U.S. Federal Maritime Commission Applauds THE Alliance’s $50 Million Contingency Plan

An MOL container berths at the Port of Los Angeles. File photo: Port of Los Angeles

By Gavin van Marle (The Loadstar) The US Federal Maritime Commission (FMC) yesterday approved THE Alliance’s plan for a $50m contingency fund in case one of its members becomes insolvent or suffers serious “financial distress”.

Each of THE Alliance’s members – Hapag-Lloyd, MOL, NYK, K line and Yang Ming – are to contribute an initial $1m and a further $9m in “additional funds or through a letter of credit”, said FMC commissioner William Doyle, who voted to approve.

Mr Doyle was speaking at the FTR Transportation conference in Indianapolis yesterday and said it was crucial that vessel-operating alliances structured themselves to avoid a repeat of the supply chain chaos seen in the wake of the Hanjin bankruptcy last year, when $14bn worth of cargo was stranded on over 100 vessels around the world.

“Last year’s collapse was a wake-up call for the entire ocean transport and logistics chain. It is so important that another Hanjin debacle does not happen.

“Companies may fail, but the responsibility lies with everyone, at least to the extent that we do not have the damage that occurred post-Hanjin.

“Looking back, things could have been done differently. Looking forward, things must be done differently. And, things are being done differently with the establishment of this contingency trust fund by THE Alliance. Hopefully it will never have to be tapped.”

Mr Doyle added: “I firmly believe that if a carrier joins an alliance, it is the responsibility of members to ensure the cargo gets to where it needs to go. If a carrier fails and that carrier is party to an alliance, the cargo carried on the failed company’s ships may equate to a fraction of the container volume carried. Many containers may belong to other carriers in the alliance.”

While the fund is set to be administered by a neutral trustee, in the case of an insolvency event or other “material adverse change”, the other lines would form a committee that would exclude the affected line. This committee would approve all disbursements by unanimous agreement and instruct the trustee on “actual disbursements and on other administrative functions”.

These would ensure the affected line and other parties could continue to operate THE Alliance services and make port calls. They would also “pay costs, losses or liabilities reasonably incurred by the parties as a result of the arrest of a vessel”; funds or payments related to carriage, handling, storage, or delivery of containers carried by an affected line; pay the claims of third parties, which could lead to the arrest or detention of a vessel; and reimburse non-affected parties for costs, losses, or liabilities incurred by the other members of THE Alliance”.

And after any disbursements, the lines have agreed to “replenish the account and otherwise ensure that the fund is healthy”.

Mr Doyle said: “The fund is designed to be a living instrument. Everyone suffered in the ocean maritime transportation chain [due to Hanjin]. So it is essential that all take responsibility. The responsibility is to get the ship into port and get it unloaded, get the empties onboard and get the ship back out to sea.

“I applaud the innovative actions taken by carriers of THE Alliance. It is a responsible commercial reaction to the events of last year and it serves to assure the shipping public that its cargo will be delivered in a reliable and timely manner.”

The Loadstar is fast becoming known at the highest levels of logistics and supply chain management as one of the best sources of influential analysis and commentary.

Check them out at TheLoadstar.co.uk, or find them on Facebook and Twitter.