THE Alliance’s emergency fund gets US regulatory OK

THE Alliance’s emergency fund gets US regulatory OK

The assets of UASC are joining THE Alliance via its merger with Hapag-Lloyd.

WASHINGTON — US maritime regulators on Thursday voted to allow ocean carrier members of THE Alliance to form a $50 million emergency fund to prop up operations and recover stranded cargo in case a member suffers financial collapse, as Hanjin Shipping did last year.

THE is the only carrier alliance pursuing such contingency measures. Three beneficial cargo owners (BCOs) have told that the alliance’s emergency fund has mitigated some of their fears and reluctance signing trans-Pacific service contracts with the alliance in the spring. THE Alliance had a market share of 21.9 percent of US imports from Asia, behind the 23.4 percent of the 2M + HMM, according to PIERS, a sister product of Both trail far behind the Ocean Alliance’s share of 42.9 percent.

“Last year’s collapse of Hanjin Shipping was a wake-up call for the entire ocean transportation and logistics chain,” Federal Maritime Commissioner William Doyle said in a statement on Thursday. “Over $14 billion worth of cargo was stranded at sea on 100 ships scattered around the globe. It is so important that another Hanjin debacle does not happen again.”

Although $14 billion worth of cargo was stranded at sea during the Hanjin collapse, it is still uncertain how much it took to recover the cargo. And it is uncertain, and perhaps impossible to tell, if the $50 million in the new contingency fund could cover the costs of a rescue operation and whether the funding would be enough to ensure charterers that their ships would not be seized when unloading cargo.

Doyle and other members of the Federal Maritime Commission (FMC) voted unanimously on Thursday to allow THE carrier members —  Hapag-Lloyd, “K” Line, MOL, NYK Line, and Yang Ming Line — to establish an emergency plan in case of “insolvency event or material adverse change,” like those Hanjin experienced last August.

Commissioners applauded THE’s “innovative” plan to minimize the impact of financial collapse on supply chains for the 27 percent of Asia-US trade THE handles every year. Some, though, have expressed discontent that neither of the remaining two carrier alliances have announced plans to adopt similar financial failsafes. Legislation in the works now could change that by granting FMC commissioners more power and finances to expand their oversight on such matters.

According to the FMC, THE Alliance’s contingency plan as approved Thursday includes guidelines for outlining carrier member obligations as well as procedures for the orderly removal and replacement of vessels and the rights of the remaining members to negotiate directly with agents and subcontractors of the affected party.

An “insolvency event” can take many forms, including when a shipping line is dissolved other than pursuant to consolidation or merger; becomes insolvent, unable to pay its debts as they become due; makes a general assignment, arrangement, or composition with creditors; institutes a proceeding against itself seeking a judgment of insolvency or bankruptcy; seeks or becomes subject to the appointment of an administrator, receiver or liquidator; where a secured party has taken possession of all or substantially all its assets.

The FMC defines a “material adverse change” as the occurrence of any event or circumstance likely to have a material adverse effect on a shipping line. In the case of THE Alliance, should a carrier fall prey to material adverse change, the other lines in the alliance shall be entitled to take into consideration the affected line’s interim as well as annual financial reports in their decision making.

The $50 million contingency fund Thursday’s vote helps establish will be administered by a trustee, should it ever be tapped. Further, the fund is designed to be a living instrument. If, for instance, the fund is tapped for any reason, carriers would replenish the account and otherwise ensure that the fund is healthy.

“I applaud the innovative actions taken by carriers of THE Alliance,” said Doyle. “It is a responsible commercial reaction to the events of last year and it serves to assure the shipping public that its cargo will be delivered in a reliable and timely manner.”

Doyle in the past has said he’d like to see the 2M and Ocean alliances adopt a similar contingency plan. Carrier members in both, however, have said they have no intention of doing so, highlighting the financial stability of their carrier members.

“THE Alliance members have established a clear procedure that will apply should one of their members become financially distressed,” Dan Maffei said in a statement, adding however that “more steps and resources might be needed to effectively limit the collateral damage from another bankruptcy.”

In the wake of the Hanjin collapse, US lawmakers have been discussing ways to expand the powers and the purse strings of the FMC. In May, lawmakers in the House introduced the Federal Maritime Commission (FMC) Authorization Act of 2017, which would increase the FMC’s annual budget some 13 percent to $28 million and grant the commission more oversight in matters between carriers, carrier alliances, and third-party service providers.

Lawmakers were frank that their decision was without a doubt a response to the collapse of Hanjin and the subsequent consolidation of the remaining ocean carriers into three large alliances and, further, that it was only a “first step.”

Contact Reynolds Hutchins at and follow him on Twitter: @Hutchins_JOC.