FMC Chief Defends Agency's Monitoring Practices
Federal Maritime Commission (FMC) Acting Chairman Michael Khouri defended his agency’s review functions for shipping alliances during a May 9 hearing held by the Senate Commerce Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety, and Security (here). The alliances are “dynamic agreements” that preserve competition between participating companies, he said. Khouri contrasted the alliances monitored by the FMC with the more static permanent mergers reviewed by the Justice Department, and said ocean carriers within alliances continue to add and remove vessels from trades both inside and outside their alliances. He said that this shows competition in vessel capacity and pricing decisions.
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But Khouri qualified that alliances wouldn’t serve U.S. shippers and consumers well if they consolidated into a handful of mega-carriers transporting cargo. “Clearly, the industry is entering a new era and it is not surprising that some question whether ocean carriers will move into a position to exert some level of market power on freight rates,” Khouri said. Khouri said the FMC is “far from being a rubberstamp agency,” as it has rejected two agreement filings in recent months: one on jurisdictional grounds and another for not meeting the definite disclosure standard required by law. He also noted that THE Alliance and the OCEAN Alliance lacked requested joint purchasing authorities when they took effect in April, because of FMC’s review process.
Outgoing FMC Commissioner Mario Cordero said in testimony (here) that he is “not sure we have seen the end of carrier consolidation,” noting his general support for alliances. Cordero said during the hearing the “jury is still out” on whether vessel alliances are working as intended, and that while he believes they will create cost reductions and efficiencies, FMC monitoring would bear clearer answers in the future. Next week, Cordero will become the executive director of the Port of Long Beach (see 1704140003).
As long as the FMC sees an open and competitive marketplace, it will take no action regarding the alliances, Khouri said during the hearing. “Right now, there’s overcapacity in all of the trades,” Khouri said. “If we started seeing a rise in rates that didn’t make any sense as to the larger capacity overhang, then we would say, ‘Something’s not right here.’ We would go in and do more stringent investigation. And let me emphasize, we have not seen that.”
There's been no more discussion of removing a Shipping Act provision allowing joint purchasing negotiations between foreign carriers and port service providers since it came up in a another hearing (see 1705030038), Khouri said during a brief interview after the Senate hearing. Khouri said “there has been no further back and forth” between the FMC and the House committee regarding the proposal, adding that any further comment on any such amendment would be premature.