AAPA Marine Terminal Management Training Program .

AAPA Marine Terminal Management TrainingProgramJacksonville, FLOctober 27, 2010Federal Regulation of the Liner Shipping Industry:Selected Topicso U.S. Shipping Act: Background and Recent Developmentso Intermodal Chassis: Safety Regulation, Pools, and Perhaps aChanging Operating ParadigmPresented byJeffrey F. LawrenceChairman, Maritime and Logistics GroupCozen O’ConnorWashington, DC

Agenda Part One: U.S. Shipping Act Background on Regulatory SystemRecent Proposals for ChangeInternational Status of Liner Agreement RegulationSome Thoughts on Implications for Carriers andPortsPart Two: Chassis Role of OCEMAFMCSA Regulatory Requirements of ChassisThe CCM Chassis Pool SystemPossible Changes to Chassis Operating Paradigm2

Part One: U.S. Shipping ActRegulation and Policy: Impact onPorts and Carriers3

Brief History of the U.S. Shipping Act U.S. was the first country to adopt antitrust laws when it enactedthe Sherman Antitrust Act in 1890.Limited antitrust immunity and regulation for the liner shippingindustry has its U.S. origins in the Shipping Act, 1916 1916 Act acknowledged benefits of ―conferences,‖ then in useworldwide, to ameliorate destabilizing and destructive economicforces inherent in the industry Also broadly exempted other cooperative agreements (MTOs) Congress recognized antitrust regulation did not work for linerindustry Need for service stability and investment to ensure adequateservice and competitive alternativesFurther revisions with the enactment of the Shipping Act of 1984and Ocean Shipping Reform Act of 1998 (―OSRA‖) OSRA retained immunity for all types of carrier and marineterminal agreements and strengthened regulatory oversight ofthe U.S. Federal Maritime Commission. OSRA gained broad support from carriers, shippers, ports,MTOs, and maritime labor who all participated in legislativeprocess.4

Current Shipping Act/FMC Regulation ofMarine Terminal Operators Agreements between or among one or more MTOs and one ormore ocean common carriers must be filed with FMC if theyauthorize parties to:(i) discuss, fix or regulate rates or other conditions ofservice;(ii) engage in exclusive, preferential or cooperativeworking arrangements in foreign commerce of U.S. Agreements for lease of terminal facility or provision of terminalservices generally exempt from agreement filing requirement. Antitrust laws do not apply to activities under filed agreementsand certain agreements exempt from filing. MTOs may, but are not required, to publish schedule of rates,regulations and practices. Published schedules are enforceable ascontracts.5

MTO Prohibited Acts MTOs may not agree with another MTO orcarrier to boycott or discriminate inprovision of terminal servicesUnlawful to give undue or unreasonablepreferences or unreasonably prejudiceany person (not all preferences areprohibited—only ―undue or unreasonable‖ones)Unlawful to refuse to deal or negotiateMore limited prohibitions than for carriers6

Current Shipping Act/FMC Regulation ofOcean Common Carriers Most agreements between carriers dealing with rates,sharing of vessels or chartering of space must be filedwith FMC (rate agreements, vessel sharing agreements,space charters, equipment pools). U.S. Antitrust laws do not apply to activity covered byfiled agreement. A variety of prohibited acts to protect against unfair orcertain anticompetitive impacts Carriers must publish tariffs setting forth rates, charges,rules and conditions of service applicable to shippers. Carriers can deviate from tariffs in service contracts, butmust file service contracts with FMC.7

Recent Bill Introduced to Modify Shipping Act Sept. 2010: Bill (HR 6167) introduced by HouseTransportation Committee Chairman Oberstar (D-MN).Proposes radical changes to current regulatory system.Background to Bill: problems experienced in early 2010 asthe trading economy in the U.S. trades emerged from therecession. Certain shippers or shipper groups complainedof: lack of vessel capacity container equipment unavailability (especially Midwestand PNW exports) service contract issuesSome proponents of the bill have generally opposedantitrust immunity for carriers and others. Sought to tiepost recession adjustment problems to Shipping Actimmunity system.No committee hearings or vote on Bill in House; No similarBill in Senate. Two sponsors.Status/prospects in next Congress (post election) unclear8

How the Oberstar Bill Would ChangeRegulation of Ocean Common Carriers Conferences and discussion agreements (e.g.TSA, WTSA) would be outlawed.Joint services (two or more carriers forming acarrier that holds itself out in its own name)would be outlawed.Any carrier agreement that results in a reduction,stabilization, or limitation in any manner on thesize or number of vessels or available spaceoffered to shippers in any trade would beprohibited.Changes proposed in this bill would effectivelyplace a legal cloud—or ban outright—manyVSAs/space charter agreements.9

How the Oberstar Bill Would ChangeRegulation of Ocean Common Carriers (cont’d) Agreements would require affirmative FMC approval atend of 90-day review period. Result: Delay in service initiatives for VSAs andother operating agreements. Only agreements that are ―efficiency‖ and ―serviceenhancing‖ can be approved.Onerous new prohibited acts: Unlawful to impose an unreasonable surcharge Violation of a service contract would be a violationof the Act Unlawful to refuse cargo space when availableBurdensome new reporting requirements (e.g., allrolled or delayed cargo)10

Some Potential Implications of the OberstarBill for Ports/MTOs—Food for Thought Bill preserves antitrust immunity for MTOs, but wouldport/MTO immunity survive the legislative process orvery long thereafter? (i.e., is it sustainable?)Ability of carriers to continue current approach to serviceput in question--impact of loss of voluntary discussion agreementson ability of carriers to earn minimally acceptable returnson investment?--most carriers lack financial wherewithal to maintaincurrent level of service without VSAs, and cargo volumeswould not support individual service by every carrier--would proposed regulatory environment jeopardizeongoing capital investment in ships and equipment tomeet future demand?Would new regulatory system result in new round ofcarrier consolidation, downward cost pressure, and/orfewer service options?11

Top 20 Carriers by TEU Source: AXSLiner Jan.08525369373176142 138 140 122117 81 82 109 92120 109 82 85 47109 8212

Return on Investment:Shipping vs. Other IndustriesLiner Return on Capital Employed vs Other Footwear11.0%9.0%Home Furn.8.0%7.0%5.0%4.0%Retail Store6.0%4.0%2.3%-1.0%199920002001-1.0%2002 20032004-6.0%20052006Specialty Retail1.5%2007Liner Shipping2008-6.5%-11.0%Year13

Containerized Trade Growth HasOutpaced GDP98 0787- 07World Real GDP4.2%3.8%World Trade6.6%6.9%World Containerized Trade10.8% 10.1%World Trade/Real GDP1.5x1.8xContainerized Trade/Real GDP2.7x2.8x14

International Status of AntitrustImmunity for Carrier AgreementsoooooCarrier Agreements are permitted by thevast majority of key trading nations.Increasing numbers of countries haveadopted competition laws in recent yearsSome countries do not have antitrust lawsor do not enforce them.China, Singapore, U.S., Japan, Canada,South Korea, Taiwan, Australia all permitsuch agreements under their competitionlaws.Most of these countries reviewed theirpolicies in last 10-12 years.15

International Status of AntitrustImmunity (cont’d)EU has taken a different approachooBlock exemption permits VSAs, butwith limited immunity (30% cap)Bans conference/discussionagreementsEU ―experiment‖ being watched but notfollowed thus far by other countriesEU Competition Directorate has takenapproach of seeking to generallyeliminate exemptions for all industries16

Source: FMC17

The Public Policy Challenge for InternationalRegulation of Liner ShippingEach new linehaul string costs 1 billion to 1.3billion (7-10 vessels). Four year lead time to order/deliver vessel. Uncertain demand and trade patterns. Going forward, what happens if carriers investless? No real alternative for most cargoes if containercapacity is not available (total market loss).Bottom line:Each country and its port industry will need toweigh cost/benefits to their economies of generalapplication of antitrust regulation vs ―regulatedcooperation‖ for liner shipping industry. 18

Part Two: Intermodal ChassisRegulation, Pools, and Perhaps aChanging Operating Paradigm19

OCEMAOcean Carrier Equipment Management Association Inc. 20 leading international containershipcarriers are membersOver 50% of ―international‖ chassis fleetor in excess of 400,000 unitsLead ocean carrier organization on U.S.inland/equipment issues (efficiency,safety, roadability, operational matters)Formed nationwide CCM chassis poolsystem (2003 – Present)Agreement filed with the FMC (FMCAgreement No. 202-011284)20

SAFETEA-LU August 2005 Historic compromise on federal chassis roadabilityregulatory approach Decade long dispute between equipment providers andtrucking community in over 20 states and U.S. CongressGrew out of IANA’s ―Shared Responsibility‖ working groupNegotiated by AAR, ATA, and OCEMABroad consensus on overall approachNegotiating principles Bring intermodal chassis and trailing equipment intoFMCSA regulatory frameworkRecognize that intermodal chassis are uniqueAll intermodal stakeholders share responsibility for safetyrelated processes and operationsMotor carrier obligated to inspect and report defectsProviders obligated to register and have systematicmaintenance21

FMCSA Roadability Regulations FMCSA published Final Rule:December 17, 2008 implementingSAFETEA-LUEffective Date: June 17, 2009Compliance Date: December 17,2009Compliance Date (Chassis Marking):December 17, 201022

FMCSA Regulatory Requirements forIEPS Registration with FMCSA by IntermodalEquipment Providers (IEPs) Match chassis to IEP (marking) IEP is either interchange party with motor carrier ora party that has accepted responsibility for themaintenance and repair of chassisCould be owner, lessee, M&R vendor, poolFMCSA accepted electronic registry in lieu ofstenciling (GIER)Systematic inspection, maintenance and repairRecordkeeping requirements23

FMCSA Regulatory Requirements forIEPS—Terminal Activities Have a process to receive driver pre-tripdamage reports and track repairsRepair or replace equipment with noteddefects prior to departure from terminalProcess to receive post-trip Driver VehicleInspection Reports (DVIR) FMCSA accepted e-filing of DVIRs by driverFMCSA accepted elimination of no-defectDVIRs (pending NPRM)24

Growth of Co-op Chassis Pools In U.S.-Consolidated Chassis Management (CCM) CCM is a subsidiary of OCEMAIt is comprised of CCM and six subsidiary regionalco-op pools operating in 29 port and metropolitanarea transportation hubs Denver Consolidated Chassis PoolMid-South Consolidated Chassis PoolSouth Atlantic Consolidated Chassis PoolMidwest Consolidated Chassis PoolGulf Consolidated Chassis PoolChicago-Ohio Valley Consolidated Chassis PoolOver 130,000 chassis under co-op poolmanagementSupport from all stakeholders: carriers, railroads,ports, truckers, shippers25

DCCPMWCPCOCPMCCPSACPGCCP- Primary Pool Office- CCM Staff Location26

Co-op Pool Basics Chassis contributed by Lines (users)Interchange by Line with truckerM&R controlled by pool (commonstandard)Shared costs for M&R, repositioning,etcReduces fleet size, repo cost, andenvironmental impactMajor benefits to terminals (congestion,gate activity, space, velocity, flips)27

Current Chassis Paradigm In place for the last 50 yearsOcean carriers own or lease chassisTrucker hired by ocean carrier or shipperOcean carrier interchanges chassis totrucker (UIIA) for particular movesTrucker delivers or picks up empty, ordelivers or picks up loaded,container/chassis setup and movesbetween port/rail terminal and shipperfacility (DC, factory).Different chassis used by a trucker fordifferent moves in same day28