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Summary for October 03 - October 07, 2011:
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Monday, October 3, 2011

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FMC chairman to discuss BC, Mexico ports inquiry this week

On Wednesday of this week the chairman of the Federal Maritime Commission is going to reportedly propose that his agency examine an issue raised by two U.S. senators, among other American shipping industry interests, over the possibility that some containerized cargo is diverted to British Columbia and Mexico away from their U.S. West Coast counterparts in order for shippers to avoid paying a harbor maintenance tax.

“Although the [Harbor Maintenance Tax] has existed since 1986, it has become a more significant competitiveness issue with the development of new Canadian and Mexican seaports along the West Coast, and it appears that the HMT may be a key factor causing U.S. ports to lose a growing share of imported container cargo from Asia,” said senators Patty Murray and Marie Cantwell (D-Wash.) in a letter dated August 29 to FMC Chairman Richard Lindinsky.

The two senators from a state that has two major container ports that handle significant volumes of cargo transiting between Asia and the U.S., alleged what they termed a “growing number of containerized U.S. imports from Asia move through the West Coast Canadian container ports of Vancouver and Prince Rupert en route to the U.S. Midwest (i.e. Chicago and Memphis) through cross-border rail.” The letter also referenced that “additional volumes enter U.S. markets via Mexican ports.”

“As a result, non-U.S. ports are able to claim a substantial per-container cost advantage over U.S. seaports based on the HMT alone,” the senators’ letter goes on to say.

The Harbor Maintenance tax is levied, ostensibly, for U.S. seaport dredging and maintenance, with the reported average tax to be about $143 per container.

Chairman Lindinsky, in his formal announcement of the proposed inquiry at a recent shipping conference in Montreal, asked, “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?”

However, Lindinsky also referenced the rise in recent years of international container-handling in British Columbia, in particular: “And while the volume of U.S. cargo we saw moving through Canadian ports was around 140,000 TEU in the early 1980’s, today it stands at approximately 750,000 TEU annually.”

Robin Silvester, president and chief executive of Port Metro Vancouver, BC, said that although container traffic destined for U.S. markets through western Canada’s ports have doubled in 5 years that those volumes have gone from 1 percent to 2 percent.

“If you double a very small number you still have a very small number,” he said as reported by Canada’s Global and Mail newspaper.

The Canadian federal government’s Asia-Pacific Gateway and Corridor initiative has pumped $3.5 billion into upgrading port and related freight infrastructure, the Globe and Mail reported.

“It is imperative that we level the playing field between international ports and domestic ports so that the U.S. can continue to compete for cargo,” the letter by senators Cantwell and Murray said.

Lindisky said the FMC would also discuss whether to look into whether cargo security practices through Canadian ports like Prince Rupert are up to the standards of U.S. ports.

“I don’t believe that Prince Rupert is currently part of the Container Security Initiative. We need to better understand how our two countries are approaching the issue of cargo security together,” he said.

MOL revises H1 earnings forecast downward

Japan’s shipping giant Mitsui OSK Lines announced it has revised its earnings forecast for its first half of 2011 to a steeper loss of $221.7 million as of September 30.

The shipping line said in a statement that it “anticipates a significant deterioration in profits due to about [$104 million] in extraordinary losses stemming from a write-down of investment securities that form part of its owned shares because of the decline in stock market prices, and such factors as falling container freight rates in the Asia-Europe and Asia-North America routes, a downturn in the tanker market, and the appreciation of the yen.”

MOL said it is “reviewing the consolidated business outlook for FY2011, ending March 31, 2012 (April 1, 2011-March 31, 2012), and plans to issue an updated outlook when announcing the consolidated financial results for the first half of FY2011 (scheduled for October 31, 2011).”

Japanese air forwarders to pay $46.8 mil in fines for price fixing

Six Japan-based air-freight forwarders have pled guilty to taking part in price fixing on air cargo shipments from Japan to the U.S. between 2002 and 2007 and have agreed to pay a total of $46.8 million in fines, according to a statement released by the U.S. Department of Justice.

The six firms that were charged are Kintetsu World Express Inc, Hankyu Hanshin Express Co. Ltd, Nippon Express Co. Ltd., Nissin Corporation, Nishi-Nippon Railroad Co. Ltd, and Vantec Corporation.

The Japanese firms were "engaged in a conspiracy to fix and impose certain freight forwarding service fees, including fuel surcharges and various security fees, charged to customers for services provided in connection with air freight forwarding shipments of cargo shipped by air from Japan to the United States," the D.O.J. said.

"Including today's charges, 12 companies have agreed to plead guilty and nearly $100 million in criminal fines have been obtained as a result of the Antitrust Division's ongoing freight forwarding investigation," said Sharis Pozen, acting assistant attorney general in the Justice Department’s statement.

Indian shipowners claim piracy costs $9 bil per year

Piracy on the high seas is costing the ocean shipping industry upwards of $9 billion per year, according to the Indian National Shipowners Association, and a specialized force under the aegis of the United Nations should be created to more effectively combat the costly threat, the group said.

"The seafarers are increasingly anxious about sailing through the expanding pirate-prone areas...The Indian Shipping Industry is of the firm view that the situation can only be resolved with a bold approach that targets the problem in evolving initiatives so as to achieve effective control on piracy at sea," said the shipping group’s letter that was reportedly sent to ministries within India’s federal government.

The Indian shipping association said it favors the establishment of a U.N. military force that could board merchant vessels in the event of piracy threats.

Coast Guard airlifts sick crewman from ship off San Diego

The U.S. Coast Guard reported it airlifted a “very sick” crewman from a Cyprus-flagged cargo vessel that was 170 miles northwest of San Diego, Calif. on Sunday, Oct. 2.

At 2:30PM, the USCG said in a statement that it was contacted by the CGM Chateau D’If that a 37-year-old crewman had fallen sick with a high fever and other symptoms the decision was reached to medevac him.

An MH-60 Jayhawk helicopter crew was deployed out of San Diego in addition to an HC-130 Hercules fixed-wing aircraft out of Air Station Sacramento to fly as cover, and the sick crew member was picked up and flown back to San Diego where he was subsequently transferred to an emergency medical facility at 10:50 PM, the USCG said.


Monday, October 7, 2011

Top Story

OOCL:"Recession likely to worsen" before improving

Freight rates are lower than they were in 1994 as the second half of this year could be tougher than the first half, meaning "things are likely to get a lot worse before it gets better," said Erxin Yao, president of Hong Kong-based container-shipping group OOCL (USA) in his opening keynote at Southeast Freight Conference in Memphis, Tenn this week, organized by Cargo Business News and the Memphis World Trade Club.

"Container traffic has been volatile in the past 30 years [but] through most recessions, container traffic was positive, with 2009 the only year where that wasn't the case," Yao said.

On the heels of 2010's shipping industry financial uptick after what was widely reported to have been a result, at least in part, of the re-stocking of inventories by cargo owners after the deep economic trough of the previous year-and-half, Yao pointed to only three ocean carriers posting positive operating margins in the first half of this year.

"About 10 carriers are in the 'distress' zone and most are in the 'caution' zone," he said.

"Carriers need cash. Cash is life and death," he said.

Showing the image of whales washed up on a beach, Yao referred to his fellow ocean carriers' "irrational behavior" with regard to balancing vessel supply and demand, although he also said he sees that leveling out in the years to come and to "expect more capacity to be withdrawn in the coming months."

However, Yao said the evolving regulatory environment for ocean shipping will have a financial impact in the coming years as he showed another image of a 1,3000-TEU ship standing as tall next to an image of the Empire State Building.

At a cost per ship of up to $150 million, Yao said the unit cost per-TEU of the new generation of post-Panamax containerships will be lower, but bunker fuel costs per-TEU are rising, and the higher grade of marine fuel that will need to be the standard by 2020 would prove costly as well.

"Environmental costs in general will drive carrier costs up," he said.

One area of liability the shipping lines are transitioning out of is supplying container chassis, and Yao said the "ocean carriers are not very good at managing surface transportation - it's not efficient for carriers to own would be like the airlines owning the taxis in the cities they serve."

The Southeast Freight Conference also featured keynotes and presentations by Claude Mongeau, president and CEO of Canadian National Railway Company, Federal Reserve Bank of Atlanta, IHS Global Insight, Williams Sonoma, International Paper, APL, Con-way Multimodal, Norfolk Southern, CSX, Panama Canal Authority, and other industry notables, including the chief executives of Southeast port authorities in Georgia, New Orleans, South Carolina, and Virginia.


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