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Signals™ Headlines - January 4, 2013

ILA, USMX Agree to Contract Extension, Year-End Strike Averted, Surcharges Delayed

Members of the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) have agreed to a thirty (30) day extension of the current ILA East and Gulf Coast contract. This contract extension averted an ILA strike that would have shut down all major ports on the U.S. East and Gulf Coast. The contract end date is now February 6, 2013. Contract talks between the ILA and the USMX for the renewal of the ILA’s East and Gulf Coast contract broke down in mid-December among disagreements over container royalty payments. The ILA and USMX have now agreed to continue negotiations with the assistance of mediators from the Federal Mediation and Conciliation Service (FMCS) over the next month. The FMCS reports it is “cautiously optimistic” that the parties will reach an agreement before the end of the newest extension.

The ILA is the largest union of maritime workers in North America and represents longshoremen on the Atlantic and Gulf Coasts, while the USMX represents container carriers and port operators in the negotiations. Both groups have been in contract negotiation since March 2012. This is the second time in the last four months that a contract extension has averted a massive ILA strike that would have shut down all fourteen major ports on the eastern and gulf seaboards. These ports support more than 14,500 jobs for ILA members. According to the American Association of Port Authorities (AAPA) these ports handle 44 percent of all cargo entering and leaving the United States.

Contract renewal talks between the ILA and USMX initially deteriorated back in August 2012 over pay structures. This prompted the ILA’s largest Local, Local 1804-1, to authorize a union strike. The strike was narrowly averted when the USMX and the ILA agreed to a ninety-day contract extension in September 2012. This extension was set to expire on December 28, 2012, but with the assistance of the Federal Mediation and Conciliation Service (FMCS) the parties agreed to a second extension on December 27, 2012. The contract is now extended through February 6, 2013.

The FMCS reports that the parties are still discussing container royalty payments. “The container royalty payment issue has been agreed upon in principle by the parties, subject to achieving an overall collective bargaining agreement,” said George Cohen, the FMCS director. Container royalty payments, which are based on the weight of containerized cargo moving through the ports, were first instituted in 1960 to compensate workers for the loss of job opportunities that followed containerization. These royalty payments amounted to over US$ 211 million in 2011. According to the ILA, these payments are distributed to ILA members in the form of wage supplements and health care funds. The USMX seeks to cap these payments and use the excess to help pay for other benefits for ILA workers. According to USMX, these royalty payments are part of dated and restrictive work rules that negatively affect the ports’ competitiveness.

Shippers and retailers with cargo moving through U.S. East and Gulf Coast ports reported relief at the contract extension. In anticipation of the subsequent cargo delays resulting from a strike, many ocean carriers and NVOCCs filed Port Congestion Surcharges in their FMC tariffs. Many ocean carriers also updated their free time and demurrage rules to account for potential delays and diversions caused by a strike. With the extension of the contract, Port Congestion surcharges will likely be postponed to February 2013.

U.S. West Coast ports and employees are represented by a separate contract and different organizations. These parties are not involved in the ILA/USMX contract negotiations.

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TSA Carriers File for Single Transpacific Discussion Agreement with FMC

Carrier members of the Transpacific Stabilization Agreement (TSA), FMC Agreement No. 011223, serving the East Asia/USA trade lane have filed an amendment with the U.S. Federal Maritime Commission (FMC) that would expand TSA’s scope to include the entire transpacific round trip, including the westbound trade.

The FMC announced the amendment filing on December 28, 2012. The amendment to TSA Agreement No. 011223, Amendment 011223-048 “would expand the geographic scope of the agreement to include the full round trip transpacific trade, adding the trade from the United States to the Far East.” It is expected that once the amendment becomes effective, the lines would suspend activities of the existing U.S.-Asia carrier group, the Westbound Transpacific Stabilization Agreement (WTSA). Member carriers of the WTSA, FMC Agreement No. 011325, currently serve the U.S. export trades from the United States to East Asia. There are currently eight carrier members of WTSA, including COSCO Container Lines, Evergreen Marine Corp., Hanjin Shipping, Hapag-Lloyd Container Line, Hyundai Merchant Marine, “K” Line, OOCL and Yang Ming Marine.

In TSA’s announcement, TSA Executive Administrator Brian Conrad explains that streamlining the agreements and cutting costs is the primary purpose of the amendment filing: “Maintaining separate carrier agreements, each with its own meetings, dedicated carrier staff support, compliance requirements and administrative overhead is less justifiable than in the past, especially given the sustained low-revenue environment seen in recent years.” Conrad noted that nearly all other major trade lanes with carrier agreements are represented by a single group which includes the entire round trip trade in its scope.

According to published reports, the TSA carrier members represent over 90 percent of the container capacity in the eastbound transpacific market, while the current WTSA, which has only eight members, represent a significantly smaller share in the westbound transpacific market. A merged TSA/WTSA would have fifteen carrier members serving the transpacific westbound trade; these carriers would control about 90 percent of this trade lane’s container capacity. This expansion may give some shippers and the FMC cause for concern.

The proposed amendment will enter into effect forty-five days from the date of filing unless the FMC delays the TSA’s amendment request. The FMC could request additional information which would delay the change until the additional information is provided. An additional forty-five days would then be required for the FMC to review the proposed agreement amendment. Once filed, the agreement will be available for public viewing at the FMC’s Online Agreement Library. TSA filed the amendment for a twenty-four month trial period, subject to review at the end of that time.

TSA is a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the United States. The TSA’s fifteen 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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Transpacific Eastbound Carriers Announce GRI Effective January 15, 2013

Carrier members of the Transpacific Stabilization Agreement (TSA), FMC Agreement No. 011223 serving the East Asia/USA trade lane have announced General Rate Increases (GRIs) effective January 15, 2013.

Several carriers have announced a GRI of US$ 400 per 40-foot container (FEU) to the U.S. West Coast and US$ 600 per FEU via all-water to the U.S. East and Gulf Coasts, as well as intermodal shipments. This GRI is part of the TSA’s guideline rate and ancillary charge adjustments that they intend to apply to all new and renewed service contracts from mid-October forward. These carrier initiatives aim to reverse 2011 and 2012 losses and raise the baseline for freight rates as they head into a new round of 2013-14 contract negotiations.

This increase coincides with a previously announced TSA increase for refrigerated shipments effective January 1, 2013. TSA is a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the United States.

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