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Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global SupplyChain Logistics

From SCDigest's On-Target e-Magazine

SCDigest Editorial Staff

Jan. 13, 2011

Global Logistics News: Federal Maritime Commission to Relook at Slow Steaming, has Concern over Ocean Carrier Alliances

FMC wants to look at Impact of Slow Steaming on the Supply Chain, as for More Disclosure from Carrier Alliance Meetings


The Federal Maritime Commission has been busy of late, saying it is going to relook at the "slow steaming" practices to which it gave tantamount approval in 2010, and that it has some concerns over various ocean carrier alliances that led the FMC to require more timely reporting on capacity changes and other issues from alliance members.

In January of last year, the FMC gave the Transpacific Stabilization Agreement (TSA), a consortium of carriers serving the Asia to US market, permission to discuss slow steaming practices under the guise of environmentalism. Slow steaming is a practice in which cargo ships dramatically reduce their cruising speeds, from a normal 25 knots to 18 knots or even lower.

While the practice does reduce CO2 emissions and other pollutants, the real driver of the approach was the collapse in ocean shipping rates and much excess capacity in the industry. Slow steaming allowed carriers to save significantly on expensive bunker fuel consumption (by as much as 60%), and the longer voyages due to the slower speeds had the effect of reducing industry capacity. In the terrible economic climate, shippers and importers were willing to incur longer shipping cycles and more inventory risk to reduce logistics costs.

SCDigest Says:

Global alliances, while potentially efficiency enhancing, also have the potential to be complex and anticompetitive operational agreements.
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There is even "extra slow steaming," in which speeds are cut to 12-16 knots, which research company Alphaliner estimates is used on half the Pacific to West Coast routes and an astounding 9% of Asia to Europe lanes.

The TSA, with 15 member lines, has immunity from U.S. anti-trust laws to meet and discuss issues relating to freight rates and surcharges. While it cannot force members to do anything, TSA regularly issues non-binding, voluntary guidelines developed from meetings of its members which are often adhered to by the members.

Until January, 2010, TSA did not have permission to discuss environmental issues because they never had asked for it. But the growing focus on emissions and other pollutants from ocean carriers nicely coincided with financial imperatives, and so TSA ask for such authority and was granted it by the FMC in early last year.

While the cover story was environmentalism, the TSA discussions no doubt focused heavily on consistency of slow steaming practices and coordination by the carriers on the increasing number of vessel sharing arrangements they have to jointly move containers from original to final destination that would be impacted by slow steaming voyages.

Now, Federal Maritime Commission Chairman Richard A. Lidinsky Jr. says this week that the agency should assess the economic effects of slow-steaming to ensure the practice is not causing "unreasonable constraints" on the international supply chain.

Lidinsky also said in a written message that said the FMC will devote a portion of its Jan. 26 meeting to look at the impact of slow-steaming on trade and consumers. In December, Lidnisky had called for analyzing he impact of slow steaming "on our supply chain, capacity, rates, fuel charges and emissions over the past year."

This review is necessary, he said, because the TSA now wants to an OK from the FMC to look at increased use of alternative fuels, "cold-ironing" (powering a ship from shore when it is at berth in port), and the use of other technologies to reduce air emissions.

"While these practices hold promise for reducing vessels' emissions, the Commission will closely monitor slow-steaming arrangements to ensure that they do not cause unreasonable constraints now that international shipping demand has recovered," Lidinsky said.


(Global Supply Chain Article Continued Below)



As a result, "Shipping lines are in a quandary. They don’t want to be caught out if a ruling is made that dictates or limits the conditions when slow steaming is allowed. But they want to save as much money as possible, be seen to be eco-friendly and maximize efficiency," says Martin Rushmere, who writes for the Maritime Professional web site.

Alphaliner has said that given the totality of operating costs, “extra-slow steaming is economically feasible as long as bunker fuel prices remain above $400/tonne, whereas first-stage slow steaming starts to be interesting at around $250/tonne.”

Currently, bunker fuel is at levels over $500 per metric ton.

Some wonder whether the FMC really has much of a role to play in what speeds the carriers move their ships.

"What’s next? Might the FMCSA mandate that all truckload carriers run on Federal Highways at 70+ mph (so to satisfy JIT aspirants and others desiring to remove supply chain constraints), but shall truckers be denied statutory rights to increased base rates and larger fuel surcharge reimbursements for so doing?" says Thom Williams, president of consulting firm AmherstAlphaAdvisors.

Carrier Alliances Cause FMC Concern

Meanwhile, the FMC also announced this week it was "ordering" three global vessel alliances to provide more timely reports on changes in vessel capacity in the U.S. trades, beginning January 24.
The affected alliances are:

• Grand Alliance: Hapag Lloyd, Nippon Yusen Kaisha (NYK), and Orient Overseas Container Line

• New World Alliance: APL, Hyundai Merchant Marine, and Mitsui O.S.K Lines

• CKYH Alliance: Cosco Container Lines, Kawasaki Kisen Kaisha (“K” Line), Yangming and Hanjin

The FMC order this week said that a shortage of vessel capacity a year ago led to a nine-month investigation of the causes. That investigation led to an FMC order last September that the Transpacific and Westbound Transpacific discussion agreements had to provide a verbatim records of all meetings.

“Global alliances, while potentially efficiency enhancing, also have the potential to be complex and anticompetitive operational agreements,” the FMC said. It said a shortage of space in a trade lane could lead to an unreasonable decrease in service and upward pressure on rates.

The new order requires that the alliances file minutes of meetings of “the senior-most committee that approves capacity and schedule planning recommendations” in addition to the monthly capacity reports.

Alliances also will be required to provide advance notice of planned increase or decrease in capacity. Carriers also will file notice of vessel substitutions or changes in sailing schedules that cause a change of 5 percent or more in capacity in a certain trade lane.

The full FMC order document can be downloaded here: FMC Order on Ocean Cargo Alliances Reporting


Should the FMC be investigating slow steaming practices? Does it need to be taking a closer look at collusion among the carrier alliances? Let us know your thoughts at the Feedback button below.

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