Container Ship

With continued confusion and unsettled concerns over SOLAS, the International Maritime Organization, on May 20, announced a 90 day grace period for shippers who must provide the Verified Gross Mass of containers and their contents starting July 1. The IMO stated they wish to provide “flexibility to all the stakeholders in containerized transport to refine, if necessary, procedures for documenting, communicating and sharing VGM information."

Some major U.S. East Coast ports have stepped forward to offer container weighing and certifying on their premises. Ports have always weighed containers to comply with OSHA regulations, and the statement of equivalency announced by the U.S. Coast Guard on April 28 creates the opportunity for ports and terminals to help shippers comply with SOLAS. The Port of Charleston set the precedent in the U.S. by offering container weighing services, and other container terminals such as the Port of Newark Container Terminal at the Port of New York and New Jersey have offered to weigh containers as well. Competition among ports may drive down prices, as the Port of Charleston scrapped their $25 fee after the Port of Savannah offered to weigh containers at no charge. West Coast ports appeared to have adopted a “wait and see” approach but recent indications show they may follow the East Coast lead.

Internationally, a handful of significant ports have opted to weigh and certify containers. Shenzhen’s Yantian International Container Terminal, the main gateway for China’s exports in the Pearl River Delta, will offer weighing services. Modern Terminals’ facilities in Hong Kong, Shenzhen, and Taicang near Shanghai will also follow suit. In the UK, the Port of Felixstowe, the country’s busiest port, will weigh containers and expects 70 percent of shippers to use their weighing services. Russia’s second largest container terminal and a major Singapore terminal operator will also start weighing containers for SOLAS.

We eagerly await other ports in the U.S. and worldwide to also offer on-terminal weigh options to comply with SOLAS. The Agricultural Transportation Coalition (AgTC) reports that some carriers are accepting container weights generated at terminals, while others are adjusting their systems to accept the cargo weight and then adding the container weight themselves and submitting the VGM to the terminal for the shipper, which is the “rational method” long advocated by AgTC. With recent developments in the U.S. and worldwide, we are hopeful SOLAS rule compliance will be implemented using the “rational method” and avoid disruptions to the supply chain.

Photo courtesy of Ingrid Taylar

 

TPP2

 

The Trans-Pacific Partnership (TPP) has been called one of the most “ambitious” free trade agreements in our time. It’s the largest, most diverse, and possibly most comprehensive regional trade agreement ever reached. Certainly, the TPP will affect a great number of people and businesses around the world. The 12 member nations that signed the agreement last October make up 40 percent of the world’s GDP and account for one-third of global trade.

 

President Obama is calling on Congress to ratify the agreement while supporters and detractors argue the merits of the trade deal. As proponents of free trade, we are cautiously optimistic about a trade agreement that will accelerate the free flow of goods and services across borders. The TPP reduces a sweeping number of tariffs and non-tariff barriers to trade, some of which are more significant than tariffs themselves. Restrictive non-tariff measures include import licensing requirements, rules for customs valuation, and discriminatory standards. Lifting them will account for 53 percent of the improvement in TPP member nation GDP.

 

Who stands to benefit?

 

This is a promising trade deal for U.S. exporters. It will eliminate 18,000 tariffs on U.S.-made goods in TPP markets, including all manufacturing tariffs. Although many tariffs are already low between the U.S. and TPP countries, there are notably high tariffs in a number of key areas that have been protected by trade policies. U.S. exports in agriculture and manufacturing will gain a stronger position in trade with TPP countries, which include a number of the fastest growing Asian markets. According to a recent Petersen Institute study, U.S. exports will increase by $357 billion or 9.1% by 2030 as a result of the TPP.

 

TPPgraph

 

However, the U.S. is the not the country that benefits most from the agreement. A 2016 World Bank study on the macroeconomic effects of the Trans-Pacific Partnership estimates that the U.S. will actually benefit the least in relative income out of all the TPP signatories. Participating countries on average will gain 1.1% GDP by the year 2030 from the agreement, though the small open economies of Vietnam and Malaysia will experience the most dramatic relative gains, 10% and 8% of GDP respectively, by 2030, as they gain favored status in large export markets such as the U.S. The United States, which relies less on trade as a whole, will gain only 0.4% GDP by 2030 from participating in the TPP.

 

What about China?


The Trans-Pacific Partnership is an important component to the Obama Administration’s “Pivot to Asia.” U.S. allies in Asia see the TPP as a balance against China’s rising economic and military influence in the region and a way to depend less on China’s economy, which has been deepening economic ties with most countries in Asia. The TPP’s open architecture allows countries like China to join later. At the moment, China is taking a neutral stance, waiting to see how the trade deal plays out. With the signing of the TPP, the U.S. has taken a leadership role in writing the rules of global trade. If China wants to join, it will have to agree to the labor, environmental, and intellectual property standards set forth by the agreement.

 

Photo: Courtesy of NFarmer

Graphs: World Bank study

 

 

 

 

ContainerShip3

July 1st is the first day the Safety of Life at Sea’s (SOLAS) new amendment goes into effect. In less than 70 days, SOLAS will make shippers responsible for the weight of the container and its contents (Verified Gross Mass) before they can be loaded onto an ocean carrier. As of today, there’s still no consensus on how to carry out these rules though some carriers are starting to issue guidance.

SOLAS lays out two methods to obtain the Verified Gross Mass (VGM):
 

  1. Weighing the packed container using calibrated and certified equipment; or
  2. Weighing all packages and cargo items, including pallets, dunnage and other securing material to be packed in the container and adding the tare weight of the container to the sum of the single weights, using a certified method approved by the competent authority of the State in which packing of the container was completed. 


It’s important to note that Admiral Thomas of the United States Coast Guard recently reiterated that the Coast Guard will not be enforcing the regulation by penalizing shippers. Instead, the Coast Guard stated that they will continue to have jurisdiction over ocean carriers, and emphasized that shippers and carriers must agree upon business “best practices” to comply.


The “rational” approach advocated by the Agricultural Transportation Coalition (AgTC) is the current method and adheres to the SOLAS principles. Another method is to weigh the container at the ports, but most ports do not have a way to certify the weight. The Port of Los Angeles, Port of Long Beach, and Port of Oakland as well as a majority of ports have already declared that they are “incapable” of weighing and certifying containers to comply with SOLAS. Meanwhile, the Ocean Carrier Equipment Management Association (OCEMA) has released their own “best practices” to comply with SOLAS, which can be viewed here.


AGWorld is in favor of the “rational” approach supplied by AgTC as we make preparations to comply with SOLAS. We’ll keep you informed on new developments with SOLAS’ new rule and how it will ultimately be implemented here in the U.S. Please contact your AGWorld representative with any questions and concerns on SOLAS’ rule and how it may affect your shipments.

Photo courtesy of Ingrid Taylar

 

 

 

 

airplane2

 

Several Asian airlines, including Cathay Pacific, China Air, All Nippon Airways and Eva Air have announced higher security charges on air cargo in recent weeks. These new charges are unsurprising, given that public pressure and government regulations have forced many Asian airlines to scrap fuel surcharges, at least in name. Higher security charges are simply the fuel surcharge in new clothing.

Like their counterparts in Europe, South America, and the United States, Asian airlines want the fuel surcharge to stay forever. But they also worry about how sellable their cargo space is. Airlines have found many different ways to disguise the fuel surcharge, when it’s not convenient for them. Many European and American airlines, for example, will bundle the fuel surcharge into their “all-in” price. The simpler structure helps airlines look like they are giving customers a better deal, but in fact still includes the surcharge.

We decided to do some digging on airline fuel surcharges, and whether they are here to stay. Why do airlines refuse to get rid of the fuel surcharge and work so hard to hide it within something else? The short answer: aggressive profits.

First of all, passengers and freight forwarding companies alike are irritated by fuel surcharges. Crude is down and relatively stable. Jet fuel prices are always a bit higher, but vary predictably with the price of oil. They’ve dropped from a high of around $140/barrel in 2011 to $45/barrel in April 2016 according to the IATA. There’s no justification for why airlines would still make a charge to cover high oil prices.

Governments are responding. The Hong Kong Civil Aviation Department announced in February it would no longer permit fuel surcharges for flights departing from Hong Kong due to the tumbling price of oil. Japan and Taiwan also regulate fuel surcharges, while other Asian airlines have been pressured by the public to drop the charges given that they are no longer warranted.

But fuel surcharges are still hanging on in all but name. For cargo shipments, there are three categories of charges: air freight base, security charges, and fuel surcharges. With fuel surcharges no longer credible, airlines are simply transferring the charge into either security charges or the air freight base. It doesn’t matter what the charges are called: airlines determine a price that covers their cost and makes an adequate profit and then split the price within these three categories. With one type of charge no longer in the picture, the charges have simply been moved into another category that might not be regulated by governments or scrutinized as much by the public. In Hong Kong, for example, the Civil Aviation Department doesn’t require airlines to obtain approval for security charges.

Fuel surcharges have existed since the first Iraq War. Notably, they have been bundled into passenger tickets prices and cargo charges since the price of oil climbed upwards sharply in 2011. On the surface, they help airlines cover the variable price of fuel, but there’s always been a rather loose association between the price of oil and the fuel surcharge. In reality, fuel surcharges have been important revenue generators.  

Even when the price of crude started falling fast with no sign of slowing, airlines kept the fuel surcharge much to public dismay. Yes, it can partly be explained by the concept of a “fuel hedge.” Airlines had purchased oil at an earlier date to cover future flights, anticipating that oil prices would increase. But now that fuel prices were lower than before, the companies would be paying a higher price than the market rate for fuel.

But of course, a more important explanation is also at play. Airlines in Asia have struggled to become more profitable in recent years. Despite rising demand, overcapacity of supply has made the market much more competitive for airlines - several carriers will compete to supply the same routes. Airlines were making additional earnings from the fuel surcharge and they were able to pad the bottom line. Today, as exports out of Asia are low, they’re using the fuel surcharge to squeeze more money out of cargo shippers.

The fuel surcharge strategy is also a clever marketing tool. Airlines have designated fuel surcharges as an extra charge similar to government taxes. Airlines could essentially make charges without taking full responsibility for them. With fuel surcharges, airlines were saying to customers, “These are additional costs that are beyond our control.” Except in light of falling oil prices, it has been a clear choice on the part of airlines to keep the fuel surcharges, and only scrap them when pressed by governments and the public.

Finally, the fact that several Asian airlines have announced a higher “security charge” in recent weeks is a worrisome trend. While it’s common for airlines to copy each other’s pricing strategies, sometimes they can take it to another level. In the past, airlines have been known to collude on surcharges, to keep prices high for customers and profits soaring.

Photo courtesy of Ikarasawa

 

 

 

 It’s fair to say that West Coast ports are tentatively relieved with the amount of business they’ve seen this year so far, despite the economic slowdown in China. Rebounding from a disruptive labor dispute that slowed traffic in early 2015, the Port of Los Angeles and Port of Oakland are reporting strong gains year-over-year in container volume for the first quarter of 2016.

Less growth than it seems

Do West Coast ports have reason to be optimistic? Yes, but not without reservations. Both the Port of Los Angeles and Port of Oakland are recording notable year-over-year gains, yes, but the numbers indicate a bounce back from a lackluster early 2015. We’re not seeing as much growth when taking a longer view.

In the Port of Los Angeles’ 109 year history, the current quarter has set the record for the busiest quarter yet. From January to March, the port handled 2 million twenty foot containers (TEUs), up 11.3% from the same period last year. In 2014, the Port of Los Angeles handled 1.92 million TEUs. That means growth from first quarter 2014 to now has been at a much more modest 6%.

Further north, the Port of Oakland handled 18.9% more volume than the first quarter of 2015 due to the resolution of labor disputes. No comparison was made to the same period in 2014.

Rising imports, driven by consumer goods and pharmaceuticals, have contributed to the growth of container volumes. In the first two months of 2016, the Port of Los Angeles experienced 36% year-over-year growth of import volumes while the Port of Oakland saw 52% more imports pass through its terminals than the previous year.

A weaker dollar has improved the competitiveness of American exports, driving export container volumes up as well. But while export volume has recovered from 2015, they are still down compared to two years ago at the two ports. At the Port of Los Angeles, March export volumes are down 13% compared to the same month in 2014. The Port of Oakland also saw a decrease of 9.8% from 2014.

What about labor?

We can’t be sure West Coast ports have overcome the labor tensions of the previous year that caused multiple delays and sent business to East Coast and Gulf Coast ports. The International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) signed a 5-year-contract last March, but it hasn’t been without birth pains. The labor dispute at the Port of Oakland towards the end of last month reveals that serious tensions and miscommunications can still erupt and cause temporary shutdowns. The ILWU represents 42,000 dock workers in 60 local unions along the West Coast, making it a powerful group with formidable organizing and bargaining power.

That being said, if labor disputes do stand in the way of efficient port operations in the future, importers and exporters must be nimble and flexible, willing to divert shipments to alternative ports on the West Coast, depending on where a strike may happen. Another option would be to use air freight instead of ocean freight.There are plenty of options for shippers that are open to alternative routes and they don’t necessarily have to divert as far as the East Coast.

Photo courtesy of Pete (Creative Commons)

Sources: The Wall Street Journal, Datamyne, Census.gov, Los Angeles Business Journal

 

 

Qatar has grand ambitions for shipping.

 

By the end of 2016, Qatar will have completed the first major phase of the new Doha mega-port project. The price tag? $7.5 billion.

The 2020 completion date for the project will be just in time for the port to receive the raw materials needed for Qatar’s infrastructure projects for the 2022 World Cup. The Doha port will have the capacity to handle 6 million TEU annually, which will make it the second highest capacity port in the Middle East after the Jebel Ali port in Dubai.

Doha will give Dubai a run for its money. According to a new report by Worldfolio, a market intelligence agency, the new port at Doha will pose significant challenges to other ports in the Middle East. Its modern infrastructure and the capacity to support state-of-the-art warehousing and data services will prove to be competition for rival ports such as the ports in Dubai.

Qatar, however, ranks #68 for “ease of doing business” on the World Bank’s 2016 index, far behind the UAE at #31.

The Middle East is already a natural gateway for goods moving to and from Asia, Europe, and North America. In recent years, a number of Gulf Coast countries have invested significant funding into projects that promote free trade and the shipping industry. The region has emerged as a global hub for logistics due to government initiatives to establish new ports, special economic zones, free trade, and open skies policies.

Photo courtesy of Francisco Anzola. 

 

 

The International Maritime Organization (IMO) amended SOLAS (International Convention on the Safety of Life at Sea) regulations in 2014 to require shippers to measure and certify the weight of each freight container before it is loaded onto an ocean carrier.

July 1, 2016 marks the day these new international treaty guidelines will take effect. As of today, no consensus has been reached on how to implement the rules in the U.S. while a major exporting coalition is calling on Congress to revise or revoke the law.

 

Previously, shippers only needed to report the total weight of their cargo, not the weight of each container, which is owned by the ocean carrier. Seeking to address the safety of shipping crews and dock workers, the new SOLAS rules makes the shipper responsible for the Verified Gross Mass (VGM) of the container.

 

The new regulations are arousing debate in the U.S. Many freight forwarders and exporters are concerned that it will add unnecessary time and cost to the transportation of goods, contending that current regulations calling for the total weight of the cargo to be certified is enough.

 

The Agriculture Transportation Coalition (AgTC), an alliance of U.S. exporters, is asking Congress to change or revoke the law. Congress will hold a hearing next week on this controversial regulation.

 

In the past, especially outside of the U.S., a small minority of overweight shipping containers have caused instability while at sea and accidents on the dock. However, SOLAS did not provide evidence that the new requirements would improve safety for workers, AgTC said.

 

The AgTC also said the new regulations would put U.S. agricultural, forestry, and manufacturing exports at further disadvantage. Competing countries such as Brazil and Russia have not yet issued any guidance for SOLAS’ new regulations.

 

Although the regulations go into effect on July 1 of this year, the U.S. Coast Guard announced in January that it would not be penalizing shippers for not following these conventions. The U.S. Coast Guard’s understands the new rules as “business practices” between shippers and carriers.

 

“SOLAS places no legal obligation on the shipper. It places a legal obligation only on the vessel subject to SOLAS,” Admiral Zukunft of the U.S. Coast Guard told an audience at the Trans-Pacific Maritime Conference. “So if you need to meet that obligation by working on a better business practice with your partners, that’s where you need to focus.”

 

The IMO calls for international compliance but it is up to each individual nation to enforce the treaty laws. A lack of enforcement in the U.S., however, may set the tone for other countries.


Stakeholders, including freight forwarders and industry associations such as the World Shipping Organization and OCEMA, are currently deliberating over the most efficient way to comply with these international regulations. 

Photo courtesy of Steven Straiton 

On March 18, the 50-member team at AGWorld headquarters in South San Francisco gathered for a happy hour dedicated to raising money and awareness for the American Cancer Society. Over food and wine donated by team members at AGWorld, Victoria Sciacqua, administrative assistant, told the story of her father’s longtime battle with cancer, which ignited a personal passion for fundraising for cancer research. 

 

“I truly believe that the American Cancer Society helps take one of the loneliest moments in a person life – when they or their loved ones have been diagnosed with cancer - and makes them feel like they are a part of something much bigger, much greater,” Sciacqua said. “The American Cancer Society and all of its volunteers make cancer patients feel that they are not fighting this all on their own - because they’re not.”

 

The happy hour and continued fundraising over two weeks raised $3360 for the American Cancer Society. The donations will go towards cancer research, patient services, early detection, treatment, and education.

 

 



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