ship alliances "Little Hanjin caused all this trouble."

Articles in this issue

Links on this page

Archives of this issue

view archives of Digital Edition - Apr.3, 2017