How The FMC Monitors 'Blank Sailings' And Their Competitive Impacts - Yahoo Finance

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The coronavirus pandemic has made the schedule-driven ocean container carriers seasick. To counter decreased U.S. import volumes and maximize vessel operations, these companies have resorted to the use of "blank," or canceled, sailings.

Shippers and non-vessel-operating common carriers have struggled to manage their own fragile supply chains against hundreds of skipped-sailings announcements in recent months.

While blank sailings offer ocean container carriers a means to economize their capital-intensive vessel operations, the U.S. Federal Maritime Commission (FMC) said it will continue to closely monitor this activity for anticompetitive behavior.

Under the Shipping Act, ocean container carriers may use blank sailings to reduce capacity in response to low demand. The FMC, however, has an obligation to ensure that the capacity reductions are not unreasonable and do not cause unreasonable increases in transportation costs for shippers.

The FMC generally requires notice from the alliances before blank sailings are implemented and no later than 15 days after any such changes are agreed upon. Alliances may request a waiver from the FMC if they are unable to make a timely filing.

"The unusual circumstances and challenges created by the COVID-19 pandemic, together with trade agreement changes, have heightened the FMC's scrutiny of capacity reductions by global alliances," FMC Chairman Michael Khouri said in a statement.

The FMC monitors this activity through the ocean carrier alliance agreements filed with the agency.

"The FMC receives exhaustive information from regulated entities, in this case, parties to an ocean carrier alliance agreement," Khouri explained. "That information is carefully analyzed, along with other information that permits FMC staff to determine trends in the marketplace and the potential for illegal behavior."

To monitor ocean carrier agreements, the agency uses a "red-yellow-green scale," with red signifying higher-profile agreements.

"All global carrier alliances are categorized as red agreements," Khouri said. "These agreements have the highest potential to cause or facilitate adverse market effects based on the agreement's authority and scope in combination with underlying market conditions."

Specifically, Khouri said the FMC staff monitors key economic indicators and changes in market conditions for all global alliance agreements "to detect any joint activity by agreement members that might raise and maintain freight rates above competitive levels."

The FMC follows these analyses with detailed quarterly reviews, which are periodically presented to the commission with recommendations.

Under the FMC's "four-tier" approach to monitoring alliance agreements, blank sailings are closely analyzed:

The first tier involves an immediate review of advance notifications of canceled alliance sailings or changes in vessel capacity that affect the supply of vessels of any individual alliance service by more than 5% of average weekly vessel capacity.
The second tier includes a deep-dive review of minutes submitted by the carrier management in charge of making vessel deployment decisions in the alliance. This information helps the FMC assess medium- and long-term outlook for capacity levels and how that impacts freight rates.
The third tier of review covers service changes in individual alliance members' vessel capacity, capacity projections and how that relates to changes in freight rates.
The fourth and final tier consists of reviewing and analyzing confidentially filed carrier data submitted by the alliances for completeness and accuracy and to spot "potential red flags."

If the agency detects carrier behavior that violates the Shipping Act, it seeks to address these concerns with the carriers first and, if necessary, can go to federal court to seek an injunction to enjoin further operation of the alliance agreement, Khouri said.

Khouri said, however, the FMC is receiving notice from ocean containers in both the trans-Pacific and trans-Atlantic trades that some blank sailings will be withdrawn.

The FMC is also monitoring the impacts of the COVID-19 pandemic on the U.S. container shipping industry through its Fact Finding 29 investigation, which is being led by Commissioner Rebecca Dye, and making recommendations to ease marine terminal inefficiencies.

The agency on April 27 issued an order to temporarily allow service contracts to be filed up to 30 days after they take effect to provide relief to shippers and ocean container carriers impacted by the coronavirus pandemic. This relief will remain in place through Dec. 31, the FMC said.