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Regular cargo volumes and shipping patterns have been altered as a result of COVID-19 impacts on international trade, including disruptions to production and changes in consumer demand. Changes in U.S. – Asia, and U.S. – Europe trade agreements and tariffs are also a factor, especially concerning short term volatility in cargo volumes. Some ocean carriers participating in agreements filed with the Federal Maritime Commission (FMC) have responded to these challenges by reducing carrying capacity through canceled or “blanked” sailings to adjust available capacity to coordinate with the lower demand. Such actions are permitted under the Shipping Act so long as the joint actions do not violate section 6(g) of the Shipping Act by resulting in a substantial reduction in the competition which produces an unreasonable reduction in transportation service or an unreasonable increase in transportation costs.

A core function of the FMC is the monitoring of ocean carrier alliance agreements filed with the agency. The FMC receives exhaustive information from regulated entities, in this case, parties to an ocean carrier alliance agreement. That information is carefully analyzed, along with other information that permits FMC staff to determine trends in the marketplace and the potential for illegal behavior.

The FMC prioritizes its continuous monitoring of all filed agreements on a red-yellow-green scale, with red signifying higher profile agreements. All global carrier alliances are categorized as red agreements. These agreements have the highest potential to cause or facilitate adverse market effects based on the agreement’s authority and scope in combination with underlying market conditions. On an ongoing basis, the FMC monitors key economic indicators and changes to underlying market conditions for all global alliance agreements to detect any joint activity by agreement members that might raise and maintain freight rates above competitive levels. For these agreements, FMC staff conducts more detailed quarterly reviews, and periodically presents current findings and recommendations to the Commission.

The FMC conducts a four-tiered analytical approach. The first tier is an immediate review of advance notifications of canceled alliance sailings or other changes in vessel capacity that affect the supply of vessels of any individual alliance service by more than five percent of average prior weekly vessel capacity. The second tier consists of a careful review, for each global alliance, of submitted minutes from the most senior executive management committee meetings that make vessel deployment decisions. FMC staff utilizes this information to assess the medium- to long-term outlook for capacity levels and how that could impact freight rates. Under the third tier, changes in individual alliance members’ vessel capacity, capacity projections, and how that relates to changes in freight rates are analyzed. The final tier consists of reviewing and analyzing confidentially filed carrier data submitted by the alliances for completeness and accuracy to determine if this data reveals any potential red flags.

The FMC’s section 6(g) review and oversight responsibility for filed agreements is ongoing and continues after a filed agreement has gone into effect. The unusual circumstances and challenges created by the COVID-19 pandemic together with trade agreement changes have heightened the FMC’s scrutiny of capacity reductions by global alliances. FMC staff are actively monitoring these changes for any potential effect on freight rates and transportation service levels. To ensure timely information, the FMC generally requires notice to be submitted before “blanked sailings” are implemented and no later than fifteen days after any such change is agreed upon. If a global alliance cannot file a notice within the required timeframe, they are required to request a waiver stating why they are unable to file timely and why the blank sailing occurred. We also receive notice of the reinstatement of future blanked sailings. We should note that the FMC is currently receiving notices of the reinstatement of some blanked sailings in both the trans-Pacific and trans-Atlantic trade lanes.

If the FMC detects any indication of carrier behavior that may violate section 6(g), we immediately seek to address these concerns with the carriers and, if necessary, the FMC will go to federal court to seek an injunction to enjoin the further operation of the alliance agreement.

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Cruise lines, marine terminal operators, and port authorities participating on Innovation Teams established by Commissioner Louis Sola as part of his Fact Finding 30 investigation are taking positive steps to address the sufficiency of agency administered financial responsibility requirements to protect consumers purchasing cruise tickets and passengers on cruise vessels in the wake of the COVID-19 pandemic.  The Innovation Teams are also examining the related impact of COVID-19 on ports, marine terminals, and suppliers of services to the cruise lines.

One issue individual team members have raised is the need to assess the viability of Commission performance bonding requirements that passenger vessel operators must meet.  This review will examine in particular whether the existing standards remain sufficient for protecting passengers and those who purchase cruise tickets.  Once a thorough review is complete, recommendations, as part of a final report to the Commission, will follow as to whether the performance bonding requirement ought to be enhanced or reduced.  The full Commission will vote to accept or reject any recommendations made by Commissioner Sola as Fact Finding Officer.

Once the Fact Finding investigation has grappled with the bonding and financial issues, the next step will be to review the issue of ticket refund policies of the cruise industry.  “This is the logical next step as ticket refunds go hand in hand with the performance bonding issue” said Commissioner Sola. “We have already made initial inquires and are pleased with the willingness of the lines to quickly answer our questions.  The ability of certain lines to be able to compensate consumers without the need to call upon the bonds filed with the Commission is of great interest and we are watching it closely,”  Commissioner Sola continued.


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