The nation’s largest shipper group, the National Industrial Transportation League, says data from confidential shipping contracts should not be used by the Federal Maritime Commission to develop container freight rate indexes for agricultural exports.
In its newsletter Notice
, the NIT League said a survey of its members “exhibited a range of views” on how or whether the FMC should develop such an index but “were clear that data from confidential service contracts filed at the FMC should not be used as the basis for any index. League members emphatically believe that using this data would breach the confidentiality of the service contracts, regardless of the means that might be created to safeguard the data.
“Similarly, members were quite certain that if an index on container rates might prove useful to exporters of agricultural products, such an index should be created by private interests and not an agency of the federal government, especially a regulatory agency like the FMC.”
The NIT League was one of several groups and companies expressing their views on the possibility of the FMC developing an index for agricultural products. The comments can be accessed here
The Westbound Transpacific Stabilization Agreement, a rate discussion agreement between 10 container shipping lines, also said it “has serious concerns with the commission establishing an administering a commodity rate index in U.S. export trades.”
WTSA noted it was concerned an index using filed rates would compromise the confidentiality guaranteed under the 1998 Ocean Shipping Reform Act which eliminated prior Shipping Act provisions making contract rates public.
For example, it said a single cotton shipper accounts for 30.4 percent of the market and “aggregation of indexed rates would not be likely to mask the rates given to that shipper which dominates the market, or to other shippers in the market.”
It said the Far East grain market was “similarly concentrated with the top 20 shippers accounting for 88.9 percent of the trade. The other commodities contemplated are not quite as concentrated as the cotton and grain, but there is a relatively small number of shipper of those commodities as well.”
Other commodities mentioned by the FMC in its notice of inquiry included hay and frozen meat.
The U.S. Department of Agriculture’s Agricultural Marketing Service said the FMC “recently made allowance for shippers and carriers to use established rate indices in their service contracts.”
USDA said “an index based on specific agricultural commodities would more directly reflect the current cost fluctuations and the supply and demand fundamentals of the agricultural export market” and that it believed “freight rate indices for agricultural exports that has been proposed by FMC could be a very useful tool in providing more transparency in the market for agricultural exporters using containers and could help agricultural exporters manage transportation costs and reduce risk.”
The National Grain and Feed Association (NGFA) and North American Export Grain Association (NAEGA) said they “support development of mechanisms that will provide additional transportation pricing and risk management tools including the freight rate indices targeted for agricultural products that are contemplated by the FMC.
“Establishment and public release by FMC of container freight indices for U.S. agricultural exports could be a useful tool for the industry,” the grain groups said.
But they added “ to successfully develop and release such indices, the NGFA and NAEGA urge the FMC to maintain and provide for necessary confidentiality of each service contract’s terms.
“The process the commission uses to access the terms of those freight contracts and organize the pricing information – while at the same time providing for such confidentiality – needs to be effective and fully understood by all stakeholders.
"In any event, we see no alternative to using service contract rates to prepare the indices, and trust FMC would provide for as large as possible a sample of active service contracts covering as many transportation lanes as possible.
“We recognize that the competition for containers is greater than our segment of the market," they added. "As such, agricultural price indices need to
be correlated easily to the entire market, not just to agriculture products. We find there is little support for individual commodity-specific reporting or indexing. Some of our member companies also suggested that FMC be encouraged to develop an aggregate index of the top three or four bulk commodities transported in containers, such as agricultural products, paper, scrap plastic and scrap metal.”
The Agriculture Transportation Coalition (AgTC), the principal trade association for U.S. agricultural exporters said “perhaps no issue addressed by the FMC has generated a diversity of views amongst the agriculture and forest product export community” and for that reason it was difficult “to provide definitive consensus responses to the specific questions.”
AgTC said while its members were appreciative of the FMC’s understanding of the importance of transport costs to the competitiveness of their exports, they had divergent opinions “on even the broader matters of inquiry, such as whether the shipping public would find targeted U.S. rate indices beneficial, whether the commission should extract information from service contracts, if indices should be commodity and/or route specific, or more broadly based.
“As to the positive and negative influences of the greater transparency such indices might provide, there is also dramatic diversity of opinions. Finally, while some of our members have experience in indices and hedging instruments for buying and/or selling their own agricultural commodities, as well as inputs such as fuel and barge and truck transportation, most of our members do not.”
AgTC said “there is a fundamental imbalance when it comes to the matter of transparency of ocean freight rates. Almost by definition, the ocean carriers have far better insight into the freight rates than do the shippers. There are literally thousands of shippers, but approximately two dozen ocean carriers in the primary international trade routes serving the U.S. and Canada.”
It said that information imbalance “is compounded by the collective actions of the ocean carriers as they meet and agree upon rates, (or rather, voluntary guidelines for rates.) Those agreed guidelines are obviously based upon each of the participating carrier’s view of what the rates should be.”
“A relative handful of carriers, meeting together, produces even greater transparency for those carriers as to the prevailing freight rates. Meanwhile each shipper continues to only have access to only the terms of its own contract(s). Perhaps this is the true reason the ocean carriers are so vigorously opposed to an index.”
AgTC said an index “ ‘levels the playing field’ by providing the shipper with much improved visibility into freight rates, still not equal to that enjoyed by the carriers, but closer.”
It agreed there are many difficulties in creating a meaningful index such as aggregating rates so that no individual company’s shipments can be identified.
“But it is our belief that they are not insurmountable, and not dispositive of the fundamental question: Can an index benefit exporters?”
AgTC noted that transportation arrangements for exports are often complex, as are the service contracts, which contain the specific terms, and cautioned that "an index based on the freight rate alone, would only address one basic piece of an export service contract.
"An exporter or carrier utilizing the index would have to be aware that a multitude of other terms involved in the export movement, will either significantly add or reduce the cost of that movement, relative to the published index," it said. - Chris Dupin