Opening China Doors

Opening China Doors

Copyright 2003, Traffic World, Inc.

The United States appears to have struck a good bargain in its five-year, bilateral maritime agreement with China.

Restrictions on trade between the two countries will ease and new business opportunities open up for U.S. shipping interests. And China is likely to win peace with the Federal Maritime Commission, which has been investigating alleged unfair business practices in China that could have led to trade sanctions.

The maritime agreement plays a relatively small role in U.S.-China relations, but shippers see it as a positive step. "It will make entry into the (Chinese) market easier" and give shippers more options, said Peter Gatti, executive vice president of the National Industrial Transportation League. "Overall this is not an earth-shattering agreement, but the benefits outweigh maintaining the status quo."

Under the Dec. 8 agreement U.S.-registered shipping companies have the legal flexibility to perform a wider range of business activities in China. For example, they now will be able to open offices in more locations in the country and will find it easier to expand the range of logistics services they offer in China and to enter into alliances.

"It provides more assured access to the market in the interior of China," said Maritime Administrator William G. Schubert. "To be competitive today in transportation services, you need to sell fully integrated intermodal services. U.S.-flag carriers were not able to do that until we negotiated this agreement. We were truly looking for reciprocity in the trade."

China is by far America''s largest container-based trading partner, with more than 3.2 million containers moving between the nations annually. The agreement should facilitate continued growth in these containerized trades and inject more speed into Chinese supply chains (see page 17).

"One of the real breakthroughs for this agreement is a full affirmation that our companies are going to be able to do a full range of logistics operations," said Bruce J. Carlton, Marad''s associate administrator for policy and international trade, who was the lead negotiator in the China talks.

Still, to some extent industry developments have blunted the agreement''s impact. In the five years or so it has taken to formulate it, the U.S.-flag fleet has declined. In particular two major carriers, APL and Sealand, have been taken over by foreign companies. These operators were among those that originally pressured the U.S. government to force the Chinese to make concessions and give them the commercial leeway enjoyed by China''s carriers in the United States.

APL welcomed the agreement. Chief Executive Officer Ron Widdows said the carrier expects "to see some specific benefits for foreign liner companies operating in China, with more opportunities for direct participation in operations and a better ability to manage costs."

The agreement recommends the FMC ease enforcement of the so-called carrier control act, which places certain operating restrictions on selected carriers. China Ocean Shipping is subject to these restrictions when operating in and out of U.S. ports.

"Assuming the FMC does alleviate it, this will provide users with competitive alternatives," Gatti said. "And that''s important to facilitate trade." Moreover, these are not carriers that "have a record of engaging in predatory rate pricing," he noted. And giving them more commercial freedom will not hinder the FMC''s regulatory role since the agency still has the power to review service contracts if it wishes, Gatti pointed out. The quid quo pro is that China lifts similar operating restrictions in its domestic market.

The FMC also has had an investigation since 1998 of alleged unfair business practices in China that could lead to strong sanctions against Chinese carriers entering the United States. While the commission continues to collect information, the new agreement appears to address most of the U.S. carriers'' grievances. That may finally curtail further action by the FMC.

Carlton said carriers in the China-U.S. and China-Europe markets are doing well today. "Everybody''s making money, in sharp contrast to 12 to 18 months ago when those trades were just hemorrhaging red ink," he said. "It was awful. Talk to everyone right now and they''re all smiles."