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Signals™ Headlines - April 4, 2012

FMC Presents FY-2013 Budget to Congressional Committee — Increases Criticized

Federal Maritime Commission Chairman Richard Lidinsky recently appeared before the U.S. House of Representatives’ Committee on Transportation and Infrastructure Subcommittee on Coast Guard and Maritime Transportation to discuss the FMC’s proposed FY 2013 budget. Chairman Lidinsky sought $26 million; an 8 percent increase over FY 2012. This increase is meant to cover costs associated with the expansion of the Office of Consumer Affairs and Dispute Resolution Services and is intended to meet an anticipated increase in the number of parties seeking alternative dispute resolution. In his testimony before the Committee, Chairman Lidinsky emphasized the FMC’s role as “key stewards of our nation’s international supply chain,” and highlighted the Commission’s collection of over $2 million in penalties, the introduction of tariff filing flexibility for NVOCCs, and the Commission’s continued monitoring of foreign shipping practices.

The proposed increase, however, was met with strong criticism from Subcommittee Chairman Frank LoBiondo (R-NJ). Chairman LoBiondo stated: “Although an 8 percent increase in the FMC budget amounts to less than $2 million, I think it sends the wrong signal in the current fiscal environment. The Commission needs to take a much closer look at their operations and try to develop savings through consolidation of services and more efficient operations.” The Committee declined to approve the FMC’s $26 million budget, and instead only recommended $24 million be approved. The subcommittee’s recommendation will be circulated in the U.S. House of Representatives where Chairman Lidinsky will next seek approval of the FMC’s FY 2013 budget proposal.

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FMC Releases Final Rule for Freight Index-Based Service Contracts and NSAs

The Federal Maritime Commission recently issued a final rule for freight index-based service contracts and NVOCC service arrangements (NSAs) that will allow such contracts to reference freight indices or other outside terms, so long as these indices are readily available to the contracting parties and the Commission. As per the new rule, carrier parties will have to furnish the Commission with associated records of such indices, including any historical data used to adjust contract rates within 30 days of a written request by the Commission.

The Commission initiated this rulemaking to streamline its rules regarding the use of index-based contracts in response to the growing popularity of index-based service contracts within the shipping community. The Commission believes index-based contracts are on the rise as shippers in the ocean transportation industry seek stability through long-term contracts, while at the same time they are trying to preserve flexibility to adjust contract rates reflecting changes in market conditions. The Commission’s new rule seeks to make it easier for parties to use indices to account for economic fluctuations. The Commission received five comments in response to its initial announcement of the rule, including comments from the Transatlantic Stabilization Agreement (TSA) and the Westbound Transpacific Stabilization Agreement (WTSA). The two groups support “the Commission’s effort to expand flexibility in service contracting and welcome the Commission’s support of the option to use rate indices.” The TSA and WTSA stated that the Commission’s rule change “may also contribute to greater stability and predictability in ocean freight rates, a benefit consistently sought by carriers and shippers alike.” Upon release of this Final Rule, Chairman Lidinsky noted his hope that the rule will help shippers and carriers ride today’s economic waves: “In today’s marketplace, we can’t control the winds, but we want shippers and carriers to have a range of options in how they set their sails.”

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FMC-U.S. Dept. of Transportation Work to Protect Consumers Moving Household Goods

The FMC and the U.S. Department of Transportation (DOT) Federal Motor Carrier Safety Administration (FMCSA) recently announced a cooperation agreement to provide enhanced protection and assistance for consumers who move their household goods. The agreement seeks to combine and leverage the efforts of FMCSA, which regulates interstate household goods moves, and the FMC, which regulates overseas household goods moves by water. Under the Memorandum of Understanding (MOU) the agencies will share electronic information to help identify and address moving industry problems, conduct joint investigations, and conduct joint training to enhance enforcement. They will also work together on coordinated education and outreach efforts for consumers, and enhance consumer assistance by referring disputes involving international shipments to the FMC’s Office of Consumer Affairs & Dispute Resolution Services. The agreement follows through on a recommendation by FMC Commissioner Michael A. Khouri, who led a fact-finding investigation into issues consumers face when shipping their household goods overseas.

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TSA Carriers Announce Recommended Guideline Rate Adjustments effective April 15, May 1

Carrier members of the Transpacific Stabilization Agreement (TSA), FMC Agreement No. 011223, serving the East Asia/USA trade lane have announced additional interim rate adjustments in the form of General Rate Increases (GRIs) and/or other revenue initiatives effective April 15 and May 1, 2012. These increases come on top of the March 15 GRI filed by several member carriers, and are aimed to further increase rates that have fallen steeply since last year.

The April 15 and May 1 GRIs reaffirm the resolve of TSA member carriers to improve Asia-U.S. market rates as they move forward in a new round of contract talks with shippers. The recommended rate adjustment of US$ 400 per 40-foot container (FEU) effective April 15, 2012 has been filed by many of the TSA member carriers in their FMC tariffs. It is highly unusual for carriers to implement three GRIs within such a short time frame, but there is no FMC regulation that prevents it. Each GRI must be filed in the carrier’s applicable FMC tariff 30 days prior to its effective date.

The TSA’s 2012-13 recommended guideline revenue program recommends an increase of an additional US$ 500 per FEU for cargo to the U.S. West Coast, and US$ 700 per FEU for cargo on intermodal services to interior destinations and on all-water services from Asia to the U.S. East Coast effective May 1, 2012. Several of the TSA member carriers have filed this third GRI in their FMC tariffs.

The TSA Carriers also indicated that further revenue and cost recovery initiatives would be considered for later in the year after a review of market conditions and the outlook for the second half of 2012. Rather than adopting formal guideline increases, TSA carrier members have indicated they will individually pursue various approaches to interim cost recovery and revenue restoration through May 1, 2012. Some member carriers are filing GRIs, while others are using peak season surcharges (PSS), emergency revenue charges (ERC) or other mechanisms depending on each carrier’s unique situation.

“Carriers operating in the Pacific are at a critical juncture,” explained TSA executive administrator Brian M. Conrad. “Once again, as in 2009, we are back to a situation in which nearly all major carriers in the trade are moving cargo at a loss. For any carrier rate or cost recovery effort to be meaningful in 2012-13, it must reflect an actual increase from rates in effect at the beginning of the previous year; and it cannot extend promotional short-term rates in select trade segments to all commodities and all routes for 12 months.”

The TSA’s 15 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, Maersk 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.

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