Originally published in the Journal of Commerce – September 2016
For the last two weeks, the focus has been dealing with the fallout of the Hanjin bankruptcy filing. As we go to publication, the courts in the U.S. are overseeing efforts aimed at getting the vessels stuck at anchor into port and unloaded. The Federal Maritime Commission (FMC) quickly established a protocol for shippers to report issues they encounter with Hanjin cargo. Specifically, the FMC proposes shippers send an email to firstname.lastname@example.org and state “URGENT—HANJIN SHIPPING” in the subject line. The FMC asked that any complaint also include the following details: (1) Name; (2) Company name; (3) Contact details; (4) Identity of and contact information for the person or company associated with the problem; (5) A full description of the matter (including attempts at resolution); and (6) The desired outcome. The complaint should also include copies of the relevant documentation, a description of the cargo, the port or ports of origin and destination, including any terminal and railroads involved, and the date of shipment or sailing. Beyond referring the complaint for internal review, it is not all clear what the FMC intends to do with the information it receives, but this is truly an opportunity for the FMC to shine.
To its credit, the FMC quickly spoke out cautioning against price gouging. Perhaps it was asking too much given the circumstances, but what the FMC could have also done was have its Commissioners spread out to the major seaports throughout the country, bring together stakeholders, and start a timely discussion about options available to deal with the resulting headaches, including the return of empties. Admittedly, much of what will happen is driven by what the bankruptcy court permits, but that should not have been an impediment to greater use of its bully pulpit by the FMC.
The Commission is a relatively small organization with limited resources, and so it is reasonable to worry that it may become inundated with complaints. If not, kudos to the FMC, but if so, then how will shippers view the FMC? We should also keep in mind the FMC does not routinely deal with bankruptcy issues. Nonetheless, it could reach out for assistance on that score from both within and outside the federal government.
Even in the face of anecdotal stories about current and on-going price gouging, such as $600 for an appointment, the FMC still has time to bring together key stakeholders to walk through what is going on, assert its leadership role and seek to keep the playing field level. Should the FMC decide it is too late to do that, or conclude it is hamstrung by its legal mandate, there are still areas where the Commission could act now that would offer relief to many.
Let’s start with the empties. Yes, it is true that by now the leasing companies have started to formulate a process where their leased empties can be returned to them. What is unclear at this point is how the bankruptcy court will view them taking back “their” property without court approval. Equally vexing is what happens with the Hanjin-owned containers? At the very least, the FMC could jawbone with the ports, considering the bankruptcy implications, so that the ports take back the empties and not put everyone else at risk for significant per diem and other charges months from now that likely will be claimed by the bankruptcy trustee.
Additionally, given that most, if not all, states have a provision in their laws, and there is typically a term in the relevant bill of lading and/or tariff, that allows the service provider (terminal, trucker, etc.) to hold cargo until the amount due on the given shipment is paid, there will be many shipments where payments will be made twice for the simple reason the beneficial cargo owner needs that cargo. The first payment was to Hanjin and the second will be for the same handling or transportation charge to the third party possessing the shipment. Alternatively, the shipment will have moved freight collect. The typical carrier bill of lading contains a clause stating even if the carrier declared force majeure, the carrier is entitled to collect all the freight charges due. You can quickly imagine the messiness paying third parties rather than Hanjin directly is going to cause should the bankruptcy trustee come to collect.
For the nvocc community this is particularly challenging as they have tariffs or service contracts on file and the Commission’s laws and regulations mandate if they incur specified charges, they must recover them from their customer or face a potential enforcement action based on failing to charge in accord with their tariff or service contract. The reality of business is there will be customers that are so valuable, the nvocc would prefer to absorb those additional charges simply to keep their customers happy. The FMC should step out in front of this issue and state that as a matter of policy, so long as the nvocc is able to articulate an objective reason for not passing the charge along to the customer, there will be no enforcement action taken. In deciding what constitutes objective reasons, the Commission should seek input from the trade associations which represent these interests – shippers and nvoccs – and identify that list. This is not something to be done in a vacuum.
At the same time, the Hanjin bankruptcy is a reminder for shippers to be sure to properly and regularly vet their business partners, and be mindful of changing circumstances. The general press has covered this story from the perspective of the vessels shut out of port. For those of us in the business, we know the story goes much deeper and the goods in transit will provide the greatest challenge. Interestingly, those general press stories include comments from shippers pointing out that Hanjin was in a downward financial spiral for some time. In such circumstances, shippers are routinely caught between wanting to move enough goods to not fall seriously below their service contract volumes, but at the same time, protect themselves from disruption by changing carriers. Those which had no service contracts or were not convinced to use Hanjin for nationalistic reasons have by and large moved to other carriers, but some still got stuck in the mess, at least as to vessels which were held out of port that carried cargo belonging to Hanjin and other consortium partners. The Hanjin situation is a reminder about the delicate balance of sticking with business partners that were reliable in the past versus protecting your own needs. Whichever side of that pendulum you come down on, it should not be a surprise if one of your business partners files bankruptcy or otherwise suffers significant service failures. If it is, the best recourse is to quickly review and upgrade your vetting process!