Wednesday, June 27, 2012

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.

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."

"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 light of the complexity of the issues raised, and the importance of the objective of assisting U.S. exporters gain better understanding of transportation pricing, we respectfully request an extension in the Comment Period, for 30 days, to August 8, 2012," wrote Friedmann.

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.

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