Changing face of the NVO

Changing face of the NVO

Ask just about anyone who really knows the container shipping business if the vision behind the 1998 Ocean Shipping Reform Act has been realized, and the answer has to be no. How could it be otherwise? By freeing container lines from the clutches of shipping conferences and allowing them to engage in genuine, confidential business dealings with their customers, the lines were supposed to ascend the value chain - providing value and receiving value in return.

That has not happened. The conferences have largely disappeared, as OSRA envisioned, but relationships between carriers and their customers continue to be overwhelmed by the issue of price. When it comes time to negotiate, the two sides square off like Japanese fighting fish, and when they're finished tearing each other up, they have little energy or inclination left to discuss much else. The "freedom" that OSRA unleashed wasn't for shippers and carriers to be creative, but for rates to swing like a pendulum based on supply and demand of slot capacity.

But in a twist to the story, it appears that interest in forming the meaningful relationships OSRA envisioned is growing anew. Wouldn't it be ideal, some wonder, to be able to provide shipping services that, from the customer's perspective, aren't just a cost of doing business - a cost to be lowered whenever possible - but a value-added service that contributes to the customer's bottom line? If this is a scenario the framers of OSRA envisioned, the irony is that, at the moment at least, it's not achievable.

The reason, of course, is that the companies that stand ready to provide these services are already providing them. These companies are not container lines but logistics firms. When it comes to ocean transport, these companies usually function as non-vessel-operating common carriers. In 1998 when OSRA was passed, NVOCCs were political losers. The deal that produced the law gave ocean carriers the right to keep the terms of their contracts with customers confidential, but denied that right to NVOs.

In the nearly five years since President Clinton signed OSRA into law, the face of NVOs has changed. For years the NVO business was a sector comprised mostly of small outfits sneered at by two of the pillars of shipping - steamship lines and longshore labor - for taking away their business. Now, all of a sudden, some NVOs are global logistics enterprises with names such as UPS, DHL-Danzas, EGL and Maersk Logistics. For companies like that it's essential to be able to provide ocean shipping consolidation and other services as part of a larger menu of logistics options. Ironically, they can't because when it comes to ocean shipping, they're NVOs. This changing face of the NVO was apparent last week when a fledgling trade group called the NVO-Government Affairs Conference said it was meeting (at the offices of UPS) to plot a strategy whose objective would be to eliminate the confidential contracting restriction on NVOs - in other words, to rewrite OSRA.

"They are signing complex logistics and distribution contracts, but there is a piece of it that they can't tie in because they are not allowed to sign a confidential contract for the ocean portion," said Joe Saggese, managing director of the NVO-GAC.

One might think that getting the rule changed would be easy because UPS carries more clout in Washington than the foreign-owned companies that dominate liner shipping. But for many reasons, the task will be difficult. If NVOs went to Congress, they would find that lawmakers don't get excited about ocean shipping, unless it involves security. Even then, interest is negligible except among a handful of senators and representatives. Some also recall that the specific issue of allowing NVOs to sign confidential contracts came up for a roll-call vote in the Senate when OSRA was being debated, and was overwhelmingly defeated.

Instead of going to Congress, the NVOs could go to the Federal Maritime Commission, which has broad authority under OSRA to exempt parties from provisions of the law. But here again, the road is uphill. If the NVOs were able to persuade the FMC to eliminate the tariff-publishing requirement for transportation intermediaries, the change would effectively allow the NVOs to sign confidential contracts. But that would create a new problem. Because the law doesn't require NVOs to file contracts with shippers - since they can't sign them in the first place - an FMC decision to exempt NVOs from tariff publication would leave NVOs completely outside the system. Bearing in mind the roll-call vote when interpreting Congress's intent on this issue, it's hard to see the FMC responding positively to that idea. Stay tuned.

Peter Tirschwell is editor of The Journal of Commerce. He can be reached at (973) 848-7158, or via e-mail at ptirschwell@joc.com.