S3.E3 - The Great Alliance Reshuffle...

Topic of the Week (1/26/24):

Let's take a look at the great alliance reshuffle...

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UPDATE: FMC's Agreements Library is back up! Here is the exit language from THE Alliance as of the 11/21/2019 amendment:
ARTICLE 7:  DURATION AND TERMINATION OF AGREEMENT   

7.1 This Agreement shall be effective as of the later of April 1, 2017 or the date it becomes effective under the U.S. Shipping Act of 1984, as amended, and shall continue in effect until April 1, 2030.  Thereafter, the Agreement will be automatically renewed for additional one (1) year terms unless terminated by a Party or Parties according to the provisions of this Article 7, unanimous agreement of the Parties, or withdrawal of all but one of the Parties.  

7.2 Any Party shall have the right to withdraw from this Agreement without financial or other penalty by giving twelve (12) months’ written notice, provided that such notice may not be given prior to April 1, 2023.  

Discussion Note/Correction:
It appears Hapag-Lloyd may, upon one year notice, withdraw from the agreement as long as it's announced after April 1, 2023 (which it was).
(not legal advice, just educational discussion)
(this corrects the discussion in this podcast)
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The Maritime Professorᵀᴹ presents By Land and By Sea - an attorney breaking down the week in supply chain

with Lauren Beagen (Founder of The Maritime Professorᵀᴹ and Squall Strategies)

Let's dive in...

1 - The Federal Maritime Commission is still working through three rulemakings. No new movements.

1(b) - The FMC will host an informal hearing on the Red Sea and Gulf of Aden on February 7 (in person and virtual).
https://www.fmc.gov/fmc-announces-hearing-on-shipping-conditions-in-the-red-sea-2/

1(c) - The FMC's online applications are down. (Update at 2:05pm - they're back!)

2 - Hapag-Lloyd AG to utilize a land bridge through Saudi Arabia

from gCaptain and Reuters:
https://gcaptain.com/hapag-lloyd-to-offer-land-bridge-option-through-saudi-arabia/?subscriber=true&goal=0_f50174ef03-54e62442fe-170405670&mc_cid=54e62442fe&mc_eid=26e13788e2

3 - Four Senators (Senators Tim Kaine (D-VA), Todd Young (R-IN), Christopher Murphy (D-CT), and Michael Lee (R-UT)) sent a letter to the Biden Administration re: the Presidential authority for Red Sea military engagement.
https://www.kaine.senate.gov/imo/media/doc/12324yemenwarpowersletter.pdf

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#ByLandAndBySea

Transcript

Lauren Beagen: 0:47

So by now we've all heard a little something about the Gemini cooperation, but you know they had me thinking it's about time we look back at the greater landscape of ocean alliances and the many changes that are actually happening, that have been happening over the past few months. It's the great alliance reshuffle or something like that. Let's just take inventory of all the moving parts recently.

Lauren Beagen: 1:19

Hi, welcome to, by land and by sea, an attorney breaking down the weekend supply chain presented by the maritime professor me. I'm Lauren Beagen, founder of the maritime professor and squall strategies, and I'm your favorite maritime attorney. Join me every week as we walk through both ocean transport and surface transport topics and the wild world of supply chain. As always, the guidance for general and for educational purposes only. It should not be construed with legal advice and there's no attorney client privilege created by this video or this podcast. If you need an attorney, contact attorney. So before we get into the discussion of the day, let's go through my top three stories of the week. All right, story number one as always, we're going to keep it top of mind. I'm hoping we're going to get some clarity or some some movement soon.

Lauren Beagen: 2:04

But we're watching the three FMC rule makings that are going on. The federal maritime commission has been tasked with doing three different rule makings and they have one Request for information that's out there to on the maritime transportation data initiative. So I'm watching all of this right. We have the defining unreasonable if we still negotiate with respect to vessel space accommodations provided by an ocean common carrier. That last had movement July 2023 from the FMC, from the agency. We're also watching billing practices of detention to merge. That last closed December 2022. There's some congressional stuff going on there, but the last thing that we got from the agency, appreciably from the rulemaking side of it, was December 2022. So we're I'm hoping we get some movement there soon. And the one that we're still waiting on any language on, although Elbide, the FMC has said that they Partially address this with the unreasonable refusal to do a negotiate rulemaking. But that's the defining unfair, unjust, discriminatory methods. We're still waiting on language there.

Lauren Beagen: 3:01

They said that they will be addressing the unresolved or the unaddressed pieces of that Separately in this, in a third rulemaking and again the maritime transportation data initiative. They had a request for information go out. You know, I'm hopeful that we're going to maybe see another RFI round coming. I had heard previously that maybe we would. I think Commissioner Bensal had mentioned that, that they might be doing that. So I'll keep watching. I'll see what happens. But just a status update nothing, nothing happening much there yet.

Lauren Beagen: 3:32

But you know, as a story number one, part B, I guess we'll call it FMC related, it's just a reminder that the upcoming hearing on shipping conditions in the Red Sea, the federal maritime permission announced that they're going to be actually extending that hearing Excuse me likely based on the high level of interest in the hearing to a second day if needed. Initially, when they first talked about this, they said they were only going to be having it on February 7th. Now they've said, and February 8th if needed, they said, interestingly said that they would like to seek a balance between the viewpoints of those presenting and, if needed, will actually invite panelists, in addition to accepting presentations from only a selection of those who are submitting a request to present. So you can submit a request to present has to be in by January 31st. So we're closing in on that date. But it was interesting. I thought it was just interesting, I'm not reading too far into it, but interesting because you know they want to maintain the balance of voices and maybe that means that they have an overflow of shippers requesting to be part of the hearing. I'm not sure, but they said they want to make sure that they hear from all sides. That's great. I love to see it. So you know the actual hearing is not for another few weeks. September excuse me, september 1 month are we in? February 7th is coming up, but January 31st is when you have to have your information or your request in. So what they said is interested parties can request to be considered as a participant or share information and comments by written submission until January 31st. Like I said, the hearing itself is going to be Wednesday, february 7th, and it's actually going to be at the surface transportation board, but it will be live streamed. So if you want to present or be part of that or consider to be part of that actually presentation piece of it. You have to be there in person, otherwise they're going to have a live stream, so I'll be watching it from the live stream and I think this is going to be pretty interesting.

Lauren Beagen: 5:20

I've seen a lot of people paying attention to the fact that the FMC is leaning in on this. So just what is the hearing going to be covering? Just really quickly, it's going to be examining the conditions of the Red Sea and the Gulf of Aden and how that's impacting commercial shipping and global supply chains. Of course it is right. I think we all know that by now. I've even started to see it, started to see it on the nightly news. Finally, but the hearing itself will allow stakeholders in the supply chain to communicate with the Commission how operations have been disrupted by attacks on commercial shipping emanating from Yemen, steps taken in response to these events and the resulting effects. So that's directly from the press release from the Commission it said. In addition, the hearing will allow the Commission to gather information and identify any new issues relating to these disruptions subject to Commission statutes, such as implementing contingency fees and surcharges. They've mentioned a few different times that they're watching surcharges and contingency fees and that they need to be in compliance with the FMC or certainly the Shipping Act statutory requirements. So I think this is going to be interesting. You know, it is what it is in the area. It's troublesome for all parties involved. But this is interesting, that the FMC wants to stay visibly ahead of it. Where they had taken a few critiques, I think during the COVID congestion 2021 years, they didn't really have a hearing, but it was also COVID right, so it was a little bit difficult. They weren't as visible and so I see this as partially a visibility thing, but certainly I think that they're hopeful. If there's anything that they're not considering that that comes out, it's an informal hearing. It doesn't really really matter, but it's an informal public hearing, so I like it. I think this is a good idea and you know a Part C, I suppose, on this.

Lauren Beagen: 7:09

One more thing from the FMC story, number one, part C Just today they actually announced that they're having trouble with a lot of the FMC online applications, so the announcement went out just about an hour ago. Several FMC applications are currently experiencing issues. It said please be advised. Fmc's headquarters building is experiencing unscheduled technical outages. Relating to this is public access. Relating to SIRVCOM, sirvcom, the FMC-18, the OTI list, the agreements library, which I have actually noticed over the past few days has been out, and a few different other the reading room, which is where you get all your dockets, oti, license renewal, some of the major ones right.

Lauren Beagen: 7:48

I certainly ran into that this week. Like I just said, prepping actually for today's broadcast, I was trying to pull information from the agreements library. So I'll mention as we go that some of the information that I'm relying on or talking about here is potentially outdated. As an overview caveat, the information that I mentioned from the Alliance agreements filed with the FMC is information that may be outdated or incorrect, shouldn't agreement have been filed in the meantime, in the past few days or however long it's been out. But when we get into that discussion I'll mention that specifically with a little bit more detail. But I just I wanted to let you know that, not only if you hadn't noticed that it was out, it is out and that some of the language or some of the discussion that we're going to be talking about later is potentially outdated, shouldn't agreement or an amendment have been filed. But we'll get. I'll make sure to mention those caveats when we get there.

Lauren Beagen: 8:40

All right, story number two. So this story is out of G-Captain and Reuters. So story number two is interesting in that there's another land bridge being discussed. So, as you know, because you're an avid listener of the show by land and by sea, and also, how can you avoid the news? Both canals are having trouble right the Panama Canal and the Suez Canal. The Panama is having to deal with the drought that is forcing them to limit vessel sailings through the canal. We've been talking about that since last spring. That led to the announcement by Marist last week that they would be using a land bridge. They'd be railing the cargo and kind of foregoing the Panama Canal is my understanding. And now this week, with the Suez and the Red Sea attacks by the Houtis that are forcing many carriers to go the long way around Africa. Just this week Houtbeg Lloyd announced that they would be offering a land bridge as well for the Suez area. So Houtbeg Lloyd said that they would offer a land bridge through Saudi Arabia to help mitigate the impact of business.

Lauren Beagen: 9:34

You know, I'm actually really encouraged by the creative measures some of the ocean carriers are taking here. It's a long way around to go around South America. It's a long way around, to go around Africa. I think it's great that they're trying to help mitigate the impacts of the movements of goods, because it really is coming down to managing what you can control and what you can't control, and I like to see the creative solutions. You know everything's going to have their trouble spots and I think that you should certainly, for any of your business decisions, make your own decisions here. But I think that it's interesting and it's great to have creative ideas come to the forefront here and bridges. I'd classify that as a creative solution. So I think it's cool and we'll see if it's helpful. I think that that's part of it is potentially being less disruptive, though there hasn't been a ton of disruption other than the initial delay when all the vessels had to go around. But I don't know. I'm still watching all of this. I think that it's interesting, like you said, the creative solutions happening here.

Lauren Beagen: 10:42

Story number three is kind of tangentially related to story number two and that it also discusses the Red Sea. You know I haven't gone too far into too many specifics on the Red Sea. There are certainly more expert people on geopolitical conflict, military intervention, and I don't really want to go too far into it because I want to stay on the ocean shipping the kind of operational, regulatory discussion side of it. But I saw this pop up this week and I thought, huh, no, that's interesting. So this week a letter sent by four US senators to the Biden administration was sent regarding the Red Sea. So the letter was signed by Senators Tim Kaine, who's a Democrat from Virginia, todd Young, who's a Republican from Indiana, christopher Murphy, who's a Democrat from Connecticut, and Michael Lee, a Republican from Utah. So I mean bipartisan right. We got two and two.

Lauren Beagen: 11:29

So in the letter it said that the senators actually condemn the repeated Houthi attacks against international cargo ships. Of course they do right. But of course they condemn the repeated Houthi attacks against international cargo ships and US military assets protecting those ships in the Red Sea. But this is what I found interesting they call into question, or at least in part, the administration's response to the attacks and the use of US military intervention because, as they know, and I quote, this is a quote most vessels transiting the Red Sea are not US ships, which raises questions about the extent to which these authorities can be exercised". End quote. That's from the letter. The authorities they know are that, and I'm quoting here again from the letter as Commander in Chief, you and their addressing President Biden you have the power and responsibility to defend the United States. Under Article II of the Constitution, directing military action to defend US personnel and military assets from attacks and imminent attacks is clearly within the boundaries of the presidential power. They could also be argued that directing military action to defend US commercial shipping is within that power, end quote. So that's from the letter. So they're— kind of calling into question the military action and the defense of the commercial shipping and kind of the ongoing imminency of it.

Lauren Beagen: 12:48

So there's four questions that the letters pose to the administration. I'm just gonna run through them because I want you to kind of hear what the tone and what's happening with. This letter is only about a page and a half, so go look at the links that I'm gonna provide here and go take a look at the letter yourself. But the four senators in the letter asked the following four questions. So one what is your administration's understanding of self-defense in the context of these strikes, especially if the strikes are not deterring ongoing and future attacks from the Houthis? Question two your administration has to date only submitted one notification to Congress under the War Powers Act, despite having conducted several rounds of strikes against Houthi targets, we request an explanation in writing of the legal authority under which the administration is carried out each of these strikes and for carrying out any strikes against Houthi targets that occur after receipt of this letter, including any preemptive strikes. That's a big question too. Question three does your administration believe that there is legal rationale for a president to unilaterally direct US military action to defend ships of foreign nations? That, I mean, that's that's a big question.

Lauren Beagen: 13:54

And question four on what date were US forces introduced into hostilities in Yemen and the Red Sea? Interesting, right? So they're basically saying they're calling you to question and, like I said, this is bipartisan. They're calling you to question the response and the continued response and the, the strikes against the Houthi targets and the kind of authority to do so. Interesting. I just found that interesting. I haven't seen or heard much since I kind of came across that letter earlier this week. We might not get much there, but interesting. I just I want to bring interesting stories to you guys. I want you to kind of also have those moments just along with me, all right? Well, those are the stories of the day, so let's get into the meat and potatoes of the day.

Lauren Beagen: 14:42

So last week we reported on the Maristkenhapagloid announcement that they're entering into this operational agreement and I thought it might be a good time to kind of go over alliances as they stand now. Right, the movement's expected the upcoming EU block exemption repealed Don't forget about that. And well, let's just do a big overview of all of it. So let's, let's kind of start, let's make sure we're all on the same page here. So what happened last week?

Lauren Beagen: 15:04

So, from the announcement, maristkenhapagloid signed an agreement for a new long term operational collaboration. They're calling it the Gemini cooperation. It's scheduled to start February 2025. They say that the ambition is to deliver a flexible and interconnected ocean network with industry leading reliability. And just a little note so this is Maristkenhapagloid. So Marist was the one that announced the land bridge for the Panama Canal and Hapagloid, just this week, was the one announcing the land bridge for the Red Sea area or the Suez. I should say, you know, they're saying that the ambition is to deliver a flexible and interconnected ocean network with industry leading reliability. I mean they're both exhibiting flexibility.

Lauren Beagen: 15:45

Like I said, I think that those are creative solutions and to me that seems like that's flexibility. I mean, the cooperation hasn't started necessarily formally yet right, that doesn't start until February 2025. But I think they're both exhibiting, at least at least from these two stories, that they're certainly capable of being flexible. So I just I noticed that parallel. I wanted to mention it. I also noted last week that it seemed like this is a new global ocean alliance, but I haven't seen the Alliance Agreement paperwork in the agreements library of the FMC yet. Maybe doesn't mean anything, but look, that's why I keep calling it a long term operational collaboration instead of an alliance. Just yet I've seen reporting saying that this is an alliance, but I mean, like I said, the agreements library is down but I haven't seen anything filed yet, and we're going to talk about that in a minute too. We're going to talk about if that matters.

Lauren Beagen: 16:40

But regardless, like I said, I wanted to take a minute to refresh on what an alliance is and kind of maybe go over the requirements for filing an alliance as well as maybe a bird's eye view of what's currently out there. So we've done an alliance 101 before, so we're not going to go fully, fully into this, but I did want to make sure that everybody was kind of on the same page. So what are alliances anyways? Well, they're basically vessel pooling arrangements, right? They're kind of operational cooperations with the use of vessel sharing. One of the general purpose statements taken from one of the agreements has the purpose of the alliance to be to authorize the parties to share vessels with one another, charter and exchange space on one another's vessels and to enter into cooperative working agreements, arrangements in connection with the party services and operations in the trade in order to improve efficiency, minimize costs and provide high quality services to the shipping public. So I mentioned that. I borrowed that as one of the purposes stated on one of the alliance agreements and I also mentioned that the alliance the agreements library of the FMC was down.

Lauren Beagen: 17:46

Let me stop right there. All of these agreements that are filed with the FMC are publicly filed agreements and you can go check out the specifics of them. They are filing these with the FMC and they're available for you to look at as long as the agreements library website is working. But you can go check it out that you can see the different amendments that have been filed that have made modifications. But it's pretty interesting that you can just go see the direct language. You don't have to rely on maybe the secondary news reporting of it you can go see what the actual intention in the agreements that are filed with the FMC were. So what does all this mean?

Lauren Beagen: 18:26

Vessel sharing agreements is the pooling of ships right. For a long time the industry didn't make a lot of money. Hard to believe with the past few years, but they didn't. And in 0809, 2010, they were lucky to be out of the red. So the companies started looking at vessel sharing space to help streamline cargo movement.

Lauren Beagen: 18:42

So in describing what they are, sometimes it's also helpful to describe what they're not. So what are? What are? What's not part of an alliance? Trying to figure out how to appropriately say that what is not part of an alliance. They're not a rate setting club. They're not allowed to talk about rates, they're not allowed to set rates, they are not allowed to collude on that level. They're not a conference right. So that was a previous structure of the shipping industry. But in 1998, a major overhaul of a deregulation happened and conferences went away. They were essentially like membership clubs you had to pay dues and the conference set rates. We don't have that anymore, but these alliances are more operational and more vessel sharing and nowhere near where they're not supposed to be rate determining and I've seen that to be true.

Lauren Beagen: 19:30

So how many alliances are out there and whose where? So currently, as of today, there are three alliances. And so we have the Ocean Alliance, which is Costco, which includes OECL, cmacgm and Evergreen Line. We have 2M, which is Meriskin MSC, which has announced it announced last year that they'll be concluding operations by January 2025. So they gave a two-year notice on that. And then we have the Alliance, the Alliance, which has Hapagloid, one which is Ocean Network Express, hyundai Merchant Marine and Yang Ming. So, like I said, as we know, 2m announced the cessation of their alliance January 2025. And actually, with the Gemini Cooperation Creation and Announcement, it was said that Hapagloid would actually be leaving the Alliance, the Alliance.

Lauren Beagen: 20:20

So let's get back to kind of the nuts and bolts here, right? So how do these Alliance get filed with the FMC? How do they start? What happens? So Global Ocean Alliance has enjoyed limited antitrust immunity for members of the Alliance by filing an application and filing their agreement with the FMC and allowing 45 days to pass, so while during that time it's actually obviously being reviewed by the FMC. But 45 days, that's it. That's as long as the review happens here. So in that time the FMC can ask questions that will toll or stop the clock so that ultimately might extend these 45 days, but they can't indefinitely stop the clock, amounting to a denial.

Lauren Beagen: 20:59

And most shockingly and I cover this every once in a while and I don't think people pay attention or know that this is true in enough, people don't really get this the FMC does not have the authority to deny applications as they are approved, so to speak, by the FMC during this 45 day period. So let me say that again, the FMC does not have the authority to deny these Alliance agreements when they're filed and they're not approved by the 45, if the 45 days passes, they go into effect. They're not necessarily approved and they're not necessarily well, they can't be denied. So in order to stop an Alliance right, like how do you stop an Alliance If the FMC doesn't have the authority to stop it by a denial? How does the FMC stop it if it's going to be monopolistic and kind of a bad thing for the overall industry, and by bad I mean like a gross over monopolistic control of the industry? So in order to stop an Alliance agreement, the FMC is required to bring a suit against the Alliance application with proof of why it should not be allowed, and that's their way of denying the application. They have to bring a lawsuit against the Alliance or the agreement, and it's not just this Alliance but they have to. That's how they have to stop any of this stuff. They have to bring a lawsuit against it. So this needs to happen within 45 days of filing, otherwise after 45 days it goes into effect. Right? So that's one piece. We're not gonna talk much about that, but I always like to bring that up, that the FMC can't deny it. We talk about oh well, is the FMC gonna deny this agreement? You'll see that sometimes in the media. They can't. They can't deny it. They can ask questions and they can file an injunction as their way of denying, which is a pretty big hurdle. But going back to kind of some of the nuts and bolts, so why would an agreement? Why wouldn't Alliance actually want an agreement filed anyways? Right, so they want the.

Lauren Beagen: 23:04

These agreements are filed because of the limited antitrust immunity. So what does that mean? Limited antitrust immunity? So if the combining of the operational terms or vessels or any of this stuff amounted to an otherwise monopolistic activity, then their agreement being on file with the FMC provides them with limited antitrust immunity. So limited immunity from an otherwise monopolistic activity, right? Or said another way, another antitrust behavior. So they're filing with the FMC to kind of protect against, potentially, department of Justice or somebody going against using general monopolistic regulations and laws and statutes that they might otherwise be a foul of, potentially be a foul of. So, as a general statement, this has actually roughly been the same in Europe and that was with the consortia block exemption regulation. It also provided limited antitrust immunity, although this isn't like an apples to apples comparison, but we won't get into the differences, we're really just kind of trying to overview this and make sure that we're all on the same page.

Lauren Beagen: 24:08

So the alliances filed with the FMC let's get back to the FMC side of things what are those terms of expiration? So in general they're not required to have an expiration date or even a reapplication of their agreement date. So they file their agreement, the 45 days pass and that's the agreement. They don't really have to be. They're going to be consistently monitored by the FMC, consistently and continuously monitored by the FMC. But there's no re-reviewal period, there's no renewal, none of that yet and I say yet because it's kind of a newer thing all of these alliances anyways within the past less than 15 years really. So they're not required to have an expiration date or reapplication or renewal. So they are still subject to stringent monitoring. Like I said, they just don't need to reapply after a certain number of years.

Lauren Beagen: 25:06

So Chairman Maffei actually once said on record at a US Senate Commerce Committee executive session I think it was August 2022, I think that he said they would actually welcome an expiration period if that were to be created by Congress. And that was during the time, remember August 2022. So that was over the summer, when Osreau 22 had just been passed right, it was when it to affect June 16th of 2022. So it was right around that same time. So Congress kind of mulling about trying to decide how can we help ocean shipping and the global movement of goods so that was one of the things that came up. Was that? Look, chairman Maffei of the FMC said he'd welcome an expiration period if that were to be created. So what are some of the actual expiration terms as defined in the actual agreement? So, like I said, there's no requirement for an expiration or really any of the specific terms, but the agreements do have some expiration language in them.

Lauren Beagen: 26:00

And this has been kind of the interesting piece to watch as the shuffles are starting. And this is where I need to have the caveat. I have not double checked this this week. The agreement itself, so how agreements in the agreements library works is that you'll have the agreement initially filed and then any amendments are then kind of stacked on top, so you still have the initial language, but then if there were any amendments filed, you kind of have to cross-reference that because obviously that would take precedence for the most part or it would be newer in time. So again, none of this is legal advice. This is just kind of educational purposes, but for the most part that's kind of how that works. So with the agreements library down this week, I can't check to make sure that there were no amendments made for terms of expiration, but I hadn't seen them in the last few weeks. So here's the expiration terms as they were kind of listed in the original agreement for these three different alliances. So 2M Alliance expiration it had a 10-year term of the agreement with two years notice for leaving the agreement, but they can't submit that before eight years had passed. So that actually put us perfectly at 2025. And that's what we're expecting, right? So they gave two years of notice and it was at least eight years since the initial agreement had happened. It gets a little technical, but go back and look up these agreements if you want to see the actual specific language here.

Lauren Beagen: 27:27

The Ocean Alliance Agreement expiration. So they had a preliminary 10-year term where nobody was allowed to leave the alliance, and then after March 2027, originally that was five years, but then it was amended to reflect 10 years. So after March 2027, a party could leave as long as they gave 12 months notice. Then after 2027, if nobody left, then the term was extended indefinitely with the 12-month notice still in place. So that's what's up on the Ocean Alliance. Again, that can be amended through an amendment filed to the FMC, but right now it looks like March 2027 is kind of that threshold year.

Lauren Beagen: 28:05

So the Alliance expiration, the Alliance and this is the interesting one, because this is where Hoppeg Lloyd is moving. So last I checked or moving out of, I should say so last I checked the Alliance THE had a 13-year term with the right to withdraw on a 12-month notice, but not before the initial period, april 1, 2030. So it's obviously 2024. So look, the FMC agreements library has been down. I can't say that enough, so take this with a grain of salt. This is potentially outdated information, so I haven't been able to confirm whether an amendment has been filed. And remember, they can amend these if they want, because the types of terms or specifics of the terms are not mandated by the FMC. Rather, the filing of this agreement or these agreements for the limited antitrust immunity is why they're really filed for the most part. But this is a little interesting though, because technically, if I'm reading this right and if an amendment hasn't been filed, hoppeg Lloyd is leaving before that 2030 threshold, but they are giving the 12-month notice. Again, these are all agreements that are made within these alliances, so it's just interesting.

Lauren Beagen: 29:15

I'd like to look into this a little bit more, but that's kind of. I wanted to let you know where I was thinking. I think that they'll probably remedy this just fine, but yeah, it'll be interesting to pull that agreement and see what the leave, the agreement terms are. And so 12-month notice is certainly what's been given here if they intend to start the Gemini cooperation February 2025, now being January 2024. I mean, that's at least 12 months. I should also note that some of the expiration notices also have provisions for exceptions and it's possible that Hoppeg leaving might be covered under one of those exceptions as well. Some of these exceptions, from what I remember, were insolvency, bankruptcy and material change in company status. So perhaps Hoppeg Lloyd is covered under one of those exceptions or one of the other exceptions listed in the agreement as it's filed with the FMC Agreements Library. So that's what kind of alliances are generally the three that we have on file right now? So what is this Gemini cooperation?

Lauren Beagen: 30:25

Like I said last week, this seems to suggest that it is potentially a new global ocean alliance, but I haven't seen the agreement filed with the FMC. As you know, agreements are kept in the agreements library. I can't say that enough. I just want you to be able to have the tools to go check all this yourself. It's, it's down right now and? But look, maybe maybe they don't need to, maybe they don't need to file a limited trust, maybe they don't need the limited trust antitrust immunity here I'm sorry, I'm kind of tripping over this. They file the agreements, like I said, because they are then afforded limited antitrust immunity because potentially and otherwise possibly Epileistic thing this, this working together using the same vessels is given this limited antitrust immunity by filing the agreement with the FMC for the FMC to review, under Continuous review, review. So maybe they don't need it right. So maybe they don't think their cooperation is going to be coming anywhere near an antitrust concern for market share, I mean, usually that's typically like a 20 or 30 percent market share threshold, and I'm going to talk about this a little bit in the context of the EU consortia block exemption. So Hold that thought for a minute.

Lauren Beagen: 31:41

Let's do a quick refresher. What is the consortia block exemption regulation? This is from the EU Commission's website. So the consortia block exemption regulation Liner shipping services comprise the provision of regular scheduled non bulk maritime cargo transport, the vast majority in containers, on a specific route. They require significant levels of investment and therefore are regularly provided by several shipping companies cooperating in consortia. So I should note, consortia is roughly the equivalent of alliances, right? So just a different name in the European Union context. For our purposes we're going to be kind of consortia equals alliance for the most part. So, continuing on on the European Union Commission's website, consortia represent agreements between liner shipping companies, carriers, on joint operation of services, which generally lead to economies of scale and better utilization of the space of the vessels I've talked about many times. I think you also get better routing with some of these alliances and consortia. Continuing on from the website, the CBR the consortia block exemption regulation adopted in 2009. So again, remember that was kind of right around that time that all of the alliances were thinking about being adopted and it was a rough time for ocean carriers. We they were. We've done a whole kind of review of what happened when Hanjin went bankrupt. Go check that episode out. It was pretty interesting to see the timelines of what happened there. But so, continuing off the website here so the block exemption regulation adopted in 2009 Exempts consortia from the prohibition of article 101, sub one of the treaty of the functioning of the European Union, provided certain conditions are met.

Lauren Beagen: 33:16

Those conditions are one, consortia may not contain hardcore restrictions, price-fixing, capacity or sales limitations, except capacity adjustments in response to fluctuations in supply and demand, allocations of markets or customers. That's the first, the first condition. The second condition is the market shares of consortia may not exceed 30%. Right, I've often said it, I've heard it to be about a 20 to 30 percent. That that's reported on those thresholds. This for the European Union is 30 percent. And the third condition here Under the treaty on the functioning of the European Union, that this block exemption is Exempting is that consortia must give members the right to withdraw with a minimum, a maximum period of notice of six months, 12 months in case of highly integrated consortia.

Lauren Beagen: 34:04

We're gonna come back to that. Last year we talked about the European Union deciding to allow their consortia block exemption regulation to expire in April 2024 and at that time there was a lot of reaction in the industry, but one reaction that stood out to me was that of perhaps most of the global ocean Alliance agreements didn't even need antitrust immunity or antitrust protection from these block exemptions. So certainly that's why the fact sheet explaining the block exemption repeal said and this is again from the European Union Commission website the Commission. So why is the Commission decide not to extend the CBER that the the block exemption? The Commission does not put into question the potential benefits of cooperation between carriers to jointly operate line or shipping services. Nor has the Commission changed its mind that consortia may be an efficient way for providing an improving line or shipping services that also benefits customers. However, since the block exemption Regulation was adapted in 2009, market developments in the liner shipping sector have shown that a dedicated block exemption regulation is no longer fit for purpose. Overall, the evidence collected from the relevant stakeholders and market participants points toward the low or limited effectiveness and efficiency of the block exemption throughout the 2020 to 2023 period. I noted at the time, right that period, that they chose 2020 to 2023. That was an anomaly of Three years, but they use those three years to determine that this repealing of this block exemption was appropriate.

Lauren Beagen: 35:34

This third part is the interesting part here. Reading again from the website, given the small number and profile of consortia falling within the scope of the block exemption, the block exemption brings limited compliance cost savings to carriers and plays a subordinate role in carries decisions to enter into consortium, we're saying not many of these agreements actually fall within this block exemption. Such with the European Union is saying not many agreements fell in the exemption anyway. So perhaps the block exemption might be redundant or unnecessary and that was partly why they Determined to not renew it. It wasn't that they repealed it, but they determined not to renew it. So the expiration of the block exemption reading off the website does not mean the consortia are prohibited in the European Union. It simply means that they are subject to the EU antitrust rules that apply to all economic sectors. So this was an exception providing for that limited antitrust immunity, and that was the European Union.

Lauren Beagen: 36:31

So now, coming back to kind of that, that thought maybe we won't see a Gemini cooperation agreement filed. Maybe the limited ships dedicated to the cooperation Keeps it well below any antitrust monopoly threshold concerns. I don't know, I'm just kind of thinking out loud here, I guess, but I'm just thinking about the. I'm just kind of thinking out loud here, I guess, but I'm curious and I thought that you might be too. Maybe, maybe this will be the next round of alliances, will be, they're not concerned or they don't need that limited antitrust immunity. And and I certainly don't know, and and Just just a thought, I don't know maybe the alliance, maybe the agreements on its way, maybe it's already there, maybe it's because the agreements library is down, that that I don't see it. So, pulling from the hoppeg-loid website, announcement though With mares, the new cooperation between hoppeg-loid and mares will comprise a fleet pool of around 290 vessels and a combined capacity of 3.4 million containers.

Lauren Beagen: 37:28

Okay, so, like I said, with the kind of let's, let's pivot back to the expiration piece, right? So, hoppegloy leaving the Alliance, the Alliance that, like I said, they are giving 12 months notice, as is otherwise stated in their agreement, for notice of departure, despite that initial 2030 can't leave period. But again, I wanted to check that with the agreements and with the agreements library being down, I couldn't see if there were subsequent amendments and I didn't want to go too far down. But they're complying with their own terms of this 12 month notice. It also says as consents of joining the cooperation so Hoppegloy will leave the Alliance at the end of January 2025. Right, that's what we're talking about. So that's the 12 month notice. Recall. One of the conditions from the block exemption is that there must be 12 months in case of highly integrated consortia giving notice to their members to write to withdraw. So they're also complying with the block exemption which is still in effect until April. April 2024 is when that block exemption will expire, but they're still complying with those terms. So I think that maybe they're simply going to be amending their FMC agreement to allow for the early departure before 2030, if that is what it still is. At least it was previously mentioned in their agreement, like I said, and then Meriskin MSC. They had a two year expiration term and they have certainly given those two years of notice for their Alliance cessation. So that was the two M Alliance that's going to be concluding in January 2025.

Lauren Beagen: 39:09

I said this last week but when two M announced their breakup it was anticipated that there may be some follow on, shifts to the other alliances and, like I've said a bunch today, the agreement members are not necessarily beholden to their agreements unfilled with the FMC forever. They need to comply with their agreements as they've put on file, but they can file these amendments. That's what I mean. They can submit addendums and amendments that modify the agreements, that change some of their terms. So certainly the ability to leave an agreement is one of those things that could change if it hasn't already been filed as an amendment. Like I keep saying, they made the terms of their agreements and so long as they submit amendments and do course they can do just that there really isn't specific regulatory requirements on the context of those agreements. I mean, I guess the thing is there could still be an injunction filed against an amendment, like I believe it still falls under those 45 days of a filing with the FMC.

Lauren Beagen: 40:07

But look, regardless of all the specifics, I don't want to go too far. We've already been talking about this for quite a while. This is for sure a maritime professor type educational training today. And I shouldn't say training but overview, educational overview. I wanted to give a brief overview of the alliances as we see them, kind of in what's going to be happening in the next few months, what's going to be happening in the next 12 months, certainly what's going to be happening before the change happens in April. Are we going to be seeing any changes or movements among the other alliances? We still might see some movement of the other alliances, both in the Alliance, the Alliance and the Ocean Alliance, despite those kind of can't move members until this time. I'll keep watching the amendments. I find it pretty interesting to see the different movements here and the different partnerships. So if you or your company would like an overview training on global alliances or some other global ocean shipping topic, look you're in luck.

Lauren Beagen: 41:07

I do offer these trainings and webinars through my company, the Maritime Professor, and I am currently booking out for early summer. I just wanted to mention that because I've gotten a lot of questions about ocean alliances generally and kind of the basic parameters around them. So, as always, the guidance here is general for educational purposes. It should not be construed by legal advice directly related to your matter. You need an attorney. Contact an attorney. But if you do have specific legal questions, feel free to reach out to my legal company, skoll Strategies. Otherwise, for the non-legal questions, the e-learning and general industry information and insights, come find me at the Maritime Professor.

Lauren Beagen: 41:42

If you like these videos, let me know, comment, like and share. If you want to listen to these episodes on demand, or if you missed any previous episodes, check out the podcast by Land and by Sea. If you prefer to see the video, they live on my YouTube page by Land and by Sea, presented by the Maritime Professor. And, while you're at it, check out the website MaritimeProfessor. com. So until next week. This is Lauren Beagen, the Maritime Professor, and you've just listened to by Land and by Sea. See you next time.