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Signals™ Headlines - March 5, 2012

FMC Announces Compromise Agreements, Recovers $490,000 in Penalties

The Federal Maritime Commission recently announced nine compromise agreements and recovered a total of $490,000 in civil penalties for alleged violations of the Shipping Act. The agreements were reached with nine non-vessel-operating common carriers (NVOCCs) and related companies providing ocean transportation services. The agreed penalties resulted from investigations conducted by the Commission’s Area Representatives in Los Angeles, New York, Seattle, South Florida, and Washington, D.C. Staff attorneys with the Commission’s Bureau of Enforcement negotiated the compromise agreements. The parties settled and agreed to penalties, but did not admit to violations of the Act or the Commission’s regulations. In making the announcement, Federal Maritime Commission Chairman Richard A. Lidinsky, Jr. stated: “The Commission’s Area Representatives and Bureau of Enforcement are working hard to protect the shipping public from fraud and unfair practices. If you defraud customers, mislabel cargo, or otherwise violate the Shipping Act, they will be looking for you.” The compromise agreements are as follows.

Orient Express Container Co. Ltd, OEC Freight (NY) Inc. and O.E.C. Shipping Los Angeles, Inc.: Orient Express Container is a tariffed and bonded NVOCC located in Tortola, British Virgin Islands. OEC NY is a licensed NVOCC and freight forwarder located in Rosedale, New York. OEC Los Angeles is likewise a licensed NVOCC and freight forwarder, located in Cerritos, California. Commission staff alleged that Orient Express Container, OEC NY and OEC Los Angeles violated the Shipping Act by knowingly and willfully applying reduced rates in service contracts, contrary to contract provisions limiting application of such reduced rates to certain “named accounts.” Orient Express Container also violated the Shipping Act by providing service that was not in accordance with the rates or charges contained in its NVOCC tariff. The three companies made payment to the Commission in the amount of $235,000.

Solex Logistics Inc.: Solex Logistics is a licensed and bonded NVOCC located in Inglewood, California. Commission staff alleged that Solex Logistics violated section 10(a)(1) of the Shipping Act by knowingly and willfully misdescribing cargo under applicable service contracts, and violated section 10(b)(2) by failing to charge its applicable NVOCC tariff rates. Under the terms of the compromise, Solex Logistics paid $105,000.

Pan-Link International Corp. and Pacific Star International Logistics (China) Co. Ltd.: Pan-Link is a licensed and bonded NVOCC based in Lynbrook, New York. Pacific Star is an NVOCC located in Dalian, China. Commission staff alleged that Pan-Link and Pacific Star violated the Shipping Act by knowingly and willfully obtaining ocean freight transportation at less than the rates and charges that would otherwise be applicable by misdescribing cargo under applicable service contracts. Pan-Link and Pacific Star made a payment of $75,000 in compromise of these allegations.

JIF Logistics Inc.: JIF Logistics is a licensed NVOCC located in Jamaica NY. Commission staff alleged that JIF Logistics knowingly and willfully misdescribed commodities under its applicable service contracts, in violation of section 10(a) (1) of the Shipping Act. JIF paid a penalty of $40,000 in compromise of these allegations.

Wanda Shipping Company Inc. and Heng Shen USA Inc.: Wanda Shipping was a licensed and bonded NVOCC at the time of the alleged violations, and was based in Rosedale, New York. Heng Shen is a related company that operates as a trading company, located in Syosset, New York. Commission staff alleged that Wanda Shipping and Heng Shen violated the Shipping Act by knowingly and willfully obtaining transportation under service contracts to which they were not a party and that Wanda Shipping unlawfully allowed others to obtain transportation using Wanda’s corporate name and service contracts. Under the terms of the compromise, Wanda Shipping and Heng Shen paid the Commission $35,000.

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FMC Approves Update of Commission Pleading, Motion, and Discovery Rules

The Federal Maritime Commission recently approved publication of a proposed rule to update its Rules of Practice and Procedure for pleadings, motions, and discovery in agency adjudications. The proposed changes are intended to add clarity, reduce burdens on parties, and incorporate standards from the current Federal Rules of Civil Procedure. This is the second proposed rule change in an ongoing initiative to make the Commission’s procedural rules more clear, modern, and efficient. Comments on the proposed rule are due by April 30, 2012.

“Our ongoing rules modernization project is an important part of several Commission efforts to enhance efficiency, reduce costs, and reduce regulatory burdens consistent with President Obama’s executive orders,” said FMC Chairman Richard A. Lidinsky, Jr. “Commission staff has done impressive work, and I encourage the maritime administrative bar and public to submit comments that will help the Commission improve this rule as we finalize it.”

Commission staff members on the rules modernization working group are Rachel E. Dickon, Assistant Secretary; Theresa E. Dike, Office of Consumer Affairs and Dispute Resolution Services; Chief Administrative Law Judge Clay G. Guthridge; Daniel S. Lee, Office of the General Counsel; Brian L. Troiano, Bureau of Enforcement Deputy Director; and Administrative Law Judge Erin M. Wirth. The working group also included George A. Quadrino, Office of Managing Director, who retired in September 2011.

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The Containership Co. Wins Key Bankruptcy Court Decision

The Containership Co. (TCC), who served the China – USA trade as a vessel operating common carrier from April 2010 thru March 2011, recently won a decision in a U.S. Bankruptcy Court that could help the line recoup lost revenue from its former shipper customers for failing to meet their contracted minimum quantity commitments (MQCs). TCC, a Norway-based company, filed for bankruptcy in early 2011. In August 2011, to satisfy outstanding bankruptcy debts, TCC filed suit to recover contract damages from 77 shippers it alleges failed to meet their contracted MQCs. The TCC is seeking liquidated damages plus interest and attorneys’ fees from its former shipper customers for failure to satisfy the contracted MQCs. According to TCC, shippers’ failure to meet the MQC was a significant contributor to the line’s financial flop. Before filing for bankruptcy and ceasing operations TCC offered port-to-port service between Taicang, near Shanghai, Ningbo, Qingdao, and Los Angeles.

The shippers argued that the contract claims should be heard before the Federal Maritime Commission, but the court rejected this argument finding there was no need for FMC expertise to decide the matter. In his decision, U.S. Bankruptcy Judge Sean Lane noted that “the Federal Maritime Commission does not have exclusive or primary jurisdiction” over the allegations. Judge Lane further wrote that the shippers failed to explain “why or how the FMC’s expertise would be needed to resolve this question in these cases. [The shippers] do not provide any factual allegations regarding the actual MQCs at issue in these contracts, the amount of cargo actually shipped, or debtor’s practices in connection with the use of MQCs. Moreover, the [shippers] have not explained how the FMC’s concern about whether MQCs are ‘meaningful’ – presumably whether the MQCs are so small as to be of no real consequence – is implicated here given that [the shippers] were allegedly unable to satisfy such MQCs.”

With this decision, the TCC will be able to go forward with its suits against the shippers in Bankruptcy Court and attempt to recover contract damages and attorney’s fees from the 77 shippers who failed to meet the contracted MQCs, and did not pay the damages or settle with TCC. In a statement to American Shipper Magazine, TCC’s attorney said: “The shippers know they have breached their contractual obligations by failing to meet their minimum quantity commitments… as we had hoped and expected, the U.S. Bankruptcy Court, Southern District of New York in the decision of 10 February 2012, clearly rejected the shippers’ motion and confirmed that the adversary proceedings against TCC’s former shippers could continue in New York. We expect the remaining shippers to now reconsider their tactics and follow in the footsteps of the third of the TCC shippers who have already settled their outstandings with TCC.”

TCC’s decision to seek damages from former shippers has attracted widespread interest in the shipping industry as the MQC is usually viewed as a guideline and not a hard and fast contract clause. The court’s decision has prompted many container lines and shippers to take a second look at their contracts. Some shippers have sought to negotiate lower MQCs to avoid similar claims for failure to meet the MQC, and many shipping lines have also sought to negotiate lower MQCs to avoid potential claims for failure to provide service.

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FMC Releases Study of EU’s 2008 Repeal of Liner Shipping Competition Law Exemption

The Federal Maritime Commission recently released its Bureau of Trade Analysis’s Study of the 2008 Repeal of the Liner Conference Exemption from European Union Competition Law. The primary issue addressed in the multi-year Study is: “What impact has the repeal of the liner conference block exemption in Europe had on U.S. liner trades?” The Study was launched in response to concerns that the European Union’s (EU’s) repeal might produce freight rate reductions in EU liner trades relative to U.S. liner trades. Seeking input on the issue from the shipping public, the Commission issued an EU Study Notice of Inquiry in November 2010.

The Study’s primary finding is that through 2010, “The repeal of the block exemption does not appear to have resulted in any negative impact on U.S. liner trades.” Rates “declined to the same degree in both U.S. and EU import trades,” and “increased to a similar degree in both U.S. and EU export trades being compared.” The Study recommended further review of trends following the 2006-2010 time period examined.

Federal Maritime Commission Chairman Richard A. Lidinsky, Jr. stated: “I want to thank the Commission’s Bureau of Trade Analysis for their hard work and thorough analysis on these important issues for the world’s liner shipping industry. We hope the Study will provide a sound, fact-based point of reference for policymakers examining liner shipping regulatory regimes both here and abroad.”

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TSA Adjusts Surcharges Effective April 1; Implements 2012-13 Revenue Program

Carrier members of the Transpacific Stabilization Agreement (TSA), FMC Agreement No. 011223, serving the East Asia/USA trade lane have announced adjustments to several surcharges for the April to June 2012 quarter. Some members have also announced general rate increases (GRI) and/or other revenue recovery initiatives in a move to reaffirm their commitment to restoring rate levels going into 2012-13 contract negotiations.

The group’s New Formula BAF for the April to June 2012 quarter, with adjustment for slow steaming, will increase to US$ 566 per 40′ ctr to US West Coast Ports and US$ 1089 per 40′ ctr to US East and Gulf Coast Ports, with other sizes as per formula. Inland Fuel Charges (IFC) for the same quarter will remain at US$ 353 per ctr for shipments to IPI destinations served via West Coast Ports, US$ 177 per ctr for shipments to RIPI destinations served via East Coast Ports, and US$ 102 per ctr for shipments to Group 4 Points and to East Coast local store door points. The Currency Adjustment Factors (CAF) for the same period will remain at 23 percent for shipments from Japan.

As announced in a special mid-month issue of SIGNALS on February 14, 2012, TSA carriers have begun to file recommended interim rate adjustments in the form of two step General Rate Increases (GRIs) and/or other revenue initiatives effective between March 15 and May 1, 2012. Most TSA Carriers have filed GRIs of US$ 300 per 40-foot container (FEU), effective March 15, 2012, in their FMC tariffs. According to the news release issued by the group, this increase is intended to bring Asia-U.S. freight rates back up to near 2011 contract levels, establishing a baseline for upcoming contract negotiations.

The TSAs 2012-13 recommended guideline revenue program recommends a further increase in rates, or second GRI, 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. The TSA Carriers also indicated that further additional 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 from March 15 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.

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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WTSA Adjusts Surcharges for April-June 2012, Announces Guidelines Rate Adjustments

The Westbound Transpacific Stabilization Agreement (WTSA), FMC Agreement No. 011325, whose member lines serve the U.S. export trades from the USA to East Asia, announced adjustments to current currency adjustment factors (CAF), bunker adjustment factors (BAF) and inland fuel charges (IFC), effective April 1, 2012, as follows:

WTSA Bunker Adjustment Factors (BAF) Effective: April 1, 2012 thru June 30, 2012 with “Slow Steaming Adjustment” for traffic to/from and via:

From: US Atlantic/Gulf Coast Ports
To: US Pacific Coast Ports
US$ 1178 per 20ft dry ctr
US$ 614 per 20ft dry ctr
US$ 1473 per 40ft/45ft dry ctr
US$ 768 per 40ft/45ft dry ctr
US$ 1966 per 40ft/45ft reefer ctr
US$ 1085 per 40ft/45ft reefer ctr

The Inland Fuel Charge (IFC) for April to June 2012 remains at US$ 353 per ctr for rail and intermodal rail/truck shipments, and US$ 102 per ctr for local/regional truck shipments. Currency Adjustment Factors (CAF) for the same period will be 7 percent for Taiwan and 21 percent for Singapore.

WTSA members have also announced a new round of incremental dry cargo rate increases as part of their ongoing effort to stem revenue erosion in the U.S.-Asia cargo market. Effective April 1, WTSA is recommending a schedule of increases that will raise dry commodity rate levels by US$ 50 per FEU from Pacific Southwest ports (Los Angeles, Long Beach and Oakland) to Asia, and by US$ 100 per FEU for all other cargo, moving via all-water or intermodal service from Pacific Northwest ports, from inland U.S. points and from the U.S. East and Gulf Coasts.

WTSA is a voluntary discussion and research forum of 10 container shipping lines serving the trade from ports and inland points in the U.S. to destinations throughout Asia. The WTSA’s 10 member carriers are: American President Lines, COSCO Container Lines, Evergreen Marine Corp., Hanjin Shipping, Hapag-Lloyd Container Line, Hyundai Merchant Marine, “K” Line, NYK Line, OOCL and Yang Ming Marine. For more info visit www.wtsacarriers.org.

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Transatlantic and Latin America Trades Face April General Rate Increases

Several carriers have announced General Rate Increases (GRIs) in both the Transatlantic (USA to Europe) and North America – Latin America trade lanes. These GRIs will become effective on April 1 or April 15, 2012.

In the Trans-Atlantic trades, OOCL has announced a General Rate Increase effective April 1st for all Westbound and Eastbound cargo between Europe, Canada, and the United States moving via Canadian ports of US$ 320 per 20′ container and US$ 400 per 40′ container. Maersk Line has also announced their full year 2012 general rate increase program in the Mediterranean and Transtlantic trade lanes. Effective April 1, 2012, Maersk Line’s Mediterranean and Transatlantic GRI to and from North America for both dry and reefer shipments will be US$ 300 per container for shipments between the USA / Canada and Northern Europe and the Mediterranean. Maersk Line has also announced additional increases planned for July 1st and October 1st, but these levels have not yet been finalized.

In the North-South trades, Hyundai Merchant Marine Co, Ltd. has announced plans to increase rates for shipments from the U.S. and Canada to all ports and points in Argentina, Brazil, the Dominican Republic and Uruguay. JOC Sailings reports this increase as US$ 320 per 20′ dry container, US$ 400 per 40’/40’HC container, and US$ 550 per 40′ reefer container. For specialized equipment including flat racks and open-top containers, rates will increase by US$ 320 per 20′ and US$ 400 per 40′ for in-gauge shipments and US$ 440 per 20′ and US$ 550 for 40′ for out-of-gauge cargoes. These rate increases will apply from all ports and points in the USA, and will be effective on April 15, 2012.

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