Ocean container shipping’s unfavorable supply/ demand ratio, the continuing need to “go big or go home” and ever-declining freight rates are making the industry ripe for consolidation.
China Shipping and COSCO have already filed their merger plans with the Federal Maritime Commission (FMC). CMA-CGM is now in exclusive talks with NOL/APL regarding a buyout. It was recently rumored that Hanjin and Hyundai were headed for a merger before South Korean officials announced their belief that reducing the country’s ocean carriers would have a negative impact on their export competitiveness. Even Maersk, once in discussions with NOL/APL, has indicated consolidation is in the wind. Soren Toft, Chief Operating Officer, Maersk Line, was recently quoted as saying, “This industry is in need of consolidation. To the extent that if it makes sense for us to participate, then we will do so.”
The impact of consolidations on cargo owners is still being debated. Some say a reduction in the number of ocean carriers will lead to stability and lower freight rates while others surmise it will lead to higher freight rates and decreased service offerings. The last round of mergers and acquisitions, about 20 years ago, taught us that all of the above are true. Give it time, and every single one of those effects, positive and negative, will happen.
At the behest of several industry groups, the Federal Maritime Commission (FMC) is taking a more active roll in reviewing chassis inspection procedures as well as per diem and demurrage fees assessed during the negotiation-related work slowdowns. Initially, the FMC requested the ocean carriers provide information for analysis, however, the information has not been forthcoming. Now, the FMC is looking into issuing an order to demand the information.
The American Trucking Associations (ATA) and the Institute of International Container Lessors (IICL) have sent letters to the Federal Maritime Commission (FMC) seeking their intervention to end mandatory chassis inspections at marine terminals.
As part of the last round of labor negotiations on both coasts, the management groups (PMA and USMX) granted the unions (ILWU and ILA) jursidiction over chassis inspection and maintenance. However, the ATA and IICL contend neither the union nor the management groups have the legal right to inspect or maintain this equipment. The ATA and IICL argue that since neither the union nor management groups owns chassis and since the actual equipment owners are not party to the contract, the chassis inspection program is illegal under federal law. Furthermore, they assert the inspections are redundant and are creating increased truck turn times and added congestion.
On the other side of the fence, the unions are digging in their heels. The ILA, who announced they will begin negotiating a new contract a full three years early, has said they have no intention of budging on this subject. The ILWU does not plan to give in either. In fact, they assert the ocean carriers divested themselves of chassis specifically to erode union jurisdiction.
Under pressure from agricultural exporters, the trucking industry and many other affected groups, the Federal Maritime Commission (FMC) undertook a study on the demurrage, per diem and chassis charges assessed during the West Coast ports slowdown. The full report can be read here. While the Commission stopped short of mandating adjustments to the per diem and demurrage policies, they did propose changes to lessen their impact. The FMC recommended ocean carriers could reduce or waive the charges, marine terminals could employ technology to improve truck turn times and port authorities could add mandates or incentives to improve terminal productivity.