In reporting my column this week on the ocean carrier service contract filing rule, I reached out to Andy Abbott, CEO of Atlantic Container Line, who believes the requirement is unnecessary. He was travelling and responded to my inquiry with the following email, which spells out his position:
From ACL’s perspective, the tariff and contract filing requirement has outlived its usefulness. We would like to see it eliminated for everyone.
Today’s reality is that there is no such thing as a similarly situated shipper. There may be shippers of similar commodities but they are almost always located in different locations, shipping to different locations. So the costs of serving them (especially empty positioning, inland transport and equipment costs) are always different. As a result, we negotiate everything on a case by case basis. We rarely use tariffs because customers want confidentiality of terms, so even one-off shippers agree to 1-2 TEU contracts just to keep their rates secret.
ACL uses computers to generate rate quotes based on costs and equipment availability. 98% of ACL’s container business is contract in the USA versus less than 50% contract in Canada where there is no filing requirement – the big difference is the number of “small” contracts in the US. Our confidential Canadian rates and confidential US cross-border rates are lower than our US tariff rates - so it is fair to say that the tariff filing system actually punishes smaller American shippers rather than help them.
Customers with contracts always have additional commodities or origins/destinations than what is originally filed. If we do not get the info in time to file an amendment, the cargo has to wait a week for the next sailing – all because of what is really a technicality of today’s system. Again the filing requirement penalizes the American shipper.
Prior to the Shipping Act change that allowed contract confidentiality, carriers, intermediaries and shippers would use the FMC tariff rate and contract database for market intelligence. Carriers and forwarders would use the data to identify new business; shippers would use it to see what their competitors were paying. Today, the rate data open to the public is meaningless commercially for all parties.
If tariff and contract filing were eliminated, carriers and intermediaries would save a huge amount of money per annum in personnel costs and filing fees. For little ACL this is about $500,000 per year. We would also be able to eliminate the bureaucracy that would enable carrier and shipper to easily solve little problems before they became big ones. The end result would be happier shippers and carriers due to greater speed, flexibility and lower administrative costs .
If tariff and contract filings were eliminated, about 50% of our business would take the form of a simple contract with service and volume commitments. The remainder would be simply an agreed rate with no service or volume commitment. Since everything would be loaded into the computer, we would have a lasting record of a shipper’s agreed rates over time. This would allow us to analyze a shipper’s rate history as preparation for negotiations – and would also enable an FMC auditor to review the same information.
All of the above points are actually in effect today and apply to all USA cargo that moves cross-border via Canadian ports. We have never had a customer complaint regarding this system.
The FMC could eliminate staffing and cost required to deal with the huge amount of daily filings and reallocate time and manpower to carrier/intermediary audits and investigations of controlled carriers, conferences, consortia, etc. During their audits, the FMC could review any incidences of shipper complaints and ensure independent rate-making practices. The FMC organization becomes more focused on ensuring a level playing field, fair and legal business practices and behavior by carriers and intermediaries.
The current FMC leadership is very sharp and I know they are reviewing all these factors. We stand ready and willing to help them in any way we can.
Answers to specific questions:
1) Are filed service contracts used to you knowledge by the FMC as part of their regulatory oversight of the industry. Would it be just as effective if they could request information from carriers as needed?
I’m sure they must look at them in response to specific shipper complaints, but otherwise it’s question of data overload. We keep internal records for all of our shipments as do all carriers, so it would be very easy to provide the FMC with shipment detail and history for any shipper, forwarder or NVOCC customer they wanted. Shipment detail gives much more informative info than contract analysis.
2) You say below that the filing process damages the flexibility of American manufacturers to sell product overseas- can you elaborate?
See the comments above. To recap: (1) faster & easier pricing for the shipper, (2) more competitive non-contract rates because of confidentiality, (3) last minute cargo can be accommodated, which is not possible today, (4) less need for legal review of contract changes because less need of contracts so lower costs for the shipper
3) What is the approximate annual cost to ACL to comply with this regulation?
4) Does the fact that Europe has eliminated anti-trust immunity make it redundant for you as a trans-Atlantic carrier to comply with the US regulation?
We have to keep both governments happy. The Shipping Act of 1999 made conferences ineffective. Brussels only put the official stamp on it. It is a now a task of adhering to the strictest set of laws. But at least Brussels has no filing requirements. Filings are a relic from the days when all rate and contract data was public. But at least shippers and carriers received commercial benefits because of pricing transparency. Contract confidentially destroyed those benefits so it is time to kill all the data gymnastics that costs money to process but benefits nobody.