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Labor - AFL-CIO: [Ocean Shipping Reform Act] [loose]
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28
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2
June 25, 1997
MEMORANDUM TO FRANKLIN RAINES
BRUCE REED
GENE SPERLING
JOHN HILLEY
FROM:
Craig T. Smith
RE:
S. 414 "OCEAN SHIPPING REFORM ACT OF 1997"
I recently met with Brian Williams, the President of the International Longshoremen's and
Warehousemen's Union. They are headquartered in California and represent dockworkers on the
West Coast.
They have concerns about S. 414, the Ocean Shipping Reform Act. Specifically, provisions dealing
with "essential terms of contracts", which is a term of art within the industry. They have asked that
the President consider a veto of this bill without changes in those provisions.
Attached is documentation of their position.
If you have additional questions on this topic, you can contact:
Brian Williams
President
415/775-0533
Lindsay McLaughlin
Washington Rep
202/463-6265
Could you please let me know what, if any, position we will be taking on this legislation?
TALKING POINTS - S.414, "OCEAN SHIPPING REFORM ACT OF 1997"
The Shipping Act of 1984 is regarded by many as an act of rational lawmaking. The law
preserved a viable conference system; but, included provisions to stimulate competitive forces
such as independent action and service contracts. The Act is consistent with maritime policy
worldwide, which is crucial for healthy trading relationships with our trading partners. Today,
service for shippers has improved tremendously since enactment of the Act, and contract rates
and very low - too low. To some extent, rationalization of ports and consolidation in the industry
has occurred under this partial deregulatory regime.
Instead of "incremental reforms" which Chairman Kay Bailey Hutchinson said she wanted
at the March 20th hearing, Congress has embarked on radical deregulatory measures embodied in
S.414 which could permanently damage the industry. And the bill gets worse every day.
There are a number of changes which must be made to return to the delicate compromise
which was envisioned by Chairman Hutchinson:
1.
FOREIGN
PORT
RANGES
must
be
transparent.
Ports,
small
shippers,
and
labor must be able to track cargo to and from the United States in order to compete and adapt to
trends in the industry. The Committee made "foreign port ranges" confidential days before the
mark-up without deliberating on this issue.
2.
NVOCCs do not deserve and should not receive special status in this bill. Allowing
NVOCCs to enter into service contracts will destabilize the industry and reduce wages for
longshore and port-related workers. These "outfits" hire temporary workers to stuff and unstuff
containers and steal jobs traditionally performed by longshore workers on the docks. NVOCCs
drive shipping rates down to a level which makes it virtually impossible to survive as a carrier.
Congress should not encourage the NVOCC parasitic industry to suck the life out of ports, carriers,
and United States Labor.
3. VOLUME of commodities should not be a confidential term. This radical change was
made after the mark-up and basically leaves useless transparent items left for public inspection.
now not hable- changed. wants a neto
4.
ESSENTIAL TERMS OF CONTRACTS should be made available to
longshore unions by request. The Unions need the information to adequately enforce the contract.
Jurisdictional disputes arise daily and historically it has been the production of documents such as
FMC tariffs which have resolved these disputes. These secretive contracts will lead to labor strife
unless the longshore unions have access to the contracts. The current bill will not allow for timely
(daily) inspection of contract terms which would be essential for contract enforcement.
TESTIMONY OF
JAMES SANTANA, BENEFITS SPECIALIST
INTERNATIONAL LONGSHOREMEN'S AND
WAREHOUSEMEN'S UNION
MARCH 20, 1997
HEARING ON S.414
THE OCEAN SHIPPING REFORM ACT OF 1997
BEFORE THE SUBCOMMITTEE ON
SURFACE TRANSPORTATION AND MERCHANT MARINE
OF THE
SENATE COMMERCE, SCIENCE AND TRANSPORTATION
COMMITTEE
opeiu 29
-2-
3. Require that the trampers operating in the Alaskan waters be required to file tariffs and the
essential terms of their contracts. In 1993, the ILWU worked with Senator Stevens and the
entire Alaska delegation on a law commonly referred to as the "Alaskan Exception." This law
requires that the vessels in the fishing trade utilize American longshore workers for vessel to
vessel transfer of fish products, or vessel to dock transfers provided that a qualified American
workforce is available. Most of the vessels operating in this trade are Japanese or Korean-
owned, and had previously used a combination of existing crewmembers (mostly of Filipino
origin), and U.S. workers. The language barrier resulted in unsafe working conditions and
denied job opportunities to capable Alaskan longshoremen. The "Alaska Exception" has for
the most part worked beautifully. Longshore work hours in the state of Alaska have tripled and
work is currently being provided for Alaskans living in remote communities along the Aleutian
chain. However, a few parties are using subterfuge to deny work to Americans by claiming
particular shippers are in control of cargo when in fact that is probably not the case. The
essential terms of contracts filed at the FMC would be helpful in our efforts to enforce both the
law and provide more work opportunities to Alaskan workers.
4. Again, we concur with the TTD statement in urging you to retain a strong, independent Federal
Maritime Commission. In addition to the reasons already outlined, we would be concerned
that maritime labor assessment agreements would not receive favorable treatment by an entity
which is not familiar with these agreements that provide fringe benefits to the longshore
workforce.
Finally, I would caution you that the enactment of S.414 could in fact lead to an anti-competitive
shipping regime. Consider the comments carefully of President and CEO of Sealand Service John
Clancey at a meeting of security analysts in New York as reported by the September 1995 edition
of World Wide Shipping. Citing deregulation as a controlling factor, Clancey painted a picture of a
maritime environment where a few super consortia would control 85 - 90% of the world's
containerships. According to the article, Clancey predicted the demise of the niche carrier, the
feeder line and the north-south lines with no other links in the shipping chain. Madame Chair, that
scenario would be a disaster for jobs, ports, and small shippers and other important interests in
international commerce.
It has been an-honor for me to appear before this Committee. I would be pleased to answer any
questions you may have at this point.
Stipf
TRANSPORTATION
TRADES
TTD
DEPARTMENT
AFL-CIO
STATEMENT OF
EDWARD WYTKIND, EXECUTIVE DIRECTOR
TRANSPORTATION TRADES DEPARTMENT, AFL-CIO
BEFORE THE
SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE
OF THE
SENATE COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE
S. 414, THE OCEAN SHIPPING REFORM ACT of 1997
March 20, 1997
Madame Chair, Members of the Committee, my name is Edward Wytkind. I am executive
director of the Transportation Trades Department, AFL-CIO (TTD), whose 29 affiliated unions
represent millions of workers in the transportation industry¹. In addition to representing the views
of TTD affiliates affected by ocean shipping reform, including the International Longshoremen's and
Warehouseman's Union (ILWU) and the International Brotherhood of Teamsters (IBT), I am pleased
to appear on behalf of the International Longshoremen's Association (ILA) who are working with
our organization to analyze and respond to S. 414, the Ocean Shipping Reform Act of 1997. I am
accompanied today by James Santana, Benefits Specialist with the ILWU, and Herzl Eisenstadt, an
attorney representing the ILA who will be able to assist me in answering any questions you may have
at the conclusion of my testimony.
Let me first commend you, Madame Chair, and the Members of the Committee for
conducting this debate in an open manner where all interested parties have an opportunity to be heard
and consulted. In particular, I want to mention the fair and open process being managed by the
majority and minority staff as they advance a bipartisan effort to reform ocean shipping law without
ignoring the concerns of all affected parties. Transportation labor welcomes and appreciates this
atmosphere of fairness and consultation.
With that said, I must state at the outset that after careful review, we believe that the
Committee bill will have a dramatic and negative effect on the workers we represent and therefore
stand in opposition to S. 414 as currently drafted.
'A list of TTD affiliates is attached.
400 N. Capitol Street, NW Suite 861
Ron Cares. President
Washington, DC 20001
Souny Hall. Secretary-Treasurer
phone 202.628.9262 fax 202.628.0391
Edward Wytkind. Executive Director
When the Shipping Act was amended in 1984, no single interest got everything it wanted.
The final bill was a compromise that partially deregulated the ocean shipping industry, stimulated
competition but preserved a level of stability. This produced a system that we believe has provided
years of stability for workers and their communities affected by and dependent on an industry that
is vitally important to our nation's economic security. Carriers, ports, shippers and workers operate
in an open environment that has produced competitive rates and high levels of service. This in turn
has promoted significant, long-term public and private investments in facilities, including ports, that
promote greater international trade. A system that has served this country so well should not be
simply discarded in the name of complete deregulation.
The Negative Consequences of Deregulation
I know many in this room believe that wholesale deregulation can only yield positive results
and should be expanded to the ocean shipping industry. But those of us who represent transportation
workers have witnessed first-hand the long-term effects of deregulation in other modes of
transportation and know that the realities have not lived up to the promises. Across the board,
deregulation of transportation has claimed more than 600,000 jobs since this policy experiment was
launched in 1978 in the aviation sector.
Since 1980, trucking deregulation has caused a record number of bankruptcies and the
destruction of some 200,000 jobs. A recent study concluded that truck drivers' real wages
plummeted 27 percent during this period. The so-called "driver shortage" we hear about from
trucking industry executives exists because trucking deregulation has replaced quality jobs with jobs
paying lower wages and offering few or no benefits. The only shortage that exists is a shortage of
decent trucking jobs.
When the airlines were deregulated in 1978 several major air carriers, including pioneers Pan
Am and Eastern, went broke, reorganized, or were sold off in pieces. The result tens of thousands
of workers saw their jobs disappear as many air carriers were incapable of surviving in the unstable,
often insane, operating environment inspired by deregulation. To this day, workers, travelers, and
many Members of Congress regret this almost 20-year old decision to deregulate the airlines.
The same story goes for the rail industry as deregulation, also in 1980, led to record numbers
of line sales, mergers, acquisitions and abandonments. For employees this restructuring claimed
some 300,000 good jobs and the hemorrhage continues as we see the latest wave of mega-rail
mergers in the East. The trend toward bigger and fewer railroads promises to leave the country with
four or fewer major railroads and, of course, a few more thousand lost jobs during the shake-out.
Deregulation changes the relationship between employers, employees and customers as
companies become single-minded about cutting costs and increasing profits. Employee wages
become easy targets, inasmuch as other costs, such as fuel and equipment purchases, are difficult for
them to control. Only those communities and populations in the most concentrated areas, where the
carriers' hubs are located or which are tied into them, can rely on receiving transportation services
that are the cement that binds businesses and consumers as well as travelers all across our country.
2
Senator Bryon Dorgan, a Member of this Subcommittee, understands this problems well as
air service in his home state of North Dakota has suffered as a direct result of deregulation. The facts
are indisputable: deregulation has resulted in destroying competition, unfair and discriminatory
pricing, deterioration of safety standards, reduced investments, job loss, and, as we are acutely aware,
erosion of labor-management relations. I urge this Committee and the entire Congress to truly
understand the impact of deregulation before a decision is made to expand this ill-advised concept
to yet another mode of transportation - ocean shipping and our ports.
Confidential Contracts
While S. 414 makes strides to address some of the problems associated with total ocean
shipping deregulation, as some have advocated, the main concerns surrounding confidential contracts
remain and cannot be ignored. Section 8(c)(3) specifically permits a shipper or a group of shippers
to enter into completely confidential contracts with a common carrier. This means that a collection
of interests, which can include any number of multinational shippers and a common carrier of any
size, will be able to operate in a totally secretive environment.
Contracts would not have to be submitted to the Federal Maritime Commission (FMC) and
there would be no requirement that the essential terms of an agreement be released to other shippers,
carriers, unions or the general public. While the essential terms of agreement contracts (those
involving carrier conferences) would have to be disclosed under Section 8(c)(2) in tariff format
carriers can simply use individual contracts to keep terms confidential. This preferential treatment
for individual contracts will be especially helpful for the larger carriers who have less need to engage
in conferences and will empower Fortune 100 shippers to exact favorable rates largely unattainable
to smaller shippers.
Effects on Ports and their Workers
The effect this bill will have on the ocean transport industry is predictably more far reaching
than may appear at first glance. Ports will be denied critical information on routing decisions and
terminal selections as contracts signed between a single carrier and mega-shippers will remain
confidential. In addition, the downward spiral in ocean shipping rates that this bill would produce
will force carriers to cut port calls to an unprecedented degree. Workers will suffer as this downward
pressure on costs will transfer to the ports and the wages and benefits paid to its employees.
Small- and medium-sized ports are the ones most at risk under this legislation, as are the
communities that depend on the economic activity and jobs they support. Indeed, the ocean shipping
industry is rapidly changing and in many respects in a period of consolidation. During such a
turbulent period, Congress should tread ever more carefully before it radically amends the Shipping
Act in a way that will actually speed-up port closures and compound the job loss and the economic
harm that communities will face. While this bill does not specifically allow exclusive port deals,
it does create an economic framework that will allow larger ports to use their market power to lure
carriers for more frequents visits. This will inevitably squeeze out smaller ports and many of them
3
will not be able to survive in this new environment. Our nation has invested billions of dollars in
public ports from the Eastern Shore, to Louisiana and up and down the West Coast. It simply does
not make any sense to pass legislation that will jeopardize this investment and threaten strong ocean
shipping commerce and the thousands of jobs it supports.
Protecting Against "Double-Breasting"
Not only will confidentiality result in the direct loss of jobs, it will also make it more difficult
for longshoremen to enforce collectively bargained contracts with their employers. In contracts
governing the movement of cargo the longshoremen and ocean carriers routinely agree to
jurisdictional and scope provisions that establish the type of work that is to be performed. It is
critical, for example, for workers to know who controls the cargo to determine if certain unloading
and disbursement activities is work that is covered by the collectively bargained agreement. Another
problem that arises is that carriers routinely attempt to repair and maintain cargo containers with
non-union workers - sometimes in violation of the labor contract. If the essential terms of service
contracts are kept confidential, workers will find it difficult if not impossible to know if their work
is being improperly out-sourced and thus jeopardizing effective enforcement of the contract.
Employers will essentially be able to use this new secretive environment to get around their
obligations under the contract and transfer work to low-cost, non-union workers.
In construction and elsewhere in the transportation industry, this phenomenon, which is
known as "double-breasting", is designed to set up a system whereby employers are able to divert
business to lower wage, typically non-union operations. In the trucking sector, this approach has
been utilized by carriers to transfer business and the jobs they support to non-union operations
handling the same movements but under a separate corporate veil. In the rail industry, double-
breasting took a different form but yielded the same results. They're called short-lines, which exist
because rail carriers "sell-off" portions of their system to new, "non-railroad" companies who in turn
service the same route, haul the same freight, but utilize fewer workers earning low wages and few
benefits, and ignore their union contract obligations.
In all these instances, the motivation is the same: to seek the lowest common denominator
in wages and benefits, to slash jobs and, in most instances, to walk away from collective bargaining
commitments. Unfortunately, the result for workers is predictable: stable, decent paying jobs are
replaced by low wage employees who have no real security or stability.
None of us can absolutely predict the future. But, as we also know, experience is often a very
good guide. I can therefore say from the almost 20 years of experience in the deregulated sectors of
the transportation industry, employers are under ever-increasing pressure to cut costs. We are
extremely fearful that some employers in the ocean shipping industry will use a system of
confidentiality to circumvent labor contracts in order to cut wages and eliminate jobs. While we are
confident that this was not the intent of you, Madame Chair, or this Committee, it is incumbent upon
the Committee to carefully evaluate these concerns before you move ahead with ocean shipping
reform legislation.
4
An Independent Federal Maritime Commission
Contributing to, if not actually compounding, the problems created by confidential contracts
is the prospect that the FMC may be merged with the Surface Transportation Board (STB) to create
the Intermodal Transportation Board (ITB). Transportation labor, as well as the entire ocean
shipping industry, has been served well by an independent, free-standing agency to regulate ocean
commerce. The FMC has protected U.S. carriers and ocean freight customers from any unfair or
anti-competitive conduct by carriers or shippers and has properly exercised its jurisdiction over
labor-management assessment agreements covering pension and welfare benefits.
While the agency merger proposal embodied in S. 414 creates fewer problems than turning
over the functions of the FMC to the Department of Transportation, as was the case under last year's
House bill, there are still significant problems with the concept of an having one agency that will
oversea both the ocean shipping and rail industries.
The newly created ITB will consist of five members, only two of whom will be required to
have "professional standing in the fields of maritime transportation..." or "professional or business
experience in the maritime transportation private sector We are concerned that the expertise and
experience of an agency solely dedicated to ocean shipping will be lost. In addition, maritime
interests can be jeopardized when conflicts between rail and components of ocean commerce come
before the ITB. We are also concerned that a combined agency may create strategic alliances that
could be detrimental to other transportation modes, such as motor carrier operations. For these
reasons the FMC, as an independent, free-standing agency, should be maintained to allow the ocean
shipping industry to benefit from an agency that understands ocean shipping commerce and is
dedicated to serving employees, shippers, carriers and the public interest.
Cargo Diversion
One area that was not addressed in S.414 was the problem of carriers and shippers using ports
in Canada and Mexico to deliver cargo that is destined for or originates in the United States. While
there are a number of factors that contribute to cargo diversion that are outside the jurisdiction and
control of this Committee, transportation labor is disappointed that this problem in some limited way
was not addressed.
Under current law, shippers have an incentive to ship goods through Canadian or Mexican
ports for cargo that originates in or is bound for the U.S. In Austasia Container Express V. FMC, 580
F.2d 642 (D.C. Çir. 1978), the District of Columbia Court of Appeals held that the FMC does not
have jurisdiction over shipments that only go through foreign ports even though the U.S. is the final
destination or the origin of the cargo. This interpretation of the law means that: (1) Shipments that
go through Canada or Mexico are not subject to the same regulations, such as tariff filings, as
shipments that utilize U.S. ports; and (2) Carriers are not allowed to enter into agreements on
transportation rates and to charge those rates for shipments that go through Canada or Mexico even
though the U.S. is the place of origin or final destination.
5
The effect of this Court-made loophole, which was not corrected in the 1984 Shipping Act
amendments, is that shippers have a legal incentive to bypass U.S. ports. This incentive is in
addition to the other economic factors such as the availability of low-wage workers in Mexico that
will encourage shippers to use non-U.S. ports. Mexico is attempting to expand its port operations
and with the motor carrier provisions of NAFTA scheduled to be fully implemented by 2000, the
opportunities for cargo diversion will become enhanced.
Allowing U.S. law to essentially encourage shippers to use foreign ports is fundamentally
bad transportation policy which can be addressed, at least in part, by expanding the jurisdiction of
the FMC to cover cargo that is shipped to or from the United States even if it goes through a
Canadian or Mexican port. Shippers would still be able to use whatever port they desire and no
penalty would be imposed on their decision; however, we should at least level the playing field
between U.S. ports and their Canadian and Mexican competitors, insofar as U.S. shipping law is
concerned.
Non Vessel Operating Common Carriers (NVOCCs) Exemption
Transportation labor is pleased that S.414 does not exempt NVOCCs from tariff filing and
other requirements imposed on carriers. Many of these entities are controlled by or closely aligned
with carriers and are becoming a major part of the movement of cargo. It makes little sense to
exempt them from filing requirements that other carriers must adhere to or the negative effects of
deregulation will only be accelerated and exacerbated.
Final Thoughts
Let me conclude by saying that if ocean shipping reform results in ports cutting operations
or constantly squeezing costs to maintain business, the effect on working men and women will be
devastating. Thousands of longshore, warehouse and transportation employees will see their jobs
threatened, their wages slashed and their futures made uncertain all in the name of deregulation.
Simply put, deregulation across the entire transportation industry has proved destructive for working
people. Almost universally, deregulation measures have destroyed jobs and slashed employee
benefits, wiped out hundreds of transportation companies, and eliminated service to hundreds of
communities.
Madame Chair, I want to thank you again for holding this hearing and for soliciting the views
of transportation labor. The consultation process you have insisted on is open and has permitted us
to voice our concerns about this important legislation. As I have discussed, workers are very
concerned about this legislation and the impact it will have on their ability to continue to make a
decent living. Knowing what we know about this legislation, and learning from the painful
experience of transportation deregulation over the past two decades, it is difficult to conclude that
it will be different this time.
We look forward to working with you and the Committee Members as you continue to
review options for reforming our ocean shipping law. Thank you.
6
TTD AFFILIATES
The following labor organizations are members of and represented by the TTD:
Air Line Pilots Association
Amalgamated Transit Union
American Federation of State. County and Municipal Employees
American Federation of Teachers
Association of Flight Attendants
American Train Dispatchers Department
Brotherhood of Locomotive Engineers
Brotherhood of Maintenance of Way Employes
Brotherhood of Railroad Signalmen
Communications Workers of America
Hotel Employees and Restaurant Employees Union
International Association of Fire Fighters
International Association of Machinists and Aerospace Workers
International Brotherhood of Boilermakers, Blacksmiths. Forgers and Helpers
International Brotherhood of Electrical Workers
International Brotherhood of Teamsters
International Longshoremen's and Warehousemen's Union
International Union of Operating Engineers
Marine Engineers Beneficial Association
Professional Airways Systems Specialists
Retail, Wholesale and Department Store Union
Service Employees International Union
Sheet Metal Workers International Association
Transportation
Communications International Union
Transport Workers Union of America
United Brotherhood of Carpenters and Joiners of America
United Mine Workers of America
United Steelworkers of America
United Transportation Union
January 10. 1997
SEA-LAND/
MAERSK
A few giant shipping consortia with
global reach and the freedom to function
Spain. pacity between Singapore and Algec
like contract carriers will dominate the
Our goal, he said, is "the best ser
world's sealanes before the end of the
at the lowest cost in the shortest tir
ADDS UP TO
century.
Unlike previous interline alliances
PROFITS
That's the scenario outlined by John
new liberalized environment will pe
Clancey, president and chief executive of
economies of scale and optimizatio
Sea-Land Service at 2 meeting of security
global networking.
By SUZANNE
analysis in New York recently.
Sharing of expenses is the centerr
CAUTHEN
Sr. West Cose Elisor
The conrrolling factors. he said, are
of Sca-Land's grand design for the
WWS/World Wide Shipping
moves to deregulate the U.S. shipping in-
century. John Snow. chairman of
dustry. carrier operating alliances, and
Land parent CSX Corp. talked about
sophisticated computer-driven processes
billion cost-sharing scenario, permit
that sort ic all out.
the opportunity to lower capital and D
He painted a picture of a maritime en-
sting costs, improve terminal operat
vironment where a few super-consortia
and increase use of ships and equipm
will control 85-90% of the world's con-
The Sca-Land/Macrsk partnership
tainerships, offering shippers "pendulum
be the world's largest, posing formid
services" buttressed by fail-safe cargo
competition for three other globe-girc
management systems, inland transporta-
alliances:
tion, and state-of-the-art information
American President Lines. Mitsui €
resources.
Nedlloyd, Orient Overscas Conta
The byproduct, he says, is the demise
Line
of the nichc carrier. the feeder line and the
HAPAG, Neptune Orient Lincs, N
north-souch lines with no other links in
Line. P&O Lines
the shipping chain.
Cho Yang, DSR-Senator and Ha
Shippers want pendulum services that
Consider the impact of these "su
combine cwo shorter services, for exam-
conferences" on pricing in a deregui
ple, into one long string, permitting car-
atmosphere. Under a compromise :
ricrs to share terminals and maintenance
Land and the National Industrial Tr
facilities.
League brokered with the U.S. gov
The new global partnetship>between
ment, carriers will be free to set rate:
Sea-Land and Macrsk-operational next
dependently and confidentially
spring-is a case in point. It creates 2 ship-
Federal Maritime Commission will
ping powerhouse with 175:vessels and
appear and ancitrust immunity
500,000 containers and chassis, and are
remain.
each into a dozen or so scalanes.
Though Washington insiders say
Another resource is the A.P. Moller
Sea-Land made an end run around the
shipyard at Odense, Denmark home of
of the carriers in tying the knot with
trend-setting containership designed his
NIT League,- APL and Crowley I
could come in handy as Sexeband con-
climbed onto the bandwagon, albeit re
tinues to replace its aging flect.
tantly.
This operating fusion raises the peten-
Clancey credits the "Republicanto
nial question of outright merger berween
lution" with putting deregulation
Sca-Land and Maersk.
"Tast forward" mode.
"Thas option is always available to
A more-permissive operating envir
us," said Mr. Clancey. But the alliance al-
ment will allow Sea-Land to cailor n
lows most of the same benefits and per-
shipper contracts and work more clc
mics independent marketing "We'll know
with other Intermodal units and wit
more in a couple of years.'
consolidation subsidiary, Mr. Clai
Meanwhile. "we're going to share
said. "We'll have more cards to dealis'
everything we have." offering traders 12
table.
sailings 1 week. including five between
"This is an opportunity to use DI
North America and Europe and another
(Sca-Land's yield management system
five between Europe and Asia.
bring everything together in
Combining global networks, Mr.
contract."
Clancey said, enables the team to create
The carrier has set up 2 tactical P
a hub system, much like that of the
ning center at its new Charlotte, N
airlines. For example, Sea-Land and
Carolina, headquarters. The plan 1.
Maersk control 75% of the container CR-
integrate all global systems by 1996
36
WWS/WORLD WIDE SHIPPING SEPTEMBER 1885
monitie
Ocean Shipping Reform
In deciding, after considerable thought and discussion, to oppose H.R. 2149, the
Ocean Shipping Reform Act, the American Association of Port Authorities bas taken the
position that the House bill goes too far in deregulating the ocean shipping industry. That
does not mean that ports are unwilling to accept any changes in the law but change for
change sake is not good government or good business. Ports recognize that there are forces
in support of change, and that the pressures from certain interests to "deregulate" the
industry will continue. However, given the reliance of the United States on international
trade (where export growth has come Largely from smaller companies) and the need to
protect the local public investment in port facilities, ports cannot support the drastic changes
envisioned by the House bill. While touted as an "Industry" compromise, it is still a "back
room" deal agreed to by certain large U.S. shippers and the largest U.S. flag carrier which
does not reflect the views of all interested parties. Few legislative actions have been
reviewed and criticized as much as the Shipping Act of 1984 and yet the proponents of
change are hard pressed to give specific examples of what compromises reached in 1984
have not worked.
Ports believe that the Shipping Act of 1984 was a hard fought compromise that has
generally worked. and that meets the needs of the U.S. public port community as well as
U.S. trade. Ocean shipping is an extremely competitive industry-rates are low (In some
cases, to the point that ocean carriers are barely surviving) and service options have never
been better. Unlike carriers and shippers, ports cannot move their assets which are the
product of the investment of billions of dollars of public funds. Ports are more often
whipsawed by the other players in the transportation market--a fact exacerbated by ports'
need to protect the billions of dollars in public investment and their public nature itself,
which makes all their actions open to public scrutiny.
Ocean shipping is an international industry which includes private carriers as well as
carriers owned and/or controlled by foreign governments. Normal commercial economic
principles, such as the need to cover costs, do not always apply. Other interests, such as a
country wanting to support its own merchant fleet for defense needs or pricing to ensure
access to foreign currency or foreign markets, are just as influential and belie a comparison
between deregulation of domestic U.S. transportation modes and deregulation in ocean
shipping. One initiative worthy of consideration in the future is to deal with the ocean
shipping industry as the international business it is and approach the oversight and control
of the Industry as the subject of international convention rather than national law. In the
meantime it could prove counter-productive to alter the delicate regulatory balance that was
established in 1984.
Ports believe that in the international shipping industry, which is characterized by
overcapacity, high fixed costs, and a desire to fill empty container slots at any price, there
is the potential for destructive competition, with rate wars fueled by below cost competition.
Rate wars would drive carriers out of business, to the detriment of ports and shippers alike
with the resulting consolidation of market control among a few carriers. The conference
system, which is not unique to the U.S., helps prevent this destructive behavior. In
monitoring conference activity, U.S. antitrust laws are replaced by the rules of the Shipping
Act, enforced by the Federal Maritime Commission. This activity by experts within a
regulatory agency has worked.
Carrier conferences exist throughout the world, and the failure to recognize their
existence by prohibiting them from operating in the United States would be foolhardy. The
imposition of U.S. antitrust laws would only reach to U.S. flag carriers, and their application
beyond our borders is speculative at best We are working and trading in 8 smaller world
and now more than over before we see more of a focus on the need to regulate
international commerce rather than interstate commerce.
In order to justify continued antitrust immunity, regulation must be effective to
ensure that market power cannot be abused and anticompetitive behavior is not permitted.
It is difficult to explain or justify a system that permits secret agreements between large
shippers with market leverage and ocean conferences enjoying antitrust immunity free from
oversight, regulations or even public scrutiny.
Port concerns:
An important priority is the retention of antitrust immunity for ports as well as
carriers. In order to justify immunity, there must be a regulatory regime in place to replace
the enforcement of the antitrust laws. The House bill goes too far in removing the tools of
the regulatory body, and may jeopardize the ability of ports and carriers to keep immunity
in the long term. Can anyone with experience in this area give assurances that within a few
years of the current proposal becoming law that there will not be a proposal to eliminate
all antitrust immunity?
Parts have an interest in the continued financial stability of ocean carriers (which the
conference system helps provide). We disagree that the conference system has allowed
carriors to gouge shippers-on the contrary, in our experience, ocean transportation is a
highly competitive industry and many carriers are just barely surviving
Destructive competition among carriers, which could occur under deregulation, would
have a backlash effect on ports as carriers seek to compensate for lost revenues by lowering
terminal costs. Ports will be whipsawed against each other, and a lack of transparency
would make it worse because carriers will be able to conceal their rates in some cases while
public ports are subject to FOIA requirements and everything we do is public information
Weakening the conference system will particularly hurt smaller carriers, which may
not survive--a prospect which might be viewed with favor by the proponents of the House
bill. A regional carrier will find it difficult to compete with & larger currier that has locked
in a shipper with a loyalty contract. The House bill specifically deletes the section of the
1984 Shipping Act that prohibits loyalty contracts.
2
Shipping
Act
Shippers
glimpse
Containerization & Intermodalism
Pacific's
future
protect themselves from being
outmaneuvered by their com-
É
petitors.
However, with the arrival of
A Special Report
Rate slide offers sneak
several large new container.
ships at a time when export
preview of deregulation
growth is slowing. rates began
sliding so fast that it was diffi-
BY PETER TIRSCHWELL
cult for many firms 10 keep
labs on rates.
JOURNAL OF COMMERCE STAFF
"What is a good rate this
morning will not necessarily be
SAN FRANCISCO For ex-
a good rate this afternoon. That
porters using ocean transporta-
15 how quickly some of the
tion on the Pacific, 1996 has
rates are changing, said Alan
provided a glimpse of what life
could be like if Congress dereg.
Sheps. vice president of Rob-
ulates shipping. Many, particu-
bins Fletsig Forwarding in San-
larly smaller firms, didn't like
la Monica, Calif,
what they saw.
Although the absolute cost of
On paper. nothing has
exporting declined. the rate at
changed. Congress is still pon-
which races changed made it
much more difficult for firms to
dering proposals supported by
many large shippers to end tar-
know the real rate at any given
time - and therefore what rates
iff filing and the required dis-
closure of contract terms
competitors were being charged.
through filings with the Federal
TUESDAY
Maritime Commission.
Volatile rate changes
But in reality, many export:
ers' greatest fear about deregu-
"You want to keep your
lation - that it will deny them
customer competitive, and 10
the ability to know what their
keep them competitive you
competitors are paying for
have to have the best ocean
ocean transportation - began
beight rates out there. But with
to materialize this fall when
all the deal-making going on it
rates tumbled rapidly in re-
is hard to keep up" said Thad
sponse to lower volumes and
Faree, export sales representa-
growing vessel capacity.
live for Paramount Export Co.
Freight costs make up a sig.
in Oakland, a large shipper of
nificant portion of the delivered
fruits and vegetables.
value of many commodities
Some companies that never
moving In large volume to Asia.
used traffic managers before
including hay, chemicals. scrap
are now considering hiring one,
paper, and some food products.
specifically to keep an eye on
ocean rates.
Since price competition for
those products can be fierce,
Others that left transporta.
shippers look for any possible
tion in the hands of individual
rate advantage they can get.
product managers are consider-
Most make business to
ing setting up distinct traffic
watch rates like hawks. as
departments.
with shippers.
"Il has gone from a you are
Pacific
going to pay' attitude toward
shippers to the point that carri-
ers are walking in the door with
their hat in their hands," said
Howard Wallace, Jr. president of
It is yery a time consuming
Rocky Mountain Traders. in
game we play. and I assume it is
Wilmington, Callf.. which spe-
going to gel worse," said Jeffrey
cializes in hay exports.
Streblow, who manages the hay
"People walk through my
export department for Wllbur-Fl.
door who 1 haven't seen in
Us Co., a large trading company
years, and people who I've nev-
in San Francisco,
er shipped a container with are
Indeed, many who deal with
calling." he said.
ocean carriers for export be-
lieve that Is exactly what will
He said that at a time when
happen if deregulation elimi-
it is becoming harder to pin-
nates exporters ability to tap
point rate levels, obtaining a
into the public record for de-
competitive rate will involve
tails on rates.
negotiating to the point that
"If shippers think this is diffi-
the shipper feels comfortable
with the final rate level.
cult, they haven't seen anything
yet," said Mr. Sheps, who has
Part of the reason real rates
given several speeches this year
are becoming harder to discem
arguing against deregulation.
is that carriers are increasingly
You'll never know what your
including inland point moves In
competitor's rate is, and if you
their rate offers, effectively re-
find out, It will be too late. You
ducing the rate for the shipper.
will have lost the business."
"The carrier absorbs the
Shippers said that In such an
trucking charge, so the net rate
environment, having a good re-
to the shipper is less than the
lationship with a carrier be.
tariff. I see that happening
comes more important than ev-
more and more now, whereas
er.
six months ago they (carriers)
"The shipper has to have the
wouldn't even talk about that,"
kind of relationship where he
Mr. Wallace said.
knows the carrier is telling the
Mr. Streblow of Wilbur-Ellis
truch and he knows he's getting
said that In a deregulated envi-
a competitive rate." said Ed
ronment. exporters will have to
Martin. a veteran traffic manag-
er for Connell Bros. Co. in San
muster all the volume they DOS-
Francisco, a large trading firm
sibly can in pursuit of favorable
specializing in chemicals.
rates, even if that means bring-
ing multiple commodities to
"It is going to involve a lot
the table.
of PR work, building relation-
ships, and not Just going by the
He said Wilbur-Ellis would
book," he said.
benefit from the fact that it
ships several commodities to
Carriers seem flexible
Asia, including low-value hay
and high-value chemicals. Wil-
In forging closer ties with
bur Ellis is the parent company
carriers, many shippers said
of Connell Bros,
this has been a landmark year
We would probably have to
in which competition forced
go out and do a lot more con-
traditionally unylelding ocean
tract negotiations for the bulk
carriers to be unusually flexible
of our business, .combining low
and accommodating.
revenue and high revenue car-
Carriers that would adhere
go," he said. "If you are a ship-
to the conference tariff as If It
per of just low revenue cargo,
the Bible will now do al-
you could find yourself very
Slipping Act
ROPOSED BILL TO AMEND THE SHIPPING ACT WILL HARM PORTS
The United States Congress is again about to consider changes to the
Shipping Act of 1984. The bill expected to be introduced in the Senate will include
provisions that would significantly undermine the stabilizing influence of ocean carrier
agreements on transportation rates and services. Enactment of this bill would be
detrimental to the interests of U.S. ports.
The carrier conference system reflected in the 1984 Act is accepted worldwide.
This system has long been recognized as necessary for the provision of regular
service and stable freight rates in an industry that, because of cyclical, seasonal and
directional imbalances in cargo volumes, would otherwise be subject to destructive
fluctuations in service and price.
Among other provisions, amendments to the Shipping Act have been proposed
that would prevent carrier agreements from shaning information relating to service
contracts executed by their members. Other proposed changes would create a two-
tiered regulatory system one system for agreement activities, and a different system
for agreement carriers acting individually.
These excessively deregulatory provisions would substantially reduce the
ability of carrier agreements and conferences to maintain rate and service stability. By
severely inhibiting the ability of carriers collectively to consider and act on rate and
service matters, these provisions would encourage more violent short-term rate
changes in reaction to fluctuating market conditions.
In an effort to remain solvent in a period of low rates, carriers would of necessity
require that the ports that they call provide services at lower rates. The revenues of all
ports would decrease, and those ports unable to meet cost reduction requirements
while maintaining service levels demanded by shippers and carriers would find it
difficult to remain competitive.
The liner shipping industry is already experiencing a sizeable number of
consolidations. Several factors have triggered these events, but it is clear that rate
instability driven by excessive deregulation would substantially magnify and
accelerate this trend. If this is allowed to happen, ports as well as carriers will face an
increasingly uncertain future.
Agreements consisting of large numbers of carriers that both cooperate and
compete on a non-destructive basis serve customers in different regions that demand
calls at many ports. Increased consolidation caused by the combination of difficult
market forces and precipitous changes in the law would substantially reduce the
economic incentive of remaining carriers to serve the market through such a broad
range of port calls. Service would instead be provided through increased reliance on
inland transportation and decreased reliance on a broad network of ocean ports. If the
port community wishes to avoid such an upheaval, it should oppose efforts underway
in the Congress to unnecessarily deregulate ocean carrier arrangements.