FMC Chairman Calls for Joint Effort to 'Stabilize' Shipping Industry

Federal Maritime Commission Chairman Mario Cordero sought to assuage shipping industry concerns and called for better cooperation "to stabilize an industry that is critical to the world’s economy" during a Nov. 4 speech at the World Shipping Summit in Shanghai (here). Cordero addressed a number of issues, such as the consolidation of three major Japanese lines -- MOL, K Line and NYK -- and Hanjin Shipping's insolvency, that are creating anxiety in the industry. "Any one of these developments in and of itself would have been impactful, but taken together, these represent generational changes that have the potential to significantly change the very structure of the shipping industry," he said. "Carrier consolidation combined with capacity in the global container fleet far exceeding the needs of a slowing global economy necessitated the re-ordering of the carrier alliance system."

Still, "global shippers are uneasy at best about the new alliances," Cordero said. "Some shippers are suspicious of carrier motives and distrustful that the new alliance structures will be anything other than a framework for limiting service and raising rates." The agency was able to reach a good balance between "the concerns of the shipping public" and the efficiencies created by the recently approved OCEAN alliance (see 1610240016). That alliance is made up of COSCO Shipping, CMA CGM, Evergreen Marine, and Orient Overseas Container Line Limited. "I fully believe the alliance structure can be mutually beneficial to carrier and shipper, and that it can also be the vehicle for addressing issues related to congestion, port efficiency, and even supply chain optimization," he said. "Done properly, alliances can be vehicles that deliver commercial and policy benefits. Done poorly, they will reinforce every bias of the most skeptical shippers."

Cordero also asked that industry members refrain from blaming each other for various ongoing problems. "One important step each of us can take is to resist the temptation to point fingers and make accusations as to the industry’s woes," he said. "There is no one party or segment of the industry responsible for the overall worrisome state of the business today. What is more important to understand is that all of us pay the consequences when something goes wrong. Whether shipper, carrier, or regulator, it is in our collective best interests to determine what collaborative and innovative steps must be taken to guarantee a marketplace that benefits from a diversity of carriers."

Specifically, shipping lines can improve relationships with shippers through assurances of solvency, he said. Also important is "to install safeguards to give shippers comfort that if there is ever another bankruptcy, things will be handled much more smoothly, particularly in the context of an alliance relationship." At the same time, "shippers need to realize the obligation they have to accept conditions that allow carriers to exist to move cargo," he said. "Rates are not only unhealthy, they are unrealistic and unsustainable. Shipping lines are businesses and they are supposed to at least break even, if not make a profit. Simply put, rates are going to have to rise at some point. While the Commission is always vigilant against anything that might be considered anticompetitive behavior, it is important for shippers to recognize that not every rate hike is a case of gouging or carriers engaging in price fixing."

The FMC chairman also made a plea for international trade in general. "To each of us, the benefits of free, open international commerce are apparent; but to the general public, the gains of trade might be more intangible and difficult to recognize than we would like," Cordero said. "For those who feel they are casualties of the economy, it is not surprising that global trade serves as the target for their blame. This narrative of victimization at the hands of global commerce is perhaps understandable, but is certainly incorrect. This can be corrected by striving to level the playing field in order to assure that trade is a positive endeavor to both business and the citizens of the economies engaging in global commerce." Also important is to acknowledge the difficulty of asking "an out of work factory worker in the heartland of the United States to concede trade creates good jobs if the truck driver hauling a container from a terminal to a distribution center cannot make enough money to support his or her family," Cordero said. "If trade is perceived by the average citizen to be an exploitative system, we are handing over fuel and matches to those who seek to indict international commerce as the cause for economic woes."