Friday, June 29, 2012
World Shipping Council against FMC rate indexing for Ag exports; cites OSRA
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.
"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.
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