By Land and By Sea
By Land and By Sea
S4.E1 - ILA and USMX potential port strike + everything else you may not have noticed
Topic of the Week (9/27/24): What you missed while you were worried about the port strike...
The Maritime Professorᵀᴹ presents By Land and By Sea Podcast - an attorney breaking down the week in supply chain
with Lauren Beagen (Founder of The Maritime Professorᵀᴹ and Squall Strategiesᵀᴹ)
Let's dive in...
1- FMC Rulemaking Roundup & Defining Unreasonable Refusal to Deal or Negotiate eff. Sept 23, 2024
2 - INTERNATIONAL LONGSHOREMENS ASSOCIATION and UNITED STATES MARITIME ALLIANCE LIMITED potential port strike and the role of the Federal Maritime Commission
3 – United States Trade Representative decision on Ship to Shore Crane Tariffs
4 – Gemini Cooperation - FMC Announcements
5 - Alliance Reshuffles for 2025
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** As always the guidance here is general and for educational purposes only, it should not be construed to be legal advice and there is no attorney-client privilege created by this video or podcast. If you need an attorney, contact an attorney. **
We're back. What a time to return. Have you heard? The International Longshoremen's Association and the US Maritime Alliance still have not reached an agreement. I hope that's not news to you. I know it's not, but while you've undoubtedly been busy with the multiple fires created by a possible strike, I thought it might be appropriate to also point out a few other things that happened during the summer break in the past few weeks that you may not have been closely watching. We're back, let's get into it.
Lauren Beagen: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 in the wild world of supply chain. As always, the guidance here is general and for educational purposes only. It should not be construed to be legal advice, and there's no attorney-client privilege created by this video or podcast. If you need an attorney, contact an attorney. So we usually start out with my top three stories of the week, but because we're just getting back from the holiday break the summer holiday break we're going to just jump right into it. So story number one first stop.
Lauren Beagen:As we always do, let's check in on what the Federal Maritime Commission's been up to in terms of rulemakings Over the past year or two. Well, two plus years now, the FMC has been working through three different rulemakings that they were directed to undertake by the Ocean Shipping Reform Act of 2022. And we've also been watching the RFI process of the Maritime Transportation Data Initiative, an initiative undertaken by Commissioner Carl Benzel. So where's everything at All right? So the first one that we always cover the billing practices of detention to merge. As we know, that went into effect May 28th. That's been open for June, july, august, september, about four months now text clarification but that all went into effect May 28th.
Lauren Beagen:The only thing pending here is that there is a petition filed against it by the World Shipping Council. We've talked about that a few different times. As far as I've seen, it's still a pending thing. The petitioner is challenging the final rule and grounds that it's contrary to statute, including that it exceeds the commission's authority under the Shipping Act and of Section seven B of Azra, the ocean shipping reform act, and that it's arbitrary, capricious and an abuse of discretion otherwise contrary to law. So the petitioner was ordering uh, vacating and setting aside the final rule. I'm still watching that right where we're kind of just shaking off the sand, the cobwebs of of the summertime, um, but I haven't seen a lot of movement there. So as of now, right May 28th was the rule's effective date. There's been no guidance otherwise. So that's kind of how to move forward.
Lauren Beagen:If you have questions on the direct applicability of the detention demurrage rule and how it applies to your situation, please contact an attorney. That's going to be something that's going to be fact specific and something that you want to really dive into the nuances there. What could happen? I mean, with a petition, a court could somehow decide to modify the rule based on the commission. But that hasn't happened yet. So I bring it up just so that you stay aware of it. So the D&D rule is a little bit old news but it's still, in that, worth paying attention to category.
Lauren Beagen:There's two other rules that we've been watching, and the other one is so, so important and it really hasn't gotten the attention that it deserved. This is the defining unreasonable refusal to deal or negotiate with respect to vessel space accommodations provided by an Ocean Common carrier. That was released in July. Guys, it became effective this week. I know we've been busy, but it became effective on September 23rd. That was Monday of this week. Why is this important? It was one of the least watched rules in recent history or recent memory of out of the FMC and grant. Okay, I say that, but, like this is a very niche industry, right, and and this is a very niche group that's paying attention to the rule of actings of the federal maritime commission. So I I'm just saying it's contrasting it with the D and D rule that got over 180 comments. This rule had significantly less engagement. Right, it was in the less than 40 comments filed, I think it was. It was significantly less followed.
Lauren Beagen:But look, this rule in the black and white law that is written into the regs right now has non-binding examples of unreasonable conduct that feels very familiar to anybody in ocean shipping and I think you should pay attention to this. So what does it actually say? What is part of this rule that is now law as of Monday, this past Monday, september 23rd? Well, it says Part E non-binding examples of unreasonable conduct when linked to a refusal to provide cargo space accommodations. They list out six different non-binding examples of unreasonable conduct when linked to a refusal to provide cargo space accommodations. They list out six different non-binding examples of unreasonable conduct, but kind of their inclusion this is a unique thing to include these non-binding examples of unreasonable conduct. They include blank sailings or schedule changes with no advance notice or insufficient advance notice.
Lauren Beagen:Blankings and schedule changes are a very normal or something that certainly occurs in a familiar way, part of the supply chain. This is with no advance notice or insufficient advance notice. But pay attention, right, that's something that we certainly all kind of know what that is. And blank sailings is usually for operational changes, right, where they might need to change their schedule, and blank a port where they skip a port, essentially. So it's.
Lauren Beagen:So pay attention, right, they under this party non-binding examples of unreasonable conduct for cargo space accommodation refusals, vessel space, vessel capacity limitations not justified by legitimate transportation factors. They go through and they define different legitimate transportation factors in this rule. They also identify failing to alert or notify shippers with confirmed bookings of any other changes to the sailing that will affect when their cargo arrives at its destination. I mean, these are pretty familiar, right, I mean? But granted, these are probably on the further end of the spectrum, but this is what the FMC has listed as non-binding examples. There's three or four others that I haven't even mentioned here Scheduling, insufficient time for cargo tendering or vessel loading so that it is constructively refused, providing inaccurate and unreliable vessel information, or, obviously this is the part that's not surprising, right the de facto, absolute or systemic exclusion of exports in providing cargo space accommodations.
Lauren Beagen:Those were non-binding examples of unreasonable conduct linked to to refusal to deal or negotiate. So we're seeing both refusal to deal or negotiate but also refusal to provide cargo space accommodations. So this refusal to deal or negotiate, non-binding examples. The first one quoting rates that are so far above current market rates. They cannot be considered a good faith offer or an attempt at engaging in good faithbased negotiations. That's important, as we're about to probably see, and certainly already, because of the chaos of the East Coast and Gulf Coast right now. These quoting of rates right, and this is saying quoting rates that are so far above current market rates. I mean, right now we're going to be seeing capacity pinches before everybody's trying to get their exports out before potential port strikes. So I'm just saying, keep this all in mind. This is not direct legal advice. This is something that I just want you to pay attention to. The other one, of course, of the non-binding examples of unreasonable conduct when linked to a refusal to negotiate the de facto, absolute or systemic exclusion of exports and providing vessel space accommodations. So, especially with the pending strike, I think this rule is about to become very relevant and likely one of the most overlooked activities of the FMC.
Lauren Beagen:Throughout all of this, because of this non-binding examples being listed, I thought for sure that this rule would have had a petition filed against it, and perhaps there was. Perhaps there was, perhaps I've just missed it, but I really haven't seen anything in the regulationsgov docket or anywhere else that would suggest a petition has been filed against it. So look all this to say don't sleep on this rule, reread it, get to know it, find out how it can help or hurt you because, as of Monday this past, monday September 23rd, this is current law Unreasonable refusal to deal or negotiate with respect to vessels-based accommodations. That's defining that. That was that rule.
Lauren Beagen:The other one, the third rule that we're waiting on, is defining unfair, unjustly discriminatory methods. We're still waiting on standalone language here. The FMC has said that they included some of that in the unreasonable refusal to deal or negotiate as we kind of talked about. But there likely will still be an independent rule, standalone rule on that one. Chairman Maffei has said that I think at one of the commission hearings that he was still anticipating that that would be a standalone for the remaining pieces that didn't get covered under that unreasonable if we still negotiate. So I'm going to keep watching that. And of course we're still watching the progress of the MTDI, the Maritime Transportation Data Initiative. We had RFI 2 closed up. They received over 20 comments on that, I think it was, which was really encouraging because that shows that the industry is still engaged in the topic. You know we've heard from the NSAC, national Shipper Advisory Committee to the FMC, the Federal Advisory Committee to the FMC. Commissioner Bensel was on for their last public meeting. That was on during the live meeting there and he said that he was expecting some conclusion or some sort of final report or next steps to be happening sometime this fall. So I'm going to continue to watch that to see where that goes. All right, that's just updating on the rulemaking Gosh, there's a lot that happened.
Lauren Beagen:Usually August is a slower month, all right. Story number two let's get into the beast of the week, the month, the year. Isn't it strange that we keep having these unprecedented disruptions in the supply chain, all within a few years? Certainly doesn't make them any less unprecedented, but hopefully our collective resilience and strategic approach is improving, let's hope anyways. Right?
Lauren Beagen:So the impending strike at the US ports involving the International Longshoremen's Association, the ILA, and the United States Maritime Alliance, usmx. This strike could disrupt shipping routes, impact supply chains and, in turn, affect consumers across the globe. But why is this happening? Right? How might the FMC authorities be applied here? That's what I want to break down. That's the angle that I want to talk about today, but, as we always do, I want to make sure that all the listeners are on the same page, because this story has not reached national news as much as I think that it probably should, but it certainly has been in our trade press. If you're on LinkedIn, you've been certainly seeing this flying around if you tend to follow ocean shipping.
Lauren Beagen:But let's set the stage by explaining the two major players involved. So, as I said, we have the ILA, the International Longshoremen's Association. They represent the dock workers at the port along the east and gulf coast of the United States, so that's roughly 36 ports that covers. The ILA has a long history of advocating for fair wages, safe working conditions this is a very, very, very dangerous job and better benefits for its members, right. So on the other side we have the United States Maritime Alliance, or the USMX or just Maritime Alliance. This alliance represents the port operators, the terminal companies, the terminal operators, the ocean carriers, who all use these vital ports for shipping goods. The Maritime Alliance negotiates contracts with the ILA to ensure that port operations run smoothly. This happens about every five to six years, right, that's usually the terms of these contracts. The ILA and Maritime Alliance come together to negotiate these new labor agreements.
Lauren Beagen:Historically these negotiations are by a little tense, although certainly less tense than the West Coast, but we've seen labor disputes because of these negotiations lead to some work slowdown through the years. It's actually been over 40 years since we've last seen a full-blown strike on the East Coast. The last one was 1977. And, as I'm sure you all know, right now we're at one of those critical points and the tensions are very high. So what's causing the conflict this time around? Sure, it's kind of the same players, right? There's several issues on the table, but the main sticking points really are going to be, and continue to be, allegedly right, because we don't know what the inside of the negotiations are. We're seeing a little bit of like a public negotiation, with competing statements coming out from either side being released, but, of course, it seems that the main sticking points here are wages, automation and working conditions.
Lauren Beagen:So first, wages and benefits right. The cost of living has skyrocketed in recent years and the ILA is pushing for these wage increases that reflect the rising expenses. But they're also pointing out the incredible profits that the employers enjoyed during the COVID congestion years. However, I want to mention, like I always say, there was likely nobody more surprised by those profits during COVID congestion than the ocean carriers themselves. They even had a few years in the 2010s when they saw negative profit and loss statements. We even saw Hanjin go bankrupt during that time. So this was a surprise. No one knew which way it was going to go, if it was going to be a spike in demand or if people were going to be saving money and not purchasing things during COVID. But, however, between the crisis in the Red Sea, the weather-related events and just generally, the increasing cost of the operations of moving goods, the Maritime Alliance is under pressure to keep those costs down. Remember, the more expensive the transit of a good is, the more expensive that good is to the ultimate consumer.
Lauren Beagen:So the second issue at hand here, of course, is going to be automation. Right, that's become a major issue in port operations worldwide and some argue that automating certain processes can improve efficiencies and reduce costs. But of course the ILA sees it as a direct threat to jobs and as more ports push for increased automation or potentially ways of increasing efficiencies, of course the dock workers are concerned about being replaced by machines and losing their livelihoods. They specifically point out the AutoGate system in Mobile, alabama, which is a little bit strange because it's not necessarily new technology or even a new system at that specific port. But in the recent weeks and recent days even we've seen the ILA president, harold Daggett, come out and say that automation is a major problem.
Lauren Beagen:Finally, there's the working conditions issues. Look, covid was wild and those first few months, and certainly the first few days and weeks, dock workers showed up to work, right, it's already an incredibly dangerous job and to increase that danger with this unknown disease at the time, especially when it was, you couldn't even leave your house. Right, it was scary to leave your house. I mean, remember those first few days and weeks were pretty tense. The message from ILA President Daggett is that the pork workers kept America afloat and while that ultimately turned into huge profits for the carriers and employers, the ILA says that they didn't really have a cost structure to compensate for that. Again, dock workers often work long, grueling hours for hazardous environments and the ILA is pushing for improved safety protocols and better working conditions, particularly in light of the pandemic. And better working conditions, particularly in light of the pandemic.
Lauren Beagen:However, some of the reports coming out are that the ILA is looking for upwards of 77 plus percent wage increase here, contrast that with the West Coast that just concluded their negotiations. After a 10-month holdover from their contract expiration, they didn't have a strike. They continued to work throughout the expiration of their labor negotiation but they saw right around a 32% wage increase. Contrast that with the reported 77 plus wage increase request from the ILA here, which is starting to play into the uncertainty of maybe we really will have a strike. So what happens if the ILA and the Maritime Alliance don't reach an agreement and the strike goes ahead? Well, look, of course the consequences could ripple across the entire economy, right? So the ports along the East Coast and Gulf Coast handle about 40 to 50% of America's imports and exports, according to a report out of MITRE.
Lauren Beagen:It's important to note that the West Coast is still open for business. The West Coast is still available, even if the East and Gulf shuts down, which is unlike COVID, right? The West Coast, the entire system, the entire globe kind of reacted together. This is an East Coast and Gulf Coast thing right now. So we still have some fluidity right, and for the most part, the West Coast ports have been handling the uptick in cargo of those shippers who were able to and who diverted their cargo to the West Coast in anticipation of this potential strike.
Lauren Beagen:However, like we know, businesses that rely on just-in-time inventory models could face shortages right, and, more notably, perishable goods that cannot be frozen can't just wait to be left in, not be frozen can't just wait to be left in. Bananas have kind of risen as one of those main commodities that may be impacted, that have been kind of talked about as one of those supply chain problems that we might see immediately and even, as a result of the chaos of fast tracking, the cargo coming in getting off the yard. Now those have additional costs, right, all of this kind of speeding up of the system has additional costs which could potentially exacerbate inflation. International companies that rely on the US ports for trade might also be impacted. So where does the FMC come in? Right, all of this is hopefully stuff that you haven't isn't a surprise to you, but where does the FMC come into all of this? That's where I like to usually pivot and really provide some expertise and some insights here.
Lauren Beagen:As we know, the Federal Maritime Commission is an independent regulatory federal agency that oversees global ocean shipping as it relates to using the US. Its primary mission is to ensure a competitive and reliable international ocean transportation system for the benefit of the US importer, exporter and consumer. And while the FMC doesn't have direct authority, obviously, over these labor negotiations, it does have a stake in ensuring that disputes like the one brewing between the ILA and Maritime Alliance doesn't cripple the nation's port system or, more importantly, doesn't create monopolistic behavior or an unfairness to the overall system. So the FMC, under the authority given to it by the US Congress through the Shipping Act of 1984, like we know, we talk about that all the time will monitor behaviors of the regulated entities that they oversee. Specifically, the FMC released an industry advisory just recently stating and I'm going to read part of it directly here it says the commission is directing its Bureau of Enforcement, investigations and Compliance to investigate any reports of unlawful conduct of regulated entities. It says the FMC will prosecute violators to the fullest extent of the law.
Lauren Beagen:The FMC is getting a little bit more bold with some of its announcements and some of its statements. So it says. It continues on to say common carriers and marine terminal operators, mtos, must continue to comply with all statutory and regulatory requirements, including rules governing tariff service contracts, mto schedules, the application of and invoicing for demerged detention and all other fees and surcharges assessed. Continues on to say demerged detention and all other fees and surcharges must be reasonable, clearly defined and serve a specific, measurable purpose. It continues to say FMC regulations require that demergent detention fees serve a legitimate financial incentive to encourage cargo movement. They're really kind of hitting back to that incentivization principle. It continues on to say pursuant to these requirements, the commission will scrutinize any demergent detention charges assessed during terminal closures. So yes, of course the FMC is keeping a close eye on the negotiations.
Lauren Beagen:There have already been a handful of ocean carriers and terminals that have announced some form of work disruption surcharge, but notably, they released them with a 30-day notice. And I only mention that because, when the Red Sea crisis began, surcharges were proposed through a special application process to the FMC that allowed the rates to be introduced on less than 30 days notice. And I'm mentioning that because most of the surcharges that we're seeing here in this potential strike or this work disruption, don't take effect until mid-October. They did the 30-day notice, which they released those notices mid-September and, like I said, the growing sense is that if a strike does occur, perhaps it'll only be a few days, meaning what I'm what I'm thinking here is those surcharges may not see the light of day, potentially Right, if they don't go into effect until mid-October and the strike might conclude, you know, by the end of next week. So maybe like the fourth or fifth of October. Look, I'll know.
Lauren Beagen:It's important to look into the details of the surcharges, specifically how they relate to you. This is not legal advice. This is just bringing to your attention general educational conversation. Look, it's also possible that these work disruption surcharges might be used in cases of extreme congestion, like when the ports open back up after a potential strike happens. Perhaps that's what they're for as well. Look into the details. Make sure that you're reading everything about these surcharges so that you know when they apply and when they don't, because the more organized you are, the better situated you're going to be.
Lauren Beagen:Something else to consider the pending decision on whether closure during holidays and weekends right, that's something that we've talked about. The pending decision on whether holidays and weekends is allowed or is counter to the incentivization principle for the application of demurrage or detention. So what does that mean? Can you charge D&D on a holiday or a weekend? The FMC has a case on that. So it's 1966I, which is an informal. It's the TCW versus Evergreen Shipping. The FMC has a case on that. So it's 1966 I, which is an informal. It's the TCW versus Evergreen shipping.
Lauren Beagen:The FMC previously relied on that to say in an announcement when a port is closed, essentially, and equipment cannot be returned, charging per diem is unjust and unreasonable. That decision was vacated, overturned and remanded, sent back to the FMC by the US Court of Appeals for the DC Circuit in July, just a couple months ago. So what does that mean? That means that the FMC has to revisit that case, but it means also in the meantime can't really be relied on. Right and, like I said, not legal advice, just general discussion as we close in on the possibility of a labor stop. It's just keep that in mind that the waters may be extra murky on what constitutes reasonable detention, demerits, charges. There's a lot of considerations if a labor strike really occurs in a few days. I just want to remind everybody that this holidays and weekends case has been vacated and remanded from the US Court of Appeals for the DC Circuit, so pay attention to that too.
Lauren Beagen:So what's next? Right, what's the likelihood of a strike? But look, both sides are still at the negotiating table. Well, ish, right, they haven't actually formally met since June. Hopefully, hopefully, they will come back together. We're headed towards strike zone and that has the potential to halt operations. We're not exactly sure what that looks like. Right, if that's going to. I've heard reports that that's not going to affect military and that's not going to affect crews, but we're still finding out what that all means. So, look, the good news is that labor negotiations are often fluid and strikes are typically used as a last resort. We could have an agreement at any point, right At any point.
Lauren Beagen:Both the ILA and Maritime Alliance have vested interest in avoiding a prolonged work stoppage, and there's an argument to say that there's a diminishing return for the ILA. The longer the strike goes, right, the short term. They really reinforce the fact that we're here, we're important. This is a key factor for the movement of goods, but the longer it goes, the more the consumer, the more you and I are going to feel it at the grocery store and really throughout the entire country at already a tough time when prices erupt. So, look, we'll see. So what's the best thing you can do right now, especially those of us that are in the supply chain? Look, the pain is, if this happens, the pain is going to be felt by many, right, but the X factor really will be staying organized and keeping good records to help tell your story after the storm passes.
Lauren Beagen:Not everything is necessarily going to be worthy of litigation, and maybe not the way you want to go, but business negotiation still favors good documentation. I mean that and having someone help, you know, having someone who understands the rules of the game to help you navigate those steps. Look, it can be a complicated mess with not a lot of clear answers, but it doesn't have to be overwhelming. When you course correct, when the strike ends, when everything starts to fall in and you start to to surmass some of these surcharges, and and when you kind of check the work of of what's correct and what's incorrect, um, faith, we're going to get through this. The good news is it's not necessarily commodity specific, right, it's going to be equally felt across the East Coast. But the bad news is that I think we, if nothing else, we, will feel repercussions from the chaos that we are going through right now, as the ports and terminals are trying to clear out the yards for that congestion that might hit once the vessels are let back in if a strike does occur.
Lauren Beagen:All right, let's go into the other stuff. There's a lot of other things that are really important. Let's talk about ship-to-shore cranes. As we know, because I've been talking about this, the president directed the United States Trade Representative to increase tariffs on ship to shore cranes to 25 percent in 2024. And actually at the time it looked like it was going to be an August 1st start. Twenty five percent tariff on cranes was, I mean, less than 90 days notice, I think is what it was, or about a 90 days notice. So this ship to shore cranes, this applies this, this direction from the president to the USTR, applied to transporter cranes, gantry cranes and bridge cranes under subheading 8, 4, 2, 6, dot 9, 1, 9, dot 0, 0. So now look here's where it got a little complicated Right.
Lauren Beagen:A lot of industry voices immediately raised concerns about the timing and about the tariff that when this announcement came out, 25% on tariffs, ship to shore cranes or 25% tariffs on ship to shore cranes, ship to shore cranes were initially eliminated from these lists of the China tariffs. And now here it was, earlier this summer, I think in May, being proposed to not only not be an exception and not be taken off the list, but kind of being forefront of one of the main called out industries that needed, according to the announcement from the administration, this 25% tariff. Like AAPA, the American Association of Port Authorities, was one of the loudest and most effective voices coming out against this tariff. The USTR said that commenters rightfully pointed out. Well, I say rightfully pointed out. Ustr said that commenters rightfully pointed out. Well, I say rightfully pointed out. Ustr said that commenters pointed out that purchasing ship-to-shore cranes often takes more than two years, meaning many contracts, as we talked about, were already in place before the tariff increase was proposed. And recall, at this time it was only going to give, I think, like I said, less than 90 days notice. So adding these new duties, this new 25% tariff, which is significant on a $10 million plus crane purchase now would hit US ports and economy hard, especially when those purchases were made well and advanced and financed and preplanned. So in response, most commenters suggested removing cranes from tariff consideration. Of course that's of course because it was initially removed when, when tariffs were coming out during the Trump administration. But then, if it wasn't capable of being removed, commenters said that, in a bare minimum, allow cranes already under contract to enter the US without those heavy duties.
Lauren Beagen:Heavy duties, heavy tariffs, offering some economic relief while still addressing the president's security concerns over Chinese state sponsored cyber threats. Right, that was kind of the crux of this. This all came down to the fear of the cyber threats over the cranes. So what was the ultimate decision? The USTR final decision on their announcement September 13th, just a few weeks ago. Like I said, there's been a lot happening other than just this ILA negotiation. September 13th, the USTR said that while the tariffs will go up in 2024, cranes fulfilling contracts signed before May 14th 2024 will be exempt from the additional duties if they enter the US before May 14th 2026. So what can you do now? I mean, hopefully you signed a contract before May 14th 2024 for a new crane and hopefully you'll be able to get it here before the two-year expiration, because they're setting May 14th 2026.
Lauren Beagen:Protectionist uh tariff. I'll say um on on the cranes and addressing those national security risks, while also balancing the need for more than 90 days notice for a crane to come in Right. So um the the USTR announcement goes on to say importers of these cranes will need to follow specific certification steps with us customs and border protection to qualify for those exemptions. This is this is also important. Look, as vessels come in, they need these ship-to-shore cranes to unload those goods and the more expensive those cranes are, the more expensive the overall movement of those boxes are. The more expensive the boxes are to move, the more expensive the goods inside them are, which contributes to prices when you go shop, so pay attention to that. There's some big stuff.
Lauren Beagen:What else should you be paying attention to? The Gemini cooperation. Look, the Gemini cooperation and the Federal Maritime Commission's approach to it. This is a little bit unique, certainly interesting. That also happened over the summer, remember? The Gemini cooperation is this new global ocean alliance between Maersk and Hapag-Lloyd. It's set to go into effect February 1st 2025, but it became effective as of September 9th 2024. So just 20 days ago.
Lauren Beagen:So now it's important to understand how the FMC works when it comes to reviewing agreements like this one, because this is misunderstood. The FMC doesn't technically approve or deny agreements. They don't technically approve or deny global ocean shipping alliances. So when people say, oh, the FMC approved the Gemini cooperation, that's incorrect. That's not factually accurate. Instead, once an agreement is filed, it becomes effective 45 days later, unless the Federal Maritime Commission pauses the clock by asking for additional information. Request for additional information RFAI. The only way for the FMC to stop an agreement from going into effect in this automatic mechanism is to seek an injunction in federal court. They have to file an injunction, a lawsuit, in federal court, with their rationale for why it needs to stop because it would have to be a violation of the Shipping Act for the FMC to bring that.
Lauren Beagen:So the FMC released a statement on the Gemini cooperation saying that it became effective and or certainly went into effect, with the February 1st commercial announcement kind of in mind. Commissioner Chairman Dan Maffei at the same time released his own statement and said that the agency used the tools at its disposal for this review one such tool being its in-house economics team, the Bureau of Trade Analysis and sent follow-up questions. They did the tolling of the time but despite the review, it felt like a sense that the FMC may not have been completely satisfied with their ability to predict whether this new alliance would have anti-competitive effects once it becomes active. It was kind of a strange pairing of this is coming out but we've and we've done all we can, but the sense was like it felt like we're not really sure if this is going to be anti-competitive or not, which is a little bit troubling. This is going to be anti-competitive or not, which is a little bit troubling.
Lauren Beagen:Additionally, commissioner Carl Bensel and Commissioner Max Beckett also issued a statement at the same time on the Gemini cooperation agreement and in their statement they reminded of a pending legislation in the US House of Representatives. We've talked about it before but it's been a little bit. It was introduced by California Congressman John Garamendi. Through that legislation it would provide the FMC the authority to determine whether an agreement is likely, by a reduction in competition, to produce an unreasonable increase in transportation cost or an unreasonable reduction in transportation service under the Shipping Act. Specifically, the announcement says that HR 2710 would authorize the FMC to directly enjoin the operation of an agreement If the FMC determines it violates the law, and would allow third party intervention in such proceedings. This legislation aimed to strengthen the FMC's ability to enforce competition in the ocean shipping industry, and the announcement from the two commissioners said that through this statement that they are both on record initially in supporting that legislative proposal, but then they also still think that it makes sense today. So essentially, what that proposal is saying is that the FMC, under current law, can't approve or deny these agreements in house. They have to send it out to I mean you could argue a non-expert federal court to decide whether this is anti-competitive or a violation of the Shipping Act. This pending legislation is saying nope, nope, nope, bring it back to the FMC. We think that those are the experts and they should have that decision. That's what these two commissioners are saying through their support of this.
Lauren Beagen:Well, that's all just the announcement, right? So here's where things got even more interested. The FMC tools are limited, right. Like I said, the government doesn't have much power. The FMC doesn't have much power to prevent private companies from forming alliances to improve their operations, because that's the argument saying that these vessel sharing agreements improve operations and improve routing. I do believe that. I do think that they do that. I think that they help bring a better effectiveness of the vessels that are out there. Instead of half-loaded vessels, you have comboing of space. They're still competing. Those companies, even though they're in vessel sharing agreements, are still in competition with one another and are still competing against each other to get your business. So, look, that's by design to keep government from unnecessarily stifling those business ideas through red tape.
Lauren Beagen:But look, in this situation, the Gemini cooperation. Why is it unique and specifically interesting? Because it's pitching a new hub and spoke model, and with that, of course, comes a lot of unknowns. The FMC might be concerned about those uncertainties here. Maybe that's what they're kind of hinting at or kind of proposing. Is that, look, there's not enough solid, there's not a lot of solid evidence to argue that it would violate the Shipping Act and that they can't really prove that it would stifle competition. But that doesn't mean that they're not still worried about it. And of course the tone of the FMC's review feels a little bit like we didn't really find anything wrong yet. But we're watching you. And that was not so thinly veiled, right, it sounds a bit heavy handed. But if Gemini cooperation look is playing by the rules, if the Gemini cooperation is playing by theitive, so double negative if they're being fair and they're just doing vessel sharing like normal, there's nothing to worry about here. It's only when you're violating the Shipping Act do you really have something to worry about, and that's when the FMC would come in.
Lauren Beagen:The FMC said and certainly has ramped up the tone in its press releases over the past few years, I would say, and certainly over the past year it feels like and it really emphasizes its role in closely monitoring agreements and just kind of closely monitoring the supply chain generally. It's clear that the FMC wants the industry to know that they're doing their job in watching for competition and competitive effects. But the key point here is they really have limited manpower and resources at the FMC. They have just over 120 employees there and filing an injunction in federal court takes significant effort and significant manpower. So I mean, to me it feels like, unless the FMC has a strong argument to back that, they really felt like this was anti-competitive and a violation of the Shipping Act. It felt like maybe they decided to hold off on that significant measure to stop an agreement, opting instead to let the agreement go into effect. But, as they mentioned, they're going to continue to keep a close eye on it.
Lauren Beagen:It's a little bit strange just having that warning shot with the announcement that it went into effect. Look, the FMC's stance on this Gemini cooperation seems to be a cautious, wait-and-see approach. They're certainly monitoring the situation but without that hard evidence of anti-competitive behavior they're likely not stopping it for now. And that's certainly what happened. Right, we know that happened. They didn't stop it for now, but they did make it very clear that they're going to be watching that closely. So as, just as the FMC is watching Gemini cooperation closely, I think we can all watch what the FMC does here closely. And as that February 1st start date ticks closer, we'll see. We'll see what it looks like. But I mean, if they're not doing anything wrong, no problem. I can tell you that there was heightened concern when Global Ocean Alliance is kind of reshuffled in the mid-2010s too. So we'll see what this new hub and spoke model looks like and perhaps we'll get more clarity as we get closer to the concerns that the FMC had, because maybe we'll see a little modification of the Gemini cooperation to make sure that they are more in line with what the FMC finds comfortable zone. But that's not necessarily their job to make sure that the FMC feels comfortable. It's their job to make sure that they're compliant with the law, which is arguably the same thing. But yeah, story number five, last story of the day, we are only scratching the surface on the things that happened the last few weeks and months. But story number five alliance reshuffling.
Lauren Beagen:The shipping world is about to witness a major shakeup in alliances as we move toward 2025. Look, we're seeing we're going to have big changes coming from MSC, marist, copa, lloyd and some others, right, so let's break down what's exactly happening. So today, today we have three global ocean shipping alliances. We have 2M, which is MSC and Maersk. We have the Ocean Alliance, which is Costco, evergreen, oocl and CMA, cgm, and we have the alliance, or THE Alliance, which is Hoppig, lloyd, yang Ming, hyundai Merchant Marine and O&E, as of February 1st 2025, so, as we move into 2025, we're going to see MSC in kind of a standalone area. We're going to see the Gemini Corporation, hapag-lloyd and Marist. We're going to see Ocean Alliance, for the most part stay unchanged. That's going to be Costco, oocl, cma, cgm and Evergreen, but we're going to see a new alliance that I really haven't seen a lot of talk about, called the Premier Alliance. It's Hyundai Merchant Marine, o&e and Yangming. It's basically a rebranding of the alliance, the Alliance, and perhaps that's why because I've heard it both ways THE Alliance or the alliance, or the high efficiency alliance Perhaps maybe they want to get rid of that the and now it'll be Premier Alliance, which is the alliance minus Hoppe-Gloyde.
Lauren Beagen:So, look, we're seeing MSC is going to be rolling out a new standalone service network, officially marking the end of the two-end vessel sharing agreement with Maersk. So MSC is going to be providing that independent service for the East-West trade routes, as far as we're seeing, but we're also seeing the alliance, the moving over into that premier alliance that's going to be kicking off in 2025 and will last for five years. It's interesting, though, because the premier alliance and MSC have actually announced a slot exchange program too, and I think that that's going to be something to watch Slot exchange and slot partnerships or slot swaps. It's essentially a limited, it's not a vessel sharing, but it's like slot charter agreements. So we're seeing that as a potential for 2025 for a slot charter agreement coming between MSCk and or excuse me MSC and Premier Alliance, the Gemini cooperation. As we know. It's going to be this new hub and spoke model, keeping a close eye between Maersk and Hapag-Lloyd. It's what the announcement is is that it's going to be a new hub and spoke model, centered on 12 global hubs and serviced by 26 mainline services and 32 dedicated shuttles, and perhaps we might see a little bit of a modification of those exact numbers, but it really is an innovative model.
Lauren Beagen:We're also seeing another partial partnership, and I'm interested to learn more about this, but between MSC and Zim. This is being called the Trans-Pacific Operational Cooperation. This is going to be covering Asia-US East Coast and Asia-US Gulf trades. This has been announced as being a February 2025, and this will have slot swaps and vessel sharing. This is interesting because Zim originally really hasn't been part of global alliances previously, as they kind of exist now and again. This brings MSC kind of closer back to that world of alliances-ish and I say ish because I really haven't seen this agreement filed yet, I haven't seen what it looks like and reminder, these Global Ocean Alliances are public. They go out onto the FMC Agreements Library. You can go take a look. I'm going to keep watching for it and take a look as we get closer.
Lauren Beagen:So what does all this mean for global trade? Right? All these announcements represent a significant reshuffling of the alliance landscape. These changes are expected to potentially reshape global shipping routes, offering arguably right more flexible service options, new capacity and, hopefully, better routing choices for shippers worldwide. I think it's a good thing that alliances are reshuffling because, to me, that also signals that they're taking into consideration these unprecedented events that have been happening over the past few years and having business reaction to them to provide better options for their customers. So, as we continue to move towards 2025, I'm certainly going to continue to watch how these new alliances impact the industry and what further developments or modifications we might see. I think truly, though and I believe this that global shipping landscape will hopefully have more flexibility. This means competition right. Even though they are vessel sharing agreements. They're still competing. They're not sharing rates, they're still competing and hopefully a little bit more just general, better routes.
Lauren Beagen:Look, that was a lot to catch up on. There's still more we haven't covered right. We have chassis pools to cover. We have D&D pending petition that we only kind of started to get into. We have a lot to unpack still as we get back into this weekly podcast. So I'm happy to be back, I'm happy to see you. I have a surprise guest maybe for next week that hopefully we'll be bringing on.
Lauren Beagen:I've been trying to sprinkle in a few more guests to this podcast but, as always, as always, the guidance here is general and for educational purposes. It should not be construed to be legal advice directly related to your matter. You need an attorney, contact an attorney. But if you do have those specific legal questions, feel free to reach out to me at my legal company, squall Strategies. Otherwise, for the non-legal questions, the e-learning, general industry information and insights, employee webinar trainings I've been doing a bunch of those recently. Come find me at the Maritime Professor. 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 maritimeprofessorcom. I have e-courses back in my sights. Folks, we're moving forward there. So until next week, this is