Wednesday, August 31, 2016

FMC LOOKING AT OCEAN ALLIANCE

 FMC has not been that active here, so what is really going on?

U.S. Watchdog Seeks Assurances on Planned Shipping Alliance

Federal Maritime Commission expresses concerns about whether container companies would aim to jointly negotiate prices

A Terex reachstacker unloads a CMA CGM SA shipping container from a wagon in the Med Europe terminal at the Port of Marseille in France last year. CMA CGM says it is cooperating with the U.S. The Federal Maritime Commission’s investigation. ENLARGE
A Terex reachstacker unloads a CMA CGM SA shipping container from a wagon in the Med Europe terminal at the Port of Marseille in France last year. CMA CGM says it is cooperating with the U.S. The Federal Maritime Commission’s investigation. Photo: Bloomberg News
The U.S. maritime watchdog won’t give the green light to a giant shipping alliance unless it provides guarantees of fair pricing for clients moving cargo in and out of the U.S., a senior industry executive said.
The Federal Maritime Commission delayed last week the approval of the Ocean Alliance, an alliance of a group of European and Asian container operators, that together move 39% of all cargo between Asia and North America and 35% between Asia and Europe.
“I am concerned about possible joint contract issues,” said William Doyle, an FMC FMC -0.97 % commissioner on Tuesday. “An alliance is not a merger and if they are using their combined strength to negotiate prices with shippers and other parties like tugboats, and bunkering operators, that’s a concern.”
Mr. Doyle said that Ocean Alliance members—France’s CMA CGM, China’s Cosco Group, Hong Kong’s Orient Overseas Container Line and Taipei-based Evergreen Marine 2603 6.67 % —must give assurances that they will be negotiating as individual operators, rather than as a group.
“If they get together, sharing information, then there is room for a price effect,” he said.
A spokeswoman, for CMA CGM, the group’s biggest player, said the company would cooperate with the FMC’s inquiry.  The Ocean Alliance is set to start operations next year and must also get approvals from Chinese and European regulators.
Alliances have taken on increased importance in a global-shipping industry buffeted by overcapacity, low freight rates and slowing volumes.
By entering into alliances—in which firms share everything from ships to port calls—companies significantly cut operational costs. Container ships move 95% of the world’s manufactured goods ranging from designer dresses and food to electronics, toys and furniture.
Customers say vessel-sharing agreements slow down cargo movements.
“I have not seen any sign of higher prices, but I have seen fewer ships having container space for low-value products, like ours,” said Bob Haberman, who runs Number 9 Hay LLC, based in Ellensburg, Wash. “I fear service quality will deteriorate with fewer players out there.”
Advertisement
Mr. Haberman ships around 5,000 containers of hay a year to Japan, South Korea, China and Taiwan. He said that in the past 10 days he told customers that scheduled shipments would be delayed for two weeks.
In April, the Agriculture Transportation Coalition, a Washington-based trade body, asked the U.S. Senate Commerce Committee to press the FMC for a thorough review of shipping alliances.
The alliances have already caused problems for exporters because the various members share space on giant ships, mixing cargo and making it more difficult for exporters to get their goods to the right destination than in the past when the operators used smaller ships, cargo owners in Europe, Asia and the U.S. say.
The confusion is exacerbated because shipping operators switch alliances as the industry consolidates.
“In the short term, the formation of a new alliance is disruptive for customers,” said a spokesman of Maersk Line, which has formed the 2M alliance with Geneva-based Mediterranean Shipping Co. “There will be periods with frequent changes and fluctuating reliability.”
Container operators say that by next year, the alliances will offer better service compared with individual operators. Their shared resources will give cargo owners more sailings at the best price, they have argued.
The 2M, already approved by regulators, has a 16% market share in the Asia to North America route and a 34% share for Asia to Europe. A third grouping called THE Alliance, made up of German, Japanese and Korean operators, is also awaiting regulatory approvals and will have a 39% market share for Asia to North America and 30% for Asia to Europe.
Write to Costas Paris at costas.paris@wsj.com