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Signals™ Headlines - January 5, 2006

DPI Predicts NVOCC Service Arrangements Will Be More Popular in 2006

At this time last year, we predicted the
Federal Maritime
Commission’s decision to allow
Non-Vessel Ocean Common Carriers (NVOCCs) to enter into confidential
NVOCC service arrangements
(NSAs) with their shipper clients would change the ocean transportation marketplace in 2005.
We also anticipated that NSAs would not completely replace tariffs. While this past year very
few NVOCCs have actually filed NSAs, our 2005 prediction was not completely wrong; NSAs have
not replaced tariffs.

Nevertheless, here at DPI we remain convinced that the NVOCC community will soon realize
NSAs are a far better tool for pricing their services than tariffs. So, for the most
important change we expect in the FMC regulated sector of the ocean transportation
industry for 2006, again we are going with NSAs.

Like ocean carrier service contracts, NSAs allow NVOCCs to price their services contractually
and confidentially, outside of their common carrier tariffs. In an NSA, the NVOCC enters
into a written contract with its shipper client for ocean or intermodal transportation services.
This contract provides the shipper with customized pricing and defined service levels,
and provides the NVOCC with a minimum quantity of cargo over a fixed time period.
NSAs may also provide for non-performance penalties if the shipper fails to satisfy the
volume commitment, or if the NVOCC fails to provide the service level.

Ocean carriers serving the USA continue to publish tariffs to govern the general
rules of their services, and for surcharges applicable to all shipments, but they
rely heavily on confidential service contracts as their primary pricing tool for
ocean freight rates. During fiscal year 2005 the FMC received 50,200 new service
contracts and 224,160 contract amendments from ocean carriers. For some ocean carriers,
95% of their volume moves under service contracts.

NVOCCs were authorized by the FMC to use NSAs in January 2005, yet according to
the FMC statistics, only about 120 NSAs and 40 amendments were filed by NVOCCs in
fiscal year 2005. While several hundred NVOCCs registered with FMC for the NSA
option, very few have actually began using this option to price their services.

We have asked many NVOCCs why they are reluctant to take advantage of the new NSA
option. One key reason is that initial FMC regulations limited NSAs to contracts
between NVOCCs and cargo owners. However, as of October 28, 2005 the
FMC amended its regulations: both NVOCCs and shippers’ associations
with NVOCC members may now act as shipper parties in NSAs. In other words, NVOCC-to-NVOCC
contracts are now permitted. This change to the regulations will make NSAs far more popular in 2006.

Some NVOCCs are still not comfortable with the volume and service commitments required
in NSAs. However, the FMC does not set minimums for these: an NSA for one cubic meter
is possible.

Other NVOCCs have mentioned the filing and record keeping costs of NSAs. These costs
are significant. The full details of each NSA must be timely filed with the FMC through
its electronic SERVCON system. On the same date the NSA is filed, the NVOCC must
publish a public tariff listing its five essential terms: origin, destination,
commodity, minimum quantity, and its effective and expiry dates. Original signed
NSAs, bills of lading, and related records must also be retained by the NVOCC for five years.

Due to these filing and record keeping costs many NVOCCs will continue to file freight
rates in their public tariffs, but during 2006 we look for an increasing number of NVOCCs
to begin to use NSAs as their primary pricing tool.

FMC Plans Upgrade to SERVCON System

The Federal Maritime Commission recently announced
its service contract (S/C) and NVOCC Service Arrangement (NSA) filing system, is
finally getting an
upgrade. The new system
is set to be up and running February 1, 2006. Due to the system upgrade all SERVCON filers
will receive new logon passwords from the FMC through certified mail. User names required
for logon will remain unchanged. The SERVCON system will continue to serve all filers of
S/Cs and NSAs. FMC’s SERVCON system has experienced system problems in recent years, and
filers are hopeful that this upgrade will remedy those problems which sometimes resulted
in error messages and uncertainty as to whether or not the system had processed filed items.
FMC reports that although the upgraded system will have basically the same look as the old,
it will now includes “major performance enhancements” such as “screen display cleanups,”
“faster retrieval,” and “more reliable architecture.”

One main difference between the current SERVCON system and the upgraded system will be
the menu selection screens. SERVCON will no longer display access menus including FMC
personnel only menu selections such as Management, Search, or View Flagged Contracts.
Instead the new access menu is geared toward S/C and NSA filers only. The SERVCON
system will continue to be available through the FMC’s website,
www.fmc.gov, and
filers will still be required to logon with their current user name. Filers will
receive their new SERVCON password by certified mail. Technical questions regarding
the SERVCON upgrade will be handled by the FMC’s Office of Information Technology at (202) 523-0854, or via e-mail at

SERVCON will continue to handle only the FMC filing S/Cs and NSAs. It does not
provide any assistance with the requirement for publication of the essential terms.
On the same day an S/C or NSA is filed through SERVCON, ocean carriers, NVOCCs, or
their tariff publishers acting on their behalf, are required to publish five (5)
essential terms of each S/C or NSA in publicly accessible tariff systems.

Panama Canal Charges To Increase May 1, 2006

The Panama Canal

is increasing full container vessel tolls as of May 1, 2006.
This increase is the second phase of the Canal Authority’s three phase plan to
canal tolls. In order to pass these charges along to shippers, ocean carriers and
must file them in their FMC tariffs. To cover administrative costs many carriers have
filed canal surcharges at levels slightly higher than the tolls actually assessed by
the Canal Authority.

Details of Panama Canal Surcharges currently imposed by major container carriers
are as follows.
The carrier members of the Trans Pacific Stablization Agreement (TSA Carriers) have
announced an increase to be effective May 1, 2006. Other ocean carriers and NVOCCs
likely follow suit.


From Asia to USA (TSA Carriers): From USA to Asia (WTSA Carriers): USD 165 per container, valid thru 30Apr2006 USD 115 per container USD 192 per container, effective 01May2006 USD 6 per metric ton (W) – LCL freighted per W ton USD 2 per cubic meter (M) – LCL freighted per M ton

Between USA and North Europe (TACA): USD 165 per container

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Vol. 10, No. 1, December 5, 2006

The information contained herein
is obtained from reliable sources.
It is subject to change at any time, however, depending on changes
laws and regulations. While we continually attempt to monitor this
information, we do not guarantee its accuracy and are not
for any damages suffered by any party in reliance on it.
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