EXCLUSIVE INTERVIEW – FMC: ‘Why I did not approve 2M’

EXCLUSIVE INTERVIEW –  FMC: ‘Why I did not approve 2M’
Although the Federal Maritime Commission approved 2M, one of its commissioners, Richard Lidinksy, was displeased

The 2M alliance between the world’s two largest shipping lines, Maersk and Mediterranean Shipping Company (MSC), was approved by the Federal Maritime Commission (FMC) last week.

Of the FMC’s five commissioners, four voted to approve the alliance immediately whereas one, Richard Lidinksy, voted to have another 45 days to consider the proposal, which he has serious concerns about.

Speaking exclusively to CM, he said that the 2M alliance “bore a striking resemblance” to P3, the alliance that was proposed last year between the 2M partners and CMA CGM, the world’s third biggest shipping line.

The P3 alliance was approved by the FMC, with Lidinsky again the only commissioner voting against, as he felt that it was too powerful and in reality a merger, a problem that he does not think was solved by the removal of CMA CGM.  Later P3 was rejected by Chinese regulators.

“You still have the number one and two lines in the world,” he said, and, like P3, “it is still operating independent of their own headquarters, out of London, although they say it will have a much smaller staff”.

“A typical alliance is very flexible, very loose and last-minute, which it what it has to be by nature of filling a ship. This is much more proscribed…it’s very strong, very powerful and puts shippers and ports at a disadvantage.”

Lidinsky is particularly concerned about American shippers and ports. “I tried to look at it from an American point of view,” he said, “I don’t want to see any American port or  importer or exporter put at a disadvantage, or put into a corner or mistreated or not given fair competitive rates.”

When asked if European and Chinese regulators will see things from their one perspective he replied: “that is their prerogative. There was a lot of criticism of the Chinese rejecting P3. People were mumbling and grumbling in Europe saying ‘they’re just taking care of their own, they’ve got Chinese carriers who aren’t doing so well compared to the European carriers and they’re just looking after their national interest.’ Well it’s their right to assert their national interest.”

As for the specifics of the 2M approval, Lidinsky felt he was not given enough time or information in order to make an informed decision. The FMC initially had 45 days to make a decision. According to Lidinsky, the Commission’s staff (economists, lawyers and experts) look at the proposal first before passing it to the Commissioners and their individual staff. So he only saw the proposal around day 31 of the 45-day period, leaving him just two weeks to study a very complicated document  and make a voting decision.

“It’s like the TV show Crime Scene Investigation (CSI),” he says, “sometimes you have evidence but you don’t know you have it until you study it and you have to connect the dots. I think that if we had got that extra 45 days, we would have got some valuable information that would help us do our jobs.”

Is he saying the process was rushed? “I don’t want to say it was rushed. I would say that we didn’t take full advantage of what the procedures could be.”

An example he gives is that the FMC was only given information relating to 2M’s US trade. “It’s a global alliance,” he says, “I want to see how the US part interconnects with the Asia part. Routes that may not directly come to America but support American foreign trade.”

Lidinksy said that when he was the Chair of the FMC between 2009 and 2013, he always voted to grant another commissioner’s request for more time; however on this occasion, extra time was not granted.  CM understands that this was after a private meeting was held between the FMC and representatives of Maersk and MSC, at which  fears were significantly allayed.

Lidinsky thinks that shipping lines take regulators for granted. “Some carriers view the commission as an ATM machine,” he said, “45 days for them is too long, they would like it to take 45 seconds to get this very, very important legal status that most US companies would cut their right arm off to have, anti-trust immunity. We don’t want anyone to go out of business but we’re not here, as sometimes the carriers think, to ensure that carriers make a profit. That’s not our job. ”

Despite his concerns, the alliance has been approved and now, he says, the FMC’s job is “to watch them [the shipping lines] like a hawk and make sure that they do what they say they are going to do.”  The FMC’s potential monitoring measures include asking for minutes or transcripts of meetings, quarterly reports and even making the shipping lines’ representatives go to Washington, with their records, to be questioned.

Monitoring, Lidinsky says, “is always very controversial. Those who are being monitored don’t like it.  Those who are urging the monitoring, never feel it is strong enough. All systems have flaws and loopholes but the one we have put together for 2M should be one of the toughest, if not the toughest, that we have ever put together. This is because of the size of the carriers.”

So is he optimistic that monitoring will work? “Don’t say optimistic,” he laughs, “say ‘hopeful’”

Is 2M a completely done deal though? Maersk say it is, as it argues it is just a vessel sharing agreement that needs no further approval, but the Chinese Government may yet have something to say about that, as they did about P3.

Lidinsky said that the ball is in the Chinese government’s court, if they do not say anything then the alliance will go ahead. It will certainly be a question that is asked when the FMC has its annual meeting with Chinese regulators in November.

The next thing on the FMC’s plate into 2015 though, is the proposed O3 alliance between French shipping company CMA CGM, the Saudi United Arab Shipping Company and China Shipping. Lidinsky predicts this will be approved without problems and in the near future there will be four shipping alliances controlling 98% of the world’s container traffic.

If and when that happens, Lidinksy said, that the FMC and regulators around the world will have to take a long look at what the new situation is and how it should be regulated in the future.