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Summary for June 25 - June 29, 2012:
Monday, June 25, 2012 No Newswire today.
Tuesday, June 26, 2012 Top StoryIndex-linked freight rate momentum for container-shipping grows
"Cargill fully supports the continued development of index-linked contracts as a fair and impartial contract rate adjustment mechanism," said Duncan McGrath, the container freight manager of the Americas for Cargill in a recently released white paper on the subject prepared by Drewry Supply Chain Advisors in partnership with Cleartrade Exchange for their World Container Index. Drewry contends the index-linked approach "serves to reduce the differential between contract and spot market rates." "Index-linked contracts are a response to the failure of traditional fixed-rate forms of contracting to provide the necessary space, volume and price protections," according to the Drewry report that pointed to freight rate volatility in the global container-shipping market; particularly since 2009. "The boom and bust freight rate cycle has wreaked havoc across international supply chains and shipping line balance sheets. Cargo owners have faced unexpected hikes in freight costs and shortages of vessel space. This has made it particularly difficult for shippers to plan ahead, while margins have been squeezed and sales lost," the white paper said. In March, the U.S. Federal Maritime Commission issued a final ruling in favor of shippers and ocean carriers using such indices in contract negotiations, stating they could "provide flexibility and certainty to ocean carriers and their customers" as long as "they are readily available to the contracting parties and the Commission." FMC Chairman Richard Lindinsky said of the ruling: "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." Global container-shipping lines suffered a widely reported, financially devastating 2009 campaign that rebounded dramatically the following year on the heels of customer inventory replenishment, subsequently dropping again in 2011 amid vessel over-supply and rate volatility. As a result, ocean carriers have been trying to institute a series of rate increases in 2012 in an attempt to recoup some of their losses in the face of continued new vessel tonnage scheduled to hit the waves over the next few years. Siewert cited a few examples from this year when his company closed trading deals in January for March delivery and a $350 general rate increase hit in March causing a trade loss for his firm, with similar circumstance occurring a few months later. The concept of indices in container-shipping really took to the seas in 2009 when the Chinese government launched the Shanghai Containerized Freight Index (SCFI) with the announced mission "to standardize the transactions, to adjust the freight rates, and to communicate information on the shipping market." Subsequently, Clarkson Securities Limited, the derivatives broking arm of Clarkson PLC, brokered the first container freight swap agreement between Morgan Stanley and investment bank Delphis against the SCFI. At the AgTC event, Ben Gibson of Clarkson Securities said indices in shipping provide an independent source of market information for benchmarking and reveals "credible and interesting trends." Major global shipping line groups have, for the most part, endorsed the FMC ruling on the use of freight rate indices in contract negotiations, however, Brian Conrad, executive administrator for the Western Transpacific Stabilization Agreement said his ocean carrier membership still has "some concerns about indexing based on specific commodities and feel that more discussion is required to answer key questions." Some of the WTSA's concerns, according to Conrad, include: confidentiality versus transparency of customer rates; mutual benefit of indexing; increased clarity over how the index-linked contracts would work; should a government agency be involved in an exchange between two private commercial entities; and that using indices in contract negotiations doesn't address service issues such as schedules and customer service. Drewry's white paper says index-linked container contracts should sprout from a similar foundation to the traditional fixed rate approach, where shippers and carriers need to agree on the scope of the contract to be index-linked, the contract period, the index to be used, the contract rate adjustment mechanism, carrier service commitments, and shipper volume commitments. In the Drewry report, Jean Phillippe Thenoz, senior vice president for French shipping giant CMA CGM was quoted as saying: "Index linked contracts can only strengthen the commercial relationship between carriers and shippers." Report: Portland port's labor dispute talks underway; no containerships callingThe contentious three-week-old labor dispute at the Port of Portland that has pit the International Longshore and Warehouse Union and its employer group, the Pacific Maritime Association, against the Port of Portland and Manila-based terminal operator, ICTSI, has reportedly entered into a court-ordered discussion phase with former union advocate and Oregon governor, Ted Kulongoski presiding over the talks. The dispute reportedly arose out of who has jurisdiction over the basic maintenance of refrigerated containers such as plugging and un-plugging the units, with the ILWU wanting two of those jobs even though the port has said members of the International Brotherhood of Electrical Workers have been performing those tasks for several years. The use of IBEW workers was reportedly written into the port's contract with ICTSI when the facility operator took over operations at Terminal 6 two years ago. Both sides have recently filed lawsuits against each other amid back and forth charges of intentional labor slowdowns contended by one side, and the use of un-safe reefer equipment by the other. Two major container-shipping lines that serve the Port of Portland – Hanjin and Hapag Lloyd - announced they would call at the Port of Seattle to until there is a resolution of the dispute. The Oregonian reported the cost to shippers to transport freight from Seattle to Portland brings an extra estimated cost, ranging from $600 to $1,000 per day. For the full Oregonian story: www.oregonlive.com L.A.-Long Beach employer group offers revised third option to clerical workersThe employer group that represents 14 marine terminal operators at the ports of Los Angeles and Long Beach offered three contract options on May 30 to the 600 members members of the Local 63 Clerical Unit of the International Longshore and Warehouse Union, issued a revised "Option C" to its counterparts this week. "The new Option C proposal contains improvements over the proposal for a supplement agreement that was made by the PMA last September," said the Harbor Employers Association in a statement. The clerks broke off from two days of negotiations with one of the marine terminal operators at the end of May, as new technology implementation had apparently become a sticking point. The Office Clerical Union workers had previously elected to bargain with each HEA member company one at a time on the heels of a coast arbitrator's ruling that ILWU members could honor an OCU picket line. The HEA said its third contract option is modeled on the OCU in Northern California that is aligned with the ILWU Marine Clerks contract and includes" wage parity with other clerical union members; a one-time "special payment" of $3,000 for contract ratification; seniority retention; pay for future needed time off equal to that of 66 shifts; and participation in the ILWU pension fund, among other concessions. The new third contract option also stipulates permanent union employees must agree to work as "steadies" for their current employer for 15 years and in turn employers must agree to employ that same staff for 15 years. In addition, the agreement states existing permanent employees could not be sent to the dispatch hall for 15 years, with a guaranteed job at their current company for that time period. The HEA said the office clerks would operate under the "same technology framework and protection as ILWU marine clerks, with added protections from the OCU technology framework" and the clerks' jurisdictional rights would be preserved. The clerical workers group had previously said it wanted new hires despite management's contention there is no current business need, and insisting vendors call, fax or email rather than use an employers' websites, according to the HEA. The terminal operators have also contended OCU workers prefer to manually enter data instead of utilizing automated data transfers.
Wednesday, June 27, 2012 Top StoryVietnam's shipping line over $2 bil in debt; former chairman still on the run
The financial fiasco of Vietnam Shipping Lines, or Vinalines, has put the spotlight on the Southeast Asian country's mysterious state-owned firms. "These companies have operated in secrecy for too long but that must come to an end," said Jonathan Pincus, dean of the Fulbright Economics Teaching Program in Ho Chi Minh City to Reuters. Two years ago, the state-operated shipbuilder, Vinashin, accumulated $4.5 billion in debt in a scandal where nine of the company's executives were sent to prison. Duong Chi Dung, the former chairman of Vinalines, reportedly faces a similar fate and has been the subject of a manhunt since May that now has Interpol involved. Four other former top Vinalines executives have since been arrested. One of the centerpieces to the Vinalines scandal featured prominently in the Vietnamese media is what is referred to as the "iron heap" or the 43-year-old floating dock the shipping group purchased from a company in Singapore for $9 million that reportedly cost over $26 billion to repair – 70 percent of what a new dock would cost. Dung took over the helm of Vinalines in 2005 and the company's ranks grew to 18,000 workers, while the firm reportedly defaulted on $1.1 billion worth of loans in addition to acquiring 73 mostly secondhand foreign vessels, of which 17 were too old for service and too costly to repair. For the full Reuters story: in.reuters.com U.S. agriculture exporters request more time from FMC on index-linked service contract inquiry
The Agriculture Transportation Coalition has requested a 30-day extension from the FMC regarding the regulatory body's notice of inquiry over the development of a container freight rate index for U.S. agricultural exporters. FMC Chairman Richard Lindinsky said of the ruling: "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." "The development of mechanisms that will provide an additional transportation pricing tool is of utmost interest to our membership, the agriculture and forest products exporters," wrote Peter Friedmann, executive director of the AgTC in a June 26 letter to Karen Gregory, secretary of the FMC. However, Friedmann wrote "how the Commission might access the terms of those contracts and organize the information while honoring the confidentiality of each contract's terms, for the purpose of providing a means for U.S. exporters to better understand pricing in the various trade lanes, deserves serious consideration." In the wake of volatile recessionary years for the global shipping industry that resulted in a money-losing campaign in 2011, ocean carriers have been trying to institute a series of rate increases in 2012 in an attempt to recoup some of their losses in the face of continued new vessel tonnage scheduled to hit the waves over the next few years. At the recent annual meeting of the AgTC in San Francisco, Jeff Siewert, vice president of operations for U.S. exporter Interra, said general rate increases "can blindside advance sales." Siewert cited a few examples from this year when his company closed trading deals in January for March delivery and a $350 general rate increase hit in March causing a trade loss for his firm, with similar circumstance occurring a few months later. The concept of indices in container-shipping really took to the seas in 2009 when the Chinese government launched the Shanghai Containerized Freight Index (SCFI) with the announced mission "to standardize the transactions, to adjust the freight rates, and to communicate information on the shipping market." Major global shipping line groups have, for the most part, endorsed the use of freight rate indices in contract negotiations, however, Brian Conrad, executive administrator for the Western Transpacific Stabilization Agreement said at the AgTC conference regarding the FMC notice that his ocean carrier membership still has "some concerns about indexing based on specific commodities and feel that more discussion is required to answer key questions." Some of the WTSA's concerns, according to Conrad, include: confidentiality versus transparency of customer rates; mutual benefit of indexing; increased clarity over how the index-linked contracts would work; should a government agency be involved in an exchange between two private commercial entities; and that using indices in contract negotiations doesn't address service issues such as schedules and customer service. China Merchants to develop $2 bil trans-ship terminal in IndonesiaChina Merchants Holdings will reportedly sign a memorandum of understanding in July with Indonesia's state-owned port operator Pelindo II to develop a $ 2 billion container and iron-ore trans-shipment terminal Tanjung Sawuh, Batam. China Merchants would be the majority investor in the port project that would have capacity for 4 million TEUs and be able to process 100 million metric tons of iron per year, according to a report by Marketwatch. Other port projects are soon to launch in Indonesia as well, including construction of a port later this year in Sorong, West Papua, that will have initial capacity of 700,000 TEUs and in July, construction of the first phase of the Kalibaru Port in North Jakarta, is slated to commence that would add 4.5 million TEUs-worth of capacity next to that country's busiest seaport. For the Marketwatch source: www.marketwatch.com Shop Direct renews contract with DamcoShop Direct Group, a U.K.-based retailer, has renewed is supply chain management contract with Damco, according to an announcement. Damco said in the statement that Shop Direct agreed to participate as a pilot customer in the development Damco's Dynamic Flow Control that "allows supply chain professionals the flexibility to constantly re-plan shipments according to what is important – whether it is delivery date, cost, or cargo footprint – without the complexity of and manual workload changing purchase orders normally entails."
Thursday, June 28, 2012 No Newswire today.
Friday, June 29, 2012 Top StoryWorld Shipping Council against FMC rate indexing for Ag exports; cites OSRA
"That fact alone requires that the rate index be abandoned," wrote the World Shipping Council in its comments responding to the FMC Notice of Inquiry over its potential development of a containerized agriculture export rate index. "OSRA clearly states that, from a regulatory perspective, service contracts are to be confidential," wrote the WSC, as its comments go onto cite a clause from that 1998 shipping law: "All service contracts and amendments to service contracts filed with the Commission shall, to the full extent permitted by law, be held in confidence." In March, the U.S. Federal Maritime Commission issued a final ruling in favor of shippers and ocean carriers using such indices in contract negotiations, stating they could "provide flexibility and certainty to ocean carriers and their customers" as long as "they are readily available to the contracting parties and the Commission." FMC Chairman Richard Lindinsky said of the ruling: "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." In the FMC's notice for the agriculture export freight index, it wrote: "Some U.S. agricultural exporters have told Commission staff that a properly constructed index would help them increase exports by allowing them to use contracting and hedging strategies to increase the certainty of their transportation costs" [and] "that ocean carriers generally are reluctant to offer them service contract rates that are valid for more than 30 to 60 days, and that this inability to lock in a rate hinders their ability to sell agricultural products for delivery more than 60 days into the future out of fear that changing transportation costs will make the sale uneconomic." The WSC countered that "the exporters are not identified, there has been no FMC fact-finding that supports this statement, and we do not believe this statement is correct." The WSC goes on to say that its ocean carrier members "are more than willing to contract for cargo shipments that would be profitable." "Ocean carriers have every economic incentive to sign contracts with defined rates of a longer duration than 30 to 60 days, if the carrier and shipper can agree on the terms, including price," the shipping group's comments say. "Carriers are generally willing to provide 'certainty' about rates for the duration of a service contract; it is the challenge of reaching mutual agreement on what those rates should be that can limit the agreed contract's duration," the WSC said. Other concerns expressed by the shipping council over the FMC rate index notice include what its says is a lack of precedence of a federal government agency index for other modes, commodities, and how the index would account for non-vessel operating common carriers, and how it might deal with exports going out of Canadian, Mexican ports, or via a bulk carrier. The World Shipping Council's comments were submitted on the heels of the request, made by the principal group representing U.S. agriculture shippers, that the FMC extend that group's comment period another 30 days to early August. "The development of mechanisms that will provide an additional transportation pricing tool is of utmost interest to our membership, the agriculture and forest products exporters," wrote Peter Friedmann, executive director of the AgTC in a June 26 letter to Karen Gregory, secretary of the FMC. However, Friedmann wrote "how the Commission might access the terms of those contracts and organize the information while honoring the confidentiality of each contract's terms, for the purpose of providing a means for U.S. exporters to better understand pricing in the various trade lanes, deserves serious consideration." In the wake of volatile recessionary years for the global shipping industry that resulted in a money-losing campaign in 2011, ocean carriers have been trying to institute a series of rate increases in 2012 in an attempt to recoup some of their losses in the face of continued new vessel tonnage scheduled to hit the waves over the next few years. Subsequently, shipping customers have voiced concerns over what they claim has been the ensuing volatility of freight rates. At the recent annual meeting of the AgTC in San Francisco, Jeff Siewert, vice president of operations for U.S. exporter Interra, said general rate increases "can blindside advance sales." Siewert cited a few examples from this year when his company closed trading deals in January for March delivery and a $350 general rate increase hit in March causing a trade loss for his firm, with similar circumstance occurring a few months later. The concept of indices in container shipping really took to the seas in 2009 when the Chinese government launched the Shanghai Containerized Freight Index (SCFI) with the announced mission "to standardize the transactions, to adjust the freight rates, and to communicate information on the shipping market." Major global shipping line groups have, for the most part, endorsed the use of freight rate indices in contract negotiations that are created by non-government sources, such as the Baltic Dry Index for bulk shipping. The WSC wrote in its comments that the BDI is a different animal from the proposed FMC index in that measures the rate an exporter might pay for chartering an entire ship, whereas a containerized shipper books a percentage of space on a string of vessels. "The WSC is aware of no impediment to the private sector creating a container shipping rate index that could be considered analogous to the Baltic Dry Index, as there are certainly knowledgeable transportation professionals who could regularly provide their informed opinions of the going rates to move goods between various points. If there were a sufficient market demand for such a product, there is nothing to prevent its creation by the private sector," the WSC said. Congress makes a deal on transportation billThe U.S. Congress will vote today on a major transportation bill funding compromise that finally solidified this week. As federal transportation funding is scheduled to expire at the end of the month, both the House and Senate are set to vote on the package before adjourning for the July 4 holiday. Approval of the legislation would be a significant achievement for Congress, which has not passed a transportation bill since 2005. It has taken two years to get to a finalized transportation bill, as House and Senate politicians, worried about election ramifications, approved a number of short-term stopgap funding extensions instead of coming to a compromise. The bipartisan $109 billion transportation infrastructure bill will fund transportation projects for two years in all 50 states. Democratic Senator Barbara Boxer, who chaired the effort, worked side-by-side with Republican Senator James Inhofe, who wrangled House conservatives to come to an agreement both parties could support. In the last few days of talks, the Canada-to-Texas Keystone Pipeline, which Republicans tried to push through as a provision of the transportation bill, was taken out of the equation. Republicans also won some concessions, including streamlining federal reviews of construction projects and allowing states to opt out of the mandate to spend some federal construction monies on bike paths or highway beautification. Congressional aides predicted the bill would receive "large bipartisan majorities," according to CNN. For more of the CNN story: www.cnn.com Port of Portland labor dispute continuesHapag-Lloyd is scheduled to resume its service at the Port of Portland by July 4, providing the port's labor dispute is resolved by then. The shipping line confirmed this on Thursday, saying it would keep a close eye on the situation, according to Oregon Live. Currently, Cape Manila, a 696-foot Hapag-Lloyd container ship, is set to arrive at Terminal 6 on July 4. Major shipping lines Hapag-Lloyd and Hanjin, Portland's largest carriers, have been circumventing the port, calling at detour destinations until a resolution is achieved between the unions. The three-week dispute has slowed work at the port, stranding containers and disrupting business. On Wednesday, federally ordered settlement talks continued between union, port and terminal representatives with no resolution so far, according to the office of Governor Ted Kulongoski, who is overseeing the talks. The International Longshore Workers Union is suing terminal operator ICTSI of Oregon. They say longshoremen should be given two jobs plugging, unplugging and monitoring reefers at Terminal 6. International Brotherhood of Electrical Workers members usually perform that task. For more of the Oregon Live story: www.oregonlive.com Mediterranean Shipping Company calls at JAXPORTThe Mediterranean Shipping Company (MSC), a major international shipping line, has started a weekly service between Jacksonville, Florida's Talleyrand Marine Terminals and two Central American ports, according to the Jacksonville Port Authority (JAXPORT). The direct weekly service will call at the ports of Santo Tomas de Castilla, Guatemala and Puerto Cortez, Honduras. The revised MSC route allows JAXPORT to offer improved transit times to Central American markets, and will provide access to broader global markets through MSC's transshipment hub in Freeport, Bahamas. Guatemala and Honduras primarily trade agricultural products such as bananas, coffee and shrimp, as well as textiles, garments, minerals. The countries have strong market for U.S. exports, especially agricultural machinery, chemicals, building materials and general consumer merchandise. Japanese shipping line slapped with $500K pollution fineAfter pleading guilty March 29 in U.S. district court to charges of obstruction and violating the U.S. Act to Prevent Pollution from Ships, Japanese shipping company CSL Maritime was sentenced to three years of probation and a $500,000 fine. The crew of the M/V FD Jacques Graubart, prior to arriving at the Port of New Orleans in January 2012, pumped oily bilge water into the sea without using required pollution prevention equipment. The crew attempted to hide the crime by falsifying the ship's oil records. For more of the SF Gate story: www.sfgate.com
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In response to the rollercoaster ride of the recent recessionary years and the subsequent impact on the global shipping industry, the age of containerized freight indices could be arriving in a bigger way by having them tied directly to shipping contracts.
Vietnam's state-run shipping line is $2.1 billion in the red while its former chairman remains the subject of an international manhunt, as charges of gross mis-management and cronyism abound.
If the Federal Maritime Commission moved forward with the establishment of a freight rate index for certain U.S. agriculture exports it would be in violation of the confidentiality clause in the Ocean Shipping Reform Act, according to a group representing 29 shipping lines.