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Signals™ Headlines - October 5, 2011

FMC Chairman Proposes Study on US Cargo Moving Via Canadian Ports

Federal Maritime Commission Chairman Richard A. Lidinsky Jr. recently proposed a study of Canadian cargo diversion. The proposal came in response to a request from two Washington state senators. In a letter addressed to Lidinsky, U.S. Senators Patty Murray and Maria Cantwell wrote of their concerns of high U.S. Harbor Maintenance Tax and its effect on U.S. ports’ competitiveness issue with ports in neighboring countries.

In response to this letter, Lidinsky announced his plan for this study at the Journal of Commerce Canada Maritime Conference in Montreal on September 21, 2011. Lidinsky says he plans to focus on basic legal questions such as where U.S. waterborne commerce begins and ends; noting that U.S. Supreme Court has held the FMC has authority over rail movement from port to destination. The Chairman stressed he wants to “level the playing field between US and other North American ports.”

Currently, cargo brought into a U.S. port is subject to the tax and the more valuable the cargo, the higher the tax. Shippers can avoid this by routing cargo through Canadian or Mexican ports. U.S. ports are subject to a harbor maintenance tax, “and the more valuable the cargo, the higher the tax,” he said. “Here is an issue where we need to ask in the U.S., are we handicapping ourselves with our tax policy? How do Canadian ports raise revenues and pay for dredging and maintenance, and is there something we can learn from that?” Lidinsky also mentioned he wants to take a close look at port infrastructure, and ways the federal government can increase its support of ports. “[I]n the United States we see the federal government requiring West Coast ports to pay a harbor maintenance tax, and not providing needed investments in return. So the question is not just whether anything unfair is being done north of the border — perhaps the more fundamental problem is that too many U.S. ports, railways, highways, and bridges are slowly decaying due to lack of investment and strategic long-term planning.”

Lidinsky ended his proposal by emphasizing his focus on cooperation. “Our door will be open to all parties to file comments, provide information, and to assist us in producing workable answers through this neighborly discussion.”

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President Obama Re-Nominates Michael Khouri as FMC Commissioner

On Tuesday, September 6, 2011, President Obama sent to the Senate the nomination of Commissioner Michael A. Khouri for a new, five-year term as Federal Maritime Commissioner, expiring June 30, 2016. Khouri, a maritime and transportation lawyer from Louisville, Kentucky was first nominated by President Obama on December 1, 2009. Dates have not yet been set for a Senate confirmation hearing or vote on Khouri’s new nomination.

Commissioner Khouri recently spoke at the annual meeting of the International Association of Movers in Denver, Colorado on September 15, 2011. At the meeting he spoke of the Commission’s ongoing review of OTI rules and regulations and mentioned FMC staff is expected to submit a proposed rule for the Commission’s consideration this fall. He went on to say, “I think that the Commission should consider whether to require OTIs to ensure that their bona fide agents disclose information about the principal in the agents’ advertising and on shipping documents prepared or issued by the agents. The Commission may consider whether to require agency agreements to be in writing, signed by the parties, and available for Commission review.”

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FMC Votes on Cruise Line Passenger Financial Protections and OTI Freight Indices

On September 8, 2011, the Federal Maritime Commission voted to issue a proposed rule strengthening protections for cruise line customer deposits and prepayments, and to reduce financial responsibility requirements for small cruise lines.
Commissioner Joseph E. Brennan and Commissioner Rebecca F. Dye dissented from this the vote. In a separate action, the Commission also voted to initiate a rulemaking to provide flexibility and certainty to ocean carriers and customers who use service contracts with rates linked to freight rate indices.

(1) Proposed Rule Strengthening Financial Protections for Cruise Line Passengers: Under the Commission’s regulations, cruise lines must file evidence of financial responsibility to ensure that passengers can obtain refunds if their cruises are cancelled. In a 3-to-2 vote, the Commission decided to issue a proposed rule that will increase the maximum coverage requirement from $15 million to $30 million per cruise line. This update responds to inflation and the growth of the cruise industry. The proposed rule was issued September 13, 2011 under FMC Docket 11-16 and it invites public comments on alternative methods of strengthening financial protections and providing relief for smaller cruise lines. Comments should be directed to the FMC Secretary via email: secretary@fmc.gov

(2) Rule Modification for Service Contracts Linked to Freight-Rate Indices: The Commission voted unanimously to move forward with a recommendation by its Container Freight Index and Derivatives Working Group to initiate a rulemaking to give more leeway for ocean carriers and shippers to use service contracts with rates linked to freight rate indices. To date, the FMC has received more than fifty service contracts that reference freight indices. Under the Commission’s current rules, service contracts can only reference outside terms, such as a rate in a freight index, that are “contained in a publication widely available to the public and well-known within the industry.” The proposed rule change would allow contracts to reference freight indices or other outside terms, so long as they are “readily available to the parties and the Commission.” As a result, ocean carriers and their customers will be able to use freight index rates in their contracts free of questions over whether those indices are “widely available to the public” or “well known.” A proposed rulemaking has not yet been issued, but this topic will be discussed the next Commission Meeting on October 5, 2011.

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WTSA Carriers Announce Rate Increases for Key Commodities Effective Nov. 1, 2011

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 increases to freight rates for key dry and refrigerated commodities effective November 1, 2011. Increases range from US$ 100 to US$ 500 per FEU.

For several dry commodities, including metal scrap, plastic scrap, and freight all kinds (FAK), the increase amount is US$ 100 for shipments from Los Angeles or Long Beach, and US$ 200 for shipments from all other origins. For waste paper shipments, rates will increase by US$ 50 on Nov. 1, by another US$ 50 on Dec. 1, and by another US$ 50 on Jan. 1, 2012. Some commodities, including cotton and onions will be subject to new minimum rates.

Rate increases for refrigerated cargo range from US$ 150 to US$ 500 per FEU. Rates for shipments of refrigerated beef, pork, and poultry from US West Coast Ports will increase by US$ 150, and by US$ 200 from all other origins. Rates for shipments of frozen fish and seafood from Alaska ports will increase by US$ 500 per FEU, and by US$ 300 from all other ports. For full details visit http://www.wtsacarriers.org/guidelines.html

WTSA is a voluntary discussion and research forum of ten container shipping lines serving the trade from ports and inland points in the U.S. to destinations throughout Asia. The WTSA’s 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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