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The Impact of U.S. Regulatory Changes on International Intermodal Movements.

Abstract

Liner service ocean carriers were the initiators and developers of containerized intermodal water-rail and truck-rail freight movements. Land-based carriers were followers in the development of such movements. This subordinate role resulted in part from regulatory barriers and in p art from managerial myopia. Enactment of the Ocean Shipping Reform Act of 1998 (OSRA) has further reduced regulatory barriers to the provision of international intermodal freight movements, and has set the stage for different forms of relationships between carriers in the different modes and between shippers and ocean carriers. A comprehensive survey of ocean container operators, exporters and importers, and freight forwarders and NVOCCs produced a number of findings about the possible future course of such relationships. In general, ocean carriers were more positive about the expected outcomes than were shippers. The survey revealed continuing shipper antagonism and distrust of carriers. Nevertheless, the changes wrought by OSRA h ave the potential for facilitating long-term partnerships among all parties involved in international intermodal movements.

Global supply chains have opened up a plethora of opportunities for contemporary exporters and importers. The establishment of large regional markets such as the EU, the NAFTA, the APEC, the ASEAN, and the MERCOSUR are creating new opportunities for enhancing international business activities while diminishing bureaucracy. The evolution of such trading blocks offers better opportunities to the business community to implement effective distribution strategies, and to enjoy economies of size. The evolution of international intermodal movements could not have been more opportune for exporters and importers. The through movement of cargo door-to-door on a single bill of lading, with one transportation entity providing all aspects of international logistics from consolidation services and liability coverage to inland distribution, offered a new and efficient option to the international trading community seeking competitive advantage. When a transportation company offers the entire range of logistics support in ad dition to the basic door-to-door movement of cargo, for many of the shippers it reduces most operational impediments to international trade. Thus, in response to the needs of customers, the intermodal operators have become important transportation partners and strive to provide a continuous pipeline for the movement of goods without delay, damage, and inventory stockpile or shortfall. The availability of modern information technology has brought within their reach the possibility of paperless documentation and the ability to make instantaneous decisions in the global marketplace. Shippers have thus benefited from international intermodal movements, whether of the basic door-to-door type, or of the highly sophisticated just-in-time type.

Given this background, it is appropriate that the impending liberalization of U.S. liner shipping regulations has received significant attention in various trade journals and public forums. This article aims to further that discussion. It will provide a historical overview of liner-oriented intermodal movements in the U.S. and discuss how the changes in shipping regulations have ameliorated operational impediments. The article includes an analysis of the authors' survey of major stakeholders of international intermodal movements in light of the changes introduced by the Ocean Shipping Reform Act of 1998.

LINER OPERATORS' ROLE IN THE INTRODUCTION OF INTERNATIONAL INTERMODAL MOVEMENTS

Theoretically, any transportation entity can coordinate intermodal services through creative operating arrangements if not through direct ownership. The Canadian Pacific Railway's ambitious effort of the late 1800s to create a transport system that linked three continents (under the same corporate ownership) was unsuccessful. They could only offer segmented transportation services rather than an integrated service package. Historically, the U.S. railroad operators have had equally limited success in this area for reasons ranging from regulatory obstacles to their lethargic management philosophy that lulled them into complacency.

As containerization matured on the arterial trade routes, cargo in marine containers became an ideal candidate for transcontinental moves on the U.S. railroads. But despite the increasing number of COFC (Container-On-Flat-Cars) and piggyback movements, [1,2] the U.S. railroads treated them as only incremental business, primarily because they could not match the revenue-earning potential of the traditional boxcar used for domestic cargo movements. [3] Furthermore, the struggle to accommodate rapidly increasing container and trailer sizes on standard flat cars compounded the woes of railroads. As a result, the U.S. railroads did not invest in newer technology or pay any attention to at least weeding out the inefficiencies of a service that had acquired a historically poor reputation. Even those railroads that were serving major port regions in the U.S. did not exhibit any interest in altering their basic rail-highway-orientated piggyback service method for accommodating the container-laden liner cargoes. [4] L onger transit times, unreliable service and scheduling, high damage claims, protracted settlement mechanism (of damage claims), lack of management commitment towards suitable handling equipment in terms of quality as well as quantity were all trademarks of the inertia associated with piggyback movements. A survey of the executives of the ten largest U.S. rail systems in 1977 identified bottlenecks in areas of equipment, yards, and trackage which had to be overcome for the successful growth of intermodal services. [5] Another survey that set out to discover the level of savings that rail intermodal movements must offer to overcome its perceived disadvantages found that no level of savings would induce many shippers to switch to such services. [6] There was a total lack of marketing orientation by railway service planners and pricing managers who operated in a myopic environment wherein innovations were expected to succeed by themselves. [7]

A study conducted by the U.S. Department of Transportation found that multimodalism can improve service coordination, ensure better asset utilization, and lead to benefits from the sometimes elusive synergy of marketing and operations in related fields. [8] The contemporary liner operators are ideally suited to pursue all of the above goals. Fundamentally, they operate in an international environment, facilitating international trade. Their relative cost-efficiency, and the absence of viable alternatives in most cases, gave them access to large cargo bases. [9] Because of the need to transport these cargoes to their ultimate destinations on through bills of lading, liner operators signed contracts with railroad operators for dedicated train services on large volume corridors [10] and became major consumers of inland intermodal services. Thus, liner-oriented intermodalism began as an extension of liner shipping with liner operators controlling the cargo and railroad operators struggling to coordinate thei r services with the tightly scheduled ship arrival times. The role of railroad companies in these ventures was restricted to the mere ownership of locomotives and their trackage rights. The dominance of liner operators who brought the good qualities of punctuality, regularity, and innovation from their deep-sea services to the land-based intermodal services led to their assuming the natural leadership role and coordinating efficient intermodal services. [11]

HISTORY OF LEGAL IMPEDIMENTS TO LINER-ORIENTED INTERMODAL MOVEMENTS

The primary impediment to the development of international intermodal services in the U.S. was the 1908 ICC decision not to accept joint rail-ocean tariffs. [12] The original rationale behind that decision was that liner shipping, unlike the railroads, was not regulated. The ICC did not consider combined movements that also involved the deep-sea mode of transportation to be under their jurisdiction. Subsequent to a congressional inquiry, the ICC reversed its position in 1969. [13] However, it took another three years for the first liner operator-Seatrain Lines Inc.--to successfully implement international intermodal movements.

Seatrain wanted to provide minibridge [14] services from the U.S. Gulf and Atlantic coast to the U.S. West Coast to fill up its vessels bound for the Far East. The absence of shipping capacity for all-water intercoastal movement as well as its relatively small market share in the trans-Pacific trade led to the novel idea of transporting cargo from the eastern half of the U.S. along with the Far East-bound trans-Atlantic cargo by rail minibridge. Seatrain's attempt to file minibridge tariffs with the ICC was challenged by two major liner conferences which dominated the Far East trades, the Trans-Pacific Freight Conference of Japan, and the Japan-U.S. Atlantic/Gulf Conference, on technicalities concerning ICC rule making. The problem was overcome in 1972 with the concurrent acceptance of Seatrain's minibridge tariffs by both the FMC and the ICC. [15] However, the issue of antitrust immunity for collectively negotiated intermodal agreements of liner conferences (which followed the lead of Seatrain) remained unc ertain. Despite the restrictive effect of the Svenska [16] public interest standard doctrine in their decision making, in general, the FMC tended to promote intermodalism by allowing the conference minibridge and microbridge [17] tariffs to take the place of such tariffs filed by individual members of such conferences. [18] The FMC sought an extra measure of justification through the Svenska doctrine that became applicable only in the case of those intermodal tariffs filed by all-water conferences serving the coast of origin of the intermodal cargo. [19] The FMC also found within its purview the authority to approve loyalty agreements between conferences (with approved intermodal tariffs) and their intermodal shippers, subject to the caveat that the whole discount was to be absorbed by the conference, and none by the ICC-regulated carrier.

The FMC's authority to take decisions on collective intermodal agreements in general was contested by the Antitrust Division of the U.S. Department of Justice. Conflicting views of this executive branch agency and the quasi-judicial FMC, with the former upholding a policy of economic efficiency through free competition and the latter advocating market stability through regulated competition, left conferences uncertain of their anti-trust immunity if they were to offer collective intermodal services. When the issue ended up in litigation, United States v. Federal Maritime Commission, the U.S. Court of Appeals for the District of Columbia Circuit did not issue a definitive answer. [20] Furthermore, in the early 1980s, the FMC began to tighten its scrutiny of conference intermodal initiatives. [21]

An attempt to fill the regulatory vacuum concerning intermodalism in the U.S. was made through legislative efforts that began in 1968 (90th Congress). However, no concrete legislative development was accomplished until the 1980s. This was primarily because of the conflicting views of the three regulatory agencies (FMC, ICC, and CAB), and their reluctance to abdicate (or even share with the other two) the regulation of the mode under their direct jurisdiction, and partly because of the role of different interest groups. [22] Thus, prior to the 1980s, administrative and judicial ambiguities and uncertainties coupled with legislative failures frustrated the attempts by liner operators to offer intermodal through rates while their customers cherished the availability of such conveniences.

In the United States, the advantages of a deregulated transportation industry were given superficial recognition in the National Transportation Statement of 1940. The statement officially encouraged cooperation between the different modes under the regulatory control of the ICC. However, it took a further thirty-five years and another National Transportation Policy Statement (in 1975) to encourage elimination of all unreasonable barriers to all intermodal cooperation. The National Transportation Policy Study Commission in its final report, National Transportation Policies Through the Year 2000 (1979), gave explicit emphasis to multimodal systems planning. In the meantime, the era of transportation deregulation had arrived. Airfreight movements were deregulated through the Air Cargo Act of 1977 and air passenger movements through the Airline Deregulation Act of 1978. Rate-making freedom and elimination of entry hurdles were thus accomplished in the air sector. Section 7(b)(8) of the Motor Carrier Act of 1980 eliminated the 35-mile rule that restricted airfreight collection and delivery services and permitted air freight companies to broaden their services and offer integrated door-to-door transportation beyond the immediate vicinity of air terminals. The air regulatory body, the Civil Aeronautics Board, itself underwent a planned demise on January 1, 1985.

In the case of railroads, the mounting operational and financial problems of several operators led to a relaxation of regulations in 1976 through the Railroad Revitalization and Regulatory Reform Act. [23] In 1978, the ICC permitted railroads to enter into service contracts with shippers, thus granting them operational flexibility and freedom. This was followed by even more significant regulatory reforms through the Staggers Rail Act of 1980. [24] The goal of this legislation was to treat railroads like any other business venture, subject to the competitive forces of the marketplace and free from excessive ICC regulation. This permitted railroads to abandon non-remunerative portions of their operation through liquidation or abandonment. Restrictions that prevented railroad mergers and acquisitions were lifted so that large rail systems could be established. Such large systems as the ones in Canada (the Canadian Pacific and the Canadian National) would facilitate the expeditious transportation of transcontine ntal freight and thereby compete with the trucking companies for their reduced transit time and greater efficiency. Complete relaxation of Trailer-On-Flat-Car (TOFC) services from ICC regulations provided a further boost to the competitiveness of such intermodal moves versus long-haul trucking.

The Motor Carrier Act of 1980 deregulated entry requirements into the trucking sector. [25] The common carrier trucking companies, which were restricted to no more than eight contractual commitments under the Rule of Eight, were unshackled from those restrictions. The Act allowed private carriers to provide "for hire" service during the backhaul. Further liberalization on types of traffic carried led to an influx of new operators--many of them independent owner--operators--into the trucking business.

THE U.S. SHIPPING ACT OF 1984 AND SUBSEQUENT LIBERALIZATION

Unlike the earlier transportation deregulatory legislation, the U.S. Shipping Act of 1984 was unique in including regulatory as well as deregulatory provisions. [26] The Act continued the antitrust immunity given to liner conferences under the provisions of the 1916 Shipping Act. However, as a counterbalance, and to satisfy the aggressive shipper lobby, shipper-oriented provisions such as service contracts, mandatory independent action, and the right to form shippers' associations were incorporated. [27] The Act also strengthened the power of the FMC (contrary to that of its sister agencies CAB and ICC) by giving it the added responsibility of enforcing the new provisions. The antitrust immunity granted to liner conferences in respect of rate making for port-to-port services was expanded to facilitate interior point intermodal pricing. Conferences were given the fight to file joint rates covering both the inland portion and the waterborne leg of an intermodal door-to-door move. The practice of filing inland divisions of a combined intermodal move with the ICC was abolished. The conferences, however, were not given the right to negotiate collectively with inland transport operators.

The deregulatory transportation acts lifted ownership restrictions that existed between different modes. In 1984, the Special Circumstances Doctrine that precluded railroad incursions into motor carrier territories except under the most trying circumstances was eliminated, thus permitting the evolution of new rail-affiliated trucking ventures. Rail acquisition of existing trucking firms was also made possible under certain conditions. The Panama Canal Act of 1912 was overruled to permit the CSX Corporation (which also owned a railroad, the CSX Transportation Company) to acquire American Commercial Barge Lines initially, and later on, Sea-Land Services Inc., one of the pioneers of deep-sea container services.

All of these changes brought significant growth in the intermodal industry. Many liner operators today go well beyond providing basic door-to-door services and offer a variety of value-added "one-stop-shopping" services. These include documentation and cargo clearance, warehousing, product assembly, distribution, and other activities associated with the global supply chain. In addition to liner shipping companies, there are other transportation entities providing seamless international door-to-door transportation services today, including airfreight operators, rail operators, and truck operators as well as creative non-vessel operating common carriers (NVOCCs) who incur truly minimal sunk costs.

THE OSRA LIBERALIZATION

The move to replace the 1984 Act began in mid-1994 with the National Industrial Transportation League going on record against the Trans Atlantic Agreement, a controversial carrier agreement that was beset with legal problems from its very conception. [28] The shipper community was also skeptical of the procarrier attitude of the FMC and the efficiency of its regulatory practices. [29] The shipper effort toward total deregulation of U.S. liner trades began in full earnest with the Republicans taking control of the U.S. Congress in November 1994. [30] The president of the National Industrial Transportation League declared a "real live war" on the ocean conference system, public filing of tariffs, and service contract terms.

The carriers aligned to oppose the shipper initiative. However, in July 1995, the NITL decision to drop its stand on eliminating the carrier antitrust immunity [31] led to a significant change in the opposition of the top U.S. operators--Sea-Land, American President Lines, and Crowley. The compromise legislation would allow confidential contracts, eliminate tariff filing, and abolish FMC by October 1, 1997. [32] The U.S. House of Representatives passed the compromise bill in September 1995 as part of the budget bill. [33] However, it ran into significant opposition in the Senate. [34] In particular, the Senate Majority Leader opposed the abolition of the FMC in early 1996, [35] and by March 1996, the Clinton administration also began to reconsider its previous support for the reform bill. The American Association of Port Authorities [36] and labor unions also joined the opposition rank that resulted in the Congress adjourning without any action on shipping reform. In October 1997, the U.S. Department of Tran sportation endorsed the Senate bill but favored retaining FMC as a separate agency. [37]

A new compromise bill was introduced in November 1997 that would allow a two-tiered contract system, with confidential contracts permitted only for individual carriers in single trades, or multiple carriers operating on connecting routes. [38] All contracts would be filed with the FMC that would remain as an independent agency. The final compromise that emerged in March 1998 made key changes from the former bill. [39] These included eliminating the two-tiered contracting system and continuing the prohibition against non vessel operating common carriers (NVOCC) signing service contracts with shippers. The bill was opposed by the NVOCC sector [40] but eventually won the favor of all other key stakeholders. [41] The U.S. House of Representatives approved the final version in August 1998 and the Senate in October 1, 1998. [42]

KEY PROVISIONS OF OSRA 1998 (s. 414) THAT IMPACT INTERMODAL MOVEMENTS

The OSRA 1998 introduces a number of significant changes. Although OSRA still does not deregulate liner shipping completely and continues to offer antitrust immunity to carrier agreements, [43] it does contain a number of market-oriented provisions, some of which will have significant direct impact on the provision of international intermodal movements. This section will provide a brief overview of the relevant changes that went into effect on May 1, 1999.

OSRA allows carriers to negotiate jointly with railroads, trucking companies, or airlines for transportation within the U.S., a freedom that was not available under the 1984 Act. [44] However, such negotiations or any resulting agreements are subject to the antitrust laws and must be consistent with the purposes of the Act as defined in the Act's Declaration of Policy (Section 2). OSRA eliminates the traditional tariff filing and enforcement obligation. [45] Carriers are required to publish their tariffs (except for exempt commodities, which now includes new assembled motor vehicles) electronically. The FMC's role in tariff filing is limited to promulgating regulations governing the accessibility and accuracy of the tariff system.

The amended service contract provision is the most deregulatory aspect of the new legislation and has the potential of becoming a truly powerful marketing tool for shipping companies that want to differentiate their services from their competitors. [46] It allows the co-existence of a discriminatory contract carnage system with the common carriage objectives of the tariff system. Although contracts need to be filed confidentially with the FMC except for contracts on exempt commodities, the previous requirement to file essential terms of a service contract in tariff format for public review is seriously curtailed. Strategic components of a service contract such as inland points for intermodal movements, freight rates, service commitments, and liquidated damages for non-performance can now remain confidential. [47] Conferences and consortia will not have the right to restrict members from negotiating individual contracts with shippers, although they may issue voluntary guidelines relating to terms and procedur es for such contracts. [48] The voluntary guidelines must be submitted to the FMC. Another significant departure from the 1984 Act is that a contract may be based on percentage of cargo of the shipper, [49] not permissible earlier because of its connotation to a loyalty contract. Loyalty contracts are still illegal under OSRA. However, OSRA has altered the definition of such contracts to one that includes a deferred rebate. [50] The "me-too" provision of the 1984 Act that guaranteed symmetrical positioning of similarly situated shippers is no longer in existence. Individual shippers, a shippers' association, as well as a group of unaffiliated shippers, may enter into service contracts. Similarly, a group of carriers other than a conference is also allowed to enter into service contracts. [51] However, NVOCCs are not allowed to issue service contracts.

Carriers should not discriminate unjustly against ports through their service contracts between an individual carrier and a shipper as defined in Section 10(b)(5). However, the law does not rule out discriminatory practices against shippers in service contracting in general. A carrier or group of carriers cannot unreasonably refuse to deal or negotiate with any stakeholder, a provision that was applicable only to shippers' associations under the 1984 Act. Section 10 provides explicit clarifications of prohibited acts when contracts involve a conference or a group of two or more common carriers and one or more shippers. The new Act not only gives individual carriers more freedom than conferences in refusing to grant service contracts, but also expressly protects shippers' associations and third parties from discrimination by carrier groups. Ocean carriers would have to disclose service contract information on specific aspects of dock or port area cargo movements to a labor organization if their collective bar gaining agreement permits such requests. [52]

The mandatory independent action provision introduced in the 1984 Act as a safety valve mechanism to facilitate intra-conference competition will continue under OSRA. [53] The original maximum notice period has been reduced from ten calendar days to five. [54] The amended Act also eliminates conferences' right to restrict independent action for exempt commodities. OSRA has created a new category of stakeholders called ocean transportation intermediary (OTI) that includes freight forwarders and NVOCCs. [55] While there were no previous licensing requirements for NVOCCs in the U.S., all OTIs must now be licensed as per OSRA. [56] The Act also allows the FMC to establish appropriate standards of financial responsibility for OTIs. [57]

EMPIRICAL ANALYSIS

The authors drafted a comprehensive questionnaire to scrutinize the impact of OSRA on various stakeholders. One segment of the questionnaire was dedicated entirely to OSRA's potential impact on international intermodal movements. The survey was mailed to the top fifty ocean container operators in the U.S. foreign commerce, one hundred randomly selected exporters and importers (one each from each state), and one hundred randomly selected freight forwarders and NVOCCs (two each from each state). [58] The recipients were requested to provide their opinion on Likert Scale, 1 signifying complete disagreement and 5, complete agreement. The composite survey response rate was 15 percent, and the responses relevant to international intermodal movements are analyzed in this section.

Active Trade Lanes

The trade lanes in which survey respondents were active are listed in Table 1. In general, participants were active on all major trade lanes, the trans-Pacific and trans-Atlantic being the most widely reported trade lanes.

IMPACT ON INTERNATIONAL INTERMODAL MOVEMENTS

Table 2 lists six possible outcomes from the implementation of OSRA. Weighted averages of the responses from survey respondents are listed in Table 3.

While carriers and OTIs are relatively neutral to the likelihood of OSRA lowering intermodal through rates, the shippers appear to be somewhat unconvinced. This indicates the ongoing schism between carriers and shippers, and the shippers' distrust of liner operators regardless of regulatory changes. Shippers are influenced by developments such as the 1999 freight rate hikes in the trans-Pacific trade. It implies to them that carriers' self-interest will remain supreme. [59] None of the three target group believes that the equipment imbalance often experienced especially during peak shipping seasons will decline. Carriers and OTIs are relatively neutral in their attitude toward the possibility of carriers offering innovative intermodal services. Shippers disagree with this statement quite strongly compared to the other two stakeholders.

Responses to statement number 4 indicate all respondents agreeing mildly that OSRA will lead to the creation of new multimodal partnerships. This is an outcome of the new contracting freedoms available under OSRA, especially the freedom given to carrier groups to negotiate collectively with multimodal partners. Although the media has extensively reported that Canadian container ports like Montreal will be a major loser because of OSRA, survey responses do not indicate any consensus. Part of the reason could be the natural advantage that ports like Montreal have in serving the mid-Western U.S. market. Furthermore, the new proposals to fund channel dredging projects in U.S. ports based on ship size will keep the U.S. ports susceptible to the Canadian diversion option. [60] The statement about intermodal operators becoming value-added third-party logistics service providers, and thus a significant global supply chain partner, is mildly accepted by the OTI and carrier participants with shippers remaining unconvi nced. What the shippers' responses indicate in general is their lack of faith in the carrier community and its capabilities. Regardless of legislative liberalization, shippers continue to foster an environment of distrust when it comes to dealings with their carrier partners because of a long history of confrontational relationships between the two.

Summary Findings

The survey included a summary section that consisted of two subjective questions. The responses to the subjective questions provide a good indication of the challenges facing liner operators, whether providing international intermodal or basic port-to-port liner services. Tables 4 and 5 provide a summary of the responses received from stakeholders in descending order of importance.

Summary Analysis

As noted in recent studies, there is a strong commitment among world class firms to increase leverage and reduce waste through supply chain alliances besides the shift from push (anticipatory) to a pull (response) based logistics system. [61] Global supply chains provide shippers the benefits of joint synergy without the risk of ownership and contribute toward sustainable competitive advantage in the transnational marketplace. A supply chain can succeed only when the strategic intents of all partners are compatible and complementary. However, the traditional liner strategy of conference membership or the newer strategies of size economies, pricing innovations, or horizontal integration through alliances are all at odds with the shippers' need to deal with their transportation partners on a one-on-one basis. [62] The study brings out continuing shipper antagonism and distrust of carriers regardless of changes in the regulatory environment. Although OSRA permits confidential contracts between shippers and carr iers, there is still the fear that carrier agreements founded on antitrust immunity will be suboptimal from the shippers' perspective.

CONCLUSION

Liner-oriented international intermodal movements overcame a number of legal and operational impediments in the U.S. and currently constitute a significant component of global supply chains. The Ocean Shipping Reform Act of 1998 amended the U.S. Shipping Act of 1984 and introduced significant changes in the U.S. liner-shipping sector. While it goes a step beyond the 1984 Act in eliminating unnecessary regulations, it does not deregulate the industry completely. Its provisions will effectively eliminate the venerable common carriage system and replace it with a system dominated by confidential service contracts.

A comprehensive survey of the potential impact of OSRA on the primary stakeholders of liner shipping, viz., carriers, shippers, and ocean transportation intermediaries, was conducted. A section of the survey focused on the likely impact of OSRA on international intermodal movements and found that shippers remain unconvinced about the potential benefits of OSRA. The analysis emphasizes the ongoing shipper distrust of carriers and their antitrust immunity. Survey responses do not lend support to the postulation that Canadian ports like Montreal will lose their market share of the U.S. intermodal cargoes. Under the OSRA regime, carriers will have to become more flexible, innovative, and customer-oriented to maintain their market share. It will shift the focus from conferences to the individual operator who will need to go beyond bare-bones services and provide a variety of value-added services for those customers that desire them. If this does happen, despite the shippers' present lack of enthusiasm, OSRA has t he potential to build long-term partnerships among shippers, ocean carriers, seaports, domestic carriers, and ocean transportation intermediaries, and meet the tailored logistics needs of their client base and contribute toward efficient international intermodal movements.

Mr. Shashikumar is professor of international business and logistics and chair, Loeb-Sullivan School of International Business & Logistics, Maine Maritime Academy, castine, Maine 04420; Mr. Schatz is associate professor of international business and logistics, Maine Mantime Academy.

A preliminary version of this article was presented at the 1999 Intermodal Distribution Education Academy Proceedings of the International Intermodal Expo, held in Atlanta, Georgia on April 19, 1999. The authors acknowledge helpful comments received from three anonymous referees.

ENDNOTES

(1.) Piggyback service refers to the practice of placing the container on a chassis and then loading the chassis and the container together on the flat car, or the railroads' practice of loading highway trailers onto flat cars.

(2.) David J. DeBoer, Piggyback and Containers, San Marino, CA, Golden West Books, 1992.

(3.) It has been observed that even a substantial increase in the utilization of intermodal rolling stock could not have compensated for the higher running cost per payload ton of intermodal cargo. For details, see Le T. Thuong, "From Piggyback to Double Stack Intermodalism," Maritime Policy and Management 16.1 (1989): 69-81.

(4.) R.F. Church, Background Note on the Development of Containerized International Shipping (Chicago: Northwestern Univ. Center, 1968) p. 32.

(5.) E.A. Morash, S.J. Hille, and E.R. Bruning, "Marketing Rail Piggyback Services," Transportation Journal Winter 1977: 40-50.

(6.) F.J. Beier and S.W. Frick, "The Limits of Piggyback: The Light at the End of the Tunnel," Transportation Journal Winter 1978: 12-18.

(7.) Kevin Horn, "Pricing of Rail Intermodal Service: A Case Study of Institutional Myopia, "Transportation Journal Summer 1981: 63-78.

(8.) United States Department of Transportation, Double Stack Container Systems: Implications for U.S. Railroads and Ports (Springfield, Virginia: MTIS, 1990).

(9.) The control over cargo is a key element of intermodality. For details, see G. Hayuth, Intermodality: Concept and Practice (London: LLP, 1987) p.14.

(10.) APL set the trend in negotiations with railroads by teaming up with Union Pacific, and Chicago and North Western railroads to run a dedicated liner train service in 1979. The other major liner operators matched this trend immediately.

(11.) Intermodalism in the U.S. has advanced into its fourth stage. Only the conventional piggyback services were available during the first stage. The various ship-rail coordinated bridge services evolved during the second stage. The introduction of doublestack movements and the use of carless (road-railer) technology constitute the third stage. The characteristic feature of the fourth stage is the Luring of domestic shippers into using intermodal services for better equipment utilization.

(12.) Cosmopolitan Shipping Co. v. Hamburg-American Packet Co., 13 ICC 206 (1908).

(13.) It took the ICC a full 53 years (from 1916 to 1969) to accept that the U.S. Shipping Act of 1916 did regulate the liner shipping services!

(14.) Minibridge service refers to a continuous movement on a through bill of lading from a foreign port to an intermediary U.S. port followed by a rail movement to the destination U.S. port usually on the other coast, or vice versa in the case of U.S. exports.

(15.) Carriers had to indicate the division of revenues between the water and the overland portion of through routes in their tariffs filed with the FMC and the ICC respectively. For details, see Le T. Thuong, "U.S. Antitrust Policy and Liner Conferences in the Intermodal Age," Maritime Policy and Management 10.3 (1983): 181-198.

(16.) The Svenska standard originated when the U.S. Supreme Court upheld the FMC's interpretation of the 1961 "public interest" amendment to embody competitive and antitrust principles. The court ruled that an agreement that interfered with the principles of the Sherman Act could be approved only if the proponents of the agreement could bring forth such facts which would demonstrate that a particular agreement was justified by a serious transportation need, or was necessary to secure important public benefits, or in furtherance of a valid regulatory provision of the Shipping Act of 1916. For further details, see Federal Maritime Commission V. Aktiebolaget Svenska America Linien (390 U.S. 238 (1968)).

(17.) Microbridge service provides direct intermodal service to the interior point and was pioneered by the American President Lines in 1978.

(18.) The precedent-setting case was the FMC decision on Agreement No. 57-96 of the Pacific Westbound Conference (PWC). FMC's decision in favor of PWC was challenged by Seatrain during the legal battle that ensued. Seatrain, a member of PWC, did not favor this decision because thirteen out of the regular twenty-one members of the PWC were also members of the Far East Conference (FEC), the all-water conference from U.S. Atlantic and Gulf ports to the Far East. Seatrain felt that these members would frustrate its effort to promote intermodalism that would naturally compete against their all-water services. For details, see Thuong 1983, 183.

(19.) For example, see the FMC decision on Agreement No. 10270-2 by the Gulf Europe Freight Association (GEFA).

(20.) 694 F. 2d 795 (D.C. Cir. 1982).

(21.) For example, the (1981) FMC disapproval of Agreement No. 3103-67 by the Japan/Korea-Atlantic and Gulf Conference (JKAG) on the grounds that such services could also be provided by individual conference members as well as independents. The types of information required specifically for approval of a conference's intermodal authority were specified in a later case (in 1982), involving Agreement No. 7680-39 by the American-West African Conference (AWAC). For details, see Thuong 1983, 187.

(22.) For a good discussion of the legislative efforts to solve the intermodal issue, see Thuong (1983, 188-192).

(23.) This Act is also referred to as the 4R Act.

(24.) P.L. 96-448 (1980).

(25.) 94 Statutes at Large 793-826 (1980).

(26.) P.L. 98-237 (1984).

(27.) For a detailed analysis of the U.S. Shipping Act of 1984 and its controversial provisions, see the following publications by N. Shashikumar: "US Maritime Regulation: History and Evolution of the 1984 Act," Maritime Policy and Management 15.3 (1988): 241-6; "Mandatory Independent Action: A Legislative Paradox," Maritime Policy and Management 15.4 (1988):283-90; "Service Contracts: A Case Study of Unfulfilled Promises," Maritime Policy and Management 16.1 (1989): 13-26.

(28.) Tony Beargie, "NIT League Files Complaint Against TAA," American Shipper Aug. 1994: 6-9.

(29.) Tony Beargie, "Will FMC Watchdog Bite?" American Shipper Sept. 1994: 24-29.

(30.) Tony Beargie, "NIT League Vs. FMC," American Shipper Dec. 1994: 23-24.

(31.) Tony Beargie, "Is NITL Drive Losing Steam?" American Shipper May 1995:39-42.

(32.) Tony Beargie, "Ocean Shipping Reform Act of 1995?" American Shipper Aug. 1995: 12-14.

(33.) Tony Beargie, "Shipping Law Reform Advances in House," American Shipper Nov. 1995: 12.

(34.) Tony Beargie, "Shipping Reform Stalls in Senate," American Shipper Dec 1995: 16-19.

(35.) Tony Beargie, "Senate Starts Anew on Shipping Bill," American Shipper Jan. 1996: 15.

(36.) Tony Beargie, "AAPA Opposes Shipping Act Bill," American Shipper May 1996: 16.

(37.) "Shipping Reform Gets Boost from DoT," American Shipper Nov. 1997: 16.

(38.) Tony Beargie, "Ocean Shipping Reform Act of 1998?" American Shipper Dec. 1997: 10-12.

(39.) Tony Beargie and Chris Gillis, "Rate Deal," American Shipper Apr. 1998: 8-12.

(40.) "NVOs Seek Tariff Exemption," American Shipper Oct. 1998: 20.

(41.) "FMC Gets Ready for Shipping Reform," American Shipper Aug. 1998: 10-12.

(42.) Tony Beargie, "Service Contracts," Nov. 1998: 8-12.

(43.) S.414 Section 7.

(44.) S.414 Section 4 (a)(1).

(45.) S.414 Section 8.

(46.) For details of the 1984 Act's original service contract provision, see N. Shashikumar, "Service contracts: A Case Study of Unfulfilled Promises," Maritime Policy and Management 16.1 (1989): 13-26.

(47.) S.414 Section 8 (c)(3).

(48.) S.414 Section 5 (c)(1) and (3).

(49.) S.414 Section 3 (19).

(50.) S.414 Section 3 (13).

(51.) S.414 Section 8 (c)(1).

(52.) S.414 Section 8 (c)(4).

(53.) For details on the mandatory independent acton provision of the 1984 Act, see N. Shashikumar, "Mandatory Independent Action: A Legislative Paradox," Maritime Policy and Management 15.4 (1988): 241-46.

(54.) S.414 Section 5 (b)(8).

(55.) S.414 Section 3 (17).

(56.) S.414 Section 19 (a).

(57.) S.414 Section 19 (b).

(58.) The survey form was also posted at http://www.conconnect.com/ and its availability brought to the attention of members of various electronic discussion groups as well as the readers of the Journal of Commerce and the Containerization International.

(59.) Bill Mongelluzzo, "COSCO Joins the Club and will Raise Rates May 1," Journal of Commerce April 21, 1999: LA.

(60.) See Asaf Ashar, "Misunderstanding the Harbor Tax," Journal of Commerce May 26, 1999: 5A.

(61.) For example, see Michigan State Global Logistics Research Team, World Class Logistics; The Challenge of Managing Continuous Change (Oak Brook, IL: Council of Logistics Management) p. 82-95.

(62.) For details, see N. Shashikumar, "The World Class Logistics Model and Contemporary Liner Strategies: A Case of Congruence, or Anachronism?" Proceedings, 5th Shipping Management Seminar, Indian Institute of Management, Ahmedabad, India, Nov. 2, 1996. c
Table 1. Respondents' Active Trade Lanes (in percent)
 Trade Routes Carriers Shippers OTIs
 Trans-Pacific 58 100 100
Trans-Atlantic 58 100 100
 Europe-Asia 42 50 40
 Intra-Asia 50 25 60
Latin America 75 25 100
 Mediterranean 67 50 100
 U.S. Coastal 8 25 20
 Others 42 25 80


Table 2. OSRA's Likely Impact on International Intermodal Movements

Statements

1. Intermodal through rates will drop.

2. Equipment imbalance will be lessened if not eliminated.

3. Ocean carriers will offer innovative intermodal services.

4. Carriers will engage in multimodal partnerships more than currently done.

5. Transshipment of U.S. cargoes through Canadian ports (like Montreal) will decline.

6. Liner operators will provide value-added third-party logistics services and become a significant global supply chain partner.
Table 3. OSRA's Likely Impact on International Intermodal
Movements--Analysis of Survey Responses
Statements Carriers Shippers OTIs Composite
 Mean S.D. Mean S.D. Mean S.D. Mean
 1 2.77 1.14 2.20 1.00 2.89 1.00 2.70
 2 2.00 2.52 2.20 1.00 2.22 1.26 2.11
 3 3.15 2.22 1.80 1.00 3.33 1.73 2.96
 4 3.23 2.63 3.40 1.00 3.22 2.00 3.26
 5 2.92 1.52 3.20 1.22 2.89 1.00 2.96
 6 3.31 2.22 2.40 1.22 3.22 0.45 3.11
Statements
 S.D.
 1 2.19
 2 5.03
 3 4.16
 4 4.72
 5 2.30
 6 2.70


Table 4. What Should An Ocean Carrier Do to Be Successful?

Selected Carrier Responses

* Listen to customers

* Stay close to your clients

* Offer differentiated services

* Maintain deep pockets to survive

* Focus on internal cost reduction/control

* Defend your own cargo first, and then go for more

* Focus on alliances and partnerships, and maintain customer intimacy

* Build long-term relationships with customers and offer value-added services

* Bring in progressive-minded leadership that can lead effectively in a deregulated environment

Selected Shipper Responses

* Lower rates

* Learn to compete

* Be customer-driven

* Add value by offering more logistics support

Selected OTI Responses

* Be flexible with pricing and service

* Improve customer service

* Be willing and able to negotiate

* Improve services rather than selling rate reductions

Table 5. A Wish List of Changes to OSRA 1998 Selected Carrier Responses

* Too soon to comment

* Too shipper-oriented

* Deregulate completely

* Carriers need more protection

* Go all the way and deregulate totally, or do nothing at all

* FMC and the Dept. of Justice should investigate predatory pricing of Asian carriers

Selected Shipper Responses

* Relax the regulatory requirements

* Prevent giant rate increases such as the one currently experienced in the Pacific trade

Selected OTI Responses

* Eliminate FMC

* Eliminate anti-trust immunity and carrier monopolies

* NVOCCs be given the same contracting rights as carriers

* Eliminate tariff requirements for NVOCCs on LCL cargoes

* Eliminate the confidentiality provision in service contracting

* FMC should provide clear guidelines with regard to anti-competitive practices
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Author:SHASHIKUMAR, N.; SCHATZ, G.L.
Publication:Transportation Journal
Geographic Code:1USA
Date:Sep 22, 2000
Words:6764
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Next Article:The Shippers' Perspective: Transportation and Logistics Trends and Issues.
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