December 16, 2016

FMC approves THE Alliance vessel-sharing agreement

Federal Maritime Commission green lights compact after controversial provision is removed; operations to begin in April 2017.

By Toby Gooley

The Federal Maritime Commission (FMC) approved the proposed five-carrier "THE Alliance" vessel-sharing agreement to operate in U.S. trades after the consortium agreed to remove language to grant it antitrust immunity to collectively negotiate prices and to purchase such services as tugs, chassis, and stevedoring.

Under terms of the agreement, which is expected to be operational in April, the members are permitted to share vessels, charter and exchange space on each other's ships, and enter into what the FMC called "cooperative working arrangements." The five members are Germany's Hapag-Lloyd, Taiwanese carrier Yang Ming Line, and Japanese carriers Kawasaki Kisen Kaisha ("K" Line), Mitsui O.S.K. Line (MOL), and Nippon Yusen Kaisha (NYK).

Maritime industry groups and the Department of Justice had expressed concern about the provision that would have conferred antitrust immunity on the agreement. And in a Dec. 7 speech to the North Atlantic Ports Association, FMC Commissioner William P. Doyle said he had "serious concerns" about the carriers' joint contracting and purchasing power. "It would not be fair to grant ocean carriers the ability to jointly contract and procure services while the domestic service providers cannot negotiate collectively," he said.

The FMC required the Ocean and 2M vessel-sharing agreements to remove similar language as a condition for agency approval. Instead, the carriers must negotiate most rates and services individually. The Ocean Alliance may negotiate jointly with marine terminals that agree to do so, Doyle said in his remarks.

Unusually, THE Alliance's agreement, which was filed after the Aug. 31 bankruptcy of South Korean liner company Hanjin Shipping Co., includes what Doyle called "framework language" that specifies how member carriers could assist customers and maintain service continuity in the event an alliance member fails.

Vessel-sharing agreements, or VSAs, have proliferated in recent years as carriers attempt to rationalize their vessel capacity in the wake of massive losses brought on by excess space on many global trade lanes. The advent of mega-container vessels, with capabilities of handling up to 18,000 twenty-foot equivalent unit (TEU) boxes per voyage, has added to the overcapacity problem.

THE Alliance's lineup reflects the ongoing chaos in the container shipping industry. All of the members previously belonged to other carrier alliances that are breaking apart, and the three Japanese lines have been directed by the Japanese government to begin operating as a joint venture in July 2017. The original THE Alliance proposal included the now-defunct Hanjin, and early plans called for the involvement of United Arab Shipping Co. (UASC), now in the process of merging with Hapag-Lloyd.

Hyundai Merchant Marine (HMM) had said it would join THE Alliance, but it later fell out due to its own financial struggles. HMM has mostly stabilized its operations, but continues to face financial challenges. It recently signed a slot-charter agreement with the 2M Alliance, comprised of Danish carrier Maersk Line and Swiss liner Mediterranean Shipping Co. The 2M Alliance denied HMM full membership in the agreement, and recently informed customers that were concerned about HMM's financial condition that it would not load their cargo on HMM's ships without their prior approval.

About the Author

Toby Gooley
Contributing Editor
Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.

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