GOVERNMENT WATCH
INTERNATIONAL | WASHINGTON | CUSTOMS | SECURITY | REGULATION
28 THE JOURNAL OF COMMERCE www.joc.com 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."
