FMC tells trans-Pac carriers it’s monitoring blankings, ‘revenue trends’

FMC tells trans-Pac carriers it’s monitoring blankings, ‘revenue trends’

Wednesday’s FMC announcement followed an announcement Friday by mainland China’s MOT suggesting that trans-Pacific carriers be less aggressive in raising freight rates. Photo credit: Shutterstock.com.

The US Federal Maritime Commission (FMC) has served notice to carriers and vessel-sharing alliances that it is closely monitoring blank sailings, utilization of equipment, and “revenue trends” in the current volatile environment in the eastbound trans-Pacific.

Although the commission does not plan any immediate action, the FMC said in a statement Wednesday steps could be taken if it detects possible anti-competitive behavior by carriers. The FMC could launch a fact-finding investigation or even petition a federal court to take legal action.

“If there is any indication of carrier behavior that might violate the competition standards in section 6(g) of the Shipping Act, the commission will immediately seek to address these concerns with the carriers. If necessary, the FMC will go to federal court to seek an injunction to enjoin further operation of the non-compliant alliance agreement,” the commission said.

Wednesday’s message from the FMC followed one delivered Friday by mainland China’s Ministry of Transportation and Communication (MOT), which suggested in a Shanghai meeting that carriers in the eastbound trans-Pacific add capacity and be less aggressive in increasing freight rates to protect the competitiveness of Chinese exporters.

FMC spokesperson John DeCrosta told JOC.com Thursday the commission’s announcement was not tied to MOT’s statement or any single event in the trans-Pacific. Rather, the FMC staff continually monitors conditions in all of the US ocean trades, he said, regularly receiving non-public comments from beneficial cargo owners (BCOs), non-vessel operating common carriers (NVOs), and other industry stakeholders via email and letter regarding those trades.  

Wednesday’s closed-door meeting of the FMC focused on trade conditions in the eastbound trans-Pacific and the carriers’ response to trade flows during the COVID-19 pandemic, DeCrosta said.

Increasing volatile conditions owing to COVID-19

US imports from Asia have been on a roller-coaster ride this year. Imports plummeted during the factory closures in mainland China during the Lunar New Year and the outbreak of COVID-19 there in January and February, and during the US lockdowns this spring. Carriers blanked about 200 sailings from February through June in response to declining imports, according to Sea-Intelligence Maritime Analysis.

However, carriers apparently blanked too many sailings and were caught with insufficient capacity when imports surged this summer. US imports from Asia increased 13.4 percent in August from August 2019, and 16.5 percent from mainland China, according to PIERS, a JOC.com sister company within IHS Markit.

Spot rates exploded as a result, increasing last week to a sixth-consecutive record high of $3,813 per FEU to the West Coast and $4,534 to the East Coast. That was up from $1,678 per FEU to the West Coast and $2,543 to the East Coast on May 22, according to the Shanghai Containerized Freight Index published in the JOC Shipping & Logistics Pricing Hub.

DeCrosta said carriers, either individually or part of vessel-sharing alliances, are subject to ongoing scrutiny by the commission for any actions they take that could involve or even hint at anti-competitive behavior.

Reaction from carriers and NVOs to FMC’s statement was mixed. A carrier spokesperson who did not want to be identified said conditions in the Asia-North America trade have been so volatile during the COVID-19 crisis that no one, including retailers, have been able to predict with any certainty what import volumes would be like more than a month or so out.

The escalation in spot rates since June was a reflection of demand outstripping the capacity carriers had deployed based upon the best information they had at the time, the source said. Complaints from BCOs or NVOs about carriers allegedly restricting capacity to push spot rates higher is “outright whining about rates,” he said.

An NVO said anyone who looks at the rate sheet that carriers provide to their customers and sees a charge of $300 per container for a guarantee of equipment or $500 per container for a guaranteed slot on a vessel can figure out that carriers are profiting from tight vessel and equipment conditions. “That’s when the FMC should step in,” the NVO source said. 

A second NVO source said that despite the actions taken this past week by mainland China’s MOT and the FMC, he is bracing for additional rate hikes, such as an Oct. 1 general rate increase, and premium charges for equipment and space guarantees. 

“I don’t think the carriers will have any fear of the FMC until they are held accountable,” the NVO said.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.