A Federal Maritime Commission study of the diversion of U.S.-bound imports through Canadian ports galvanized controversy last year, and the historically sleepy agency is set to hoist another lightening rod in the spring.
FMC Chairman Richard Lidinsky will reintroduce a plan to create a container rate index for agriculture exports, as part of a broader effort to promote President Obama’s aim to double U.S. exports by the end of 2014. Exporters would be able to use the index as a benchmark for service contract negotiations with ocean carriers, resulting in less rate volatility, he said. The outbound market is particularly volatile, largely because cycles are short for many export commodities and pricing for some shipments, such as grain, can swing with bulk pricing.
But it’s not clear how the information for the index would be gathered and published. Suggestions include pegging the index to five or six core commodities, and having a private contractor analyze and publish data mined by the FMC. The index could provide weekly listings of the freight rates for non-vessel-operating common carriers shipments like the Drewry Container Rate benchmark does for the Hong Kong-Los Angeles lane, or the index could cover multiple lanes like the Shanghai Containerized Freight Index does for Asia to U.S. West and East coasts, and Europe routes. Despite the noble intentions, the plan risks sparking a tussle not with the neighbors to the north, as last year’s diversion report did, but with the U.S. maritime community itself. Lidinsky said the five-member commission is “divided” on whether the FMC has the authority to create such an index.
“My view (on creating an agriculture export index) is that we have this procedure in place judicially and if the commission goes too far, we will be told that by (the courts),” Lidinsky told The Journal of Commerce. "I am of the school that you exercise the authority you have and don’t be cautious in it, and then be told (you can't)."
Even if the commission gets onboard with the index, a sharply worded statement against the index from the container liner industry suggests a fierce fight is ahead. The proposed index violates the Ocean Shipping Reform Act’s confidentiality provisions and could spur “unintended negative consequences,” the World Shipping Council said in a June statement. The WSC added there is no evidence an index would reduce rate volatility, and besides, “financial traders and derivative brokers are not within the proper realm of the agency’s regulatory interests, responsibilities or competencies.”
“There is absolutely no conflict. The WSC doesn’t determine what this commission does,” Lidinsky said. “What I’ve found over the years is that their view is always opposite of what we want to do.”
An agriculture export index could be useful if the tool included all bunker fuel surcharges and other accessorial charges, said Bob Weiss, independent administrator of the Food Shippers Association of North America. The index will have to commodity specific with rates based on the value of cargo. If the government wants to get more aggressive in boosting exports, it should help shippers with the repositioning of containers, Weiss said. The lack of available equipment has helped agriculture competitors, namely Brazil, stealing Asian market share from Midwest exports. Some of Weiss’s clients exported birdseed out of Minnesota before BNSF Railway stopped repositioning their containers free of charge about five years ago and added a $300 per 20-foot container fee. But Weiss admits that subsidizing railroads for the cost of repositioning equipment for export is a tall order in such tight fiscal times.
Aside from introducing the index and keeping an eye of carriers’ capacity, the FMC appears to be constrained in its goal to aid U.S. exporters. Lidinsky failed to convince Congress years ago to allow the agency to create an informal dispute resolution process, but was able to create a dispute resolution office. Lidinsky said there is talk of a Senate bill that would give the agency dispute resolution authority, eliminate antitrust immunity for carriers and allow the FMC to regulate container leasing sector, but no such legislation has been introduced. Regulating the container leasing sector of which Lidinsky worked in for two decades, remains one of his goals.
“When I talk about protecting people who are part of our maritime family, believe it or not, I am talking about carriers as well. Carriers were subjected to some leasing company abuses in the container shortage days,” he said. “We had evidence of boxes being withheld from carriers and large shippers by leasing companies, and they were just waiting for the rate situation to be corrected.”
Lidinsky said container leasing companies have taken a lower profile, "as the container capacity pendulum seems to have swung a little bit,” but he still thinks the agency should be watching over them. He doesn’t want the FMC to set leasing rates, and instead, is more interested in getting a grasp of just how much capacity each leasing company handles. Though, “in the absence of a complaint, it’s pretty hard to investigate people you don’t have jurisdiction over,” he said.
Ultimately, the building debate over an agriculture export rate index could end with a whimper rather than a bang. Despite threats of sparking a trade war, the agency’s report on Canadian container diversions failed to produce any major changes in U.S. maritime policy. The FMC voted 3-2 in July to issue a report suggesting the Harbor Maintenance Tax is one of several factors encouraging shippers to move U.S.-bound cargo through Canadian ports. Lidinsky said he hasn’t heard anything from Congress about action resulting from the report, although he notes the chambers are still getting their new members acclimated and dealing with debt issues. The FMC report might come up when Congress tackles HMT reform as part of the next Water Resources Development Act, a bill key to authorizing port and inland waterway projects. Even if the report doesn’t ultimately spur the change some proponents wanted, the FMC effort signals an agency awakened, albeit with less regulatory power than Lidinsky wants.
“Some will disagree with some of the policies and issues, but no one can disagree that the commission is a player in maritime activity taking place. We don’t shy away form any controversial topics,” Lidinsky said. “I think the right amount of controversy is good because it brings into the focus the change need. Sometimes change isn’t need, but debate is needed.”