[Federal Register Volume 77, Number 101 (Thursday, May 24, 2012)]
[Notices]
[Pages 31013-31015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-12666]


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FEDERAL MARITIME COMMISSION

[Docket No. 12-07]


Notice of Inquiry; Solicitation of Views on Requests To Develop 
and Release Container Freight Rate Indices for U.S. Agricultural 
Exports Based on a Sampling of Service Contracts Filed With the FMC

AGENCY: Federal Maritime Commission.

ACTION: Notice of Inquiry.

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SUMMARY: The Federal Maritime Commission (``FMC'' or ``Commission'') is 
issuing this Notice of Inquiry (``NOI'') to solicit public comment on 
informal requests the Commission has received from some large U.S. 
exporters and intermediaries to develop and release container freight 
indices for U.S. agricultural exports. The Commission is seeking 
written comments and information from U.S. exporters, intermediaries, 
ocean carriers, and any other interested parties on (1) Whether and to 
what extent the shipping public would find targeted U.S. export rate 
indices beneficial; (2) whether the Commission should extract rate 
information from service contracts or whether suitable alternatives 
exist; (3) the positive and negative influences on the export 
commodities and ocean transportation marketplaces of the greater 
transparency such indices might provide; and (4) whether, these 
indices, if developed, should be commodity specific for different 
prescribed routes or whether more broadly based indices would meet U.S. 
exporters' needs.

DATES: Responses are due on or before July 9, 2012.

ADDRESSES: Submit comments to: Karen V. Gregory, Secretary, Federal 
Maritime Commission, 800 North Capitol Street NW., Room 1046, 
Washington, DC 20573-0001. Or email non-confidential comments to: 
[email protected] (email comments as attachments preferably in 
Microsoft Word or PDF).

FOR FURTHER INFORMATION CONTACT: Sandra L. Kusumoto, Director, Bureau 
of Trade Analysis, Federal Maritime Commission, 800 North Capitol 
Street NW., Washington, DC 20573-0001, Telephone: (202) 523-5796, 
Email: [email protected].

SUPPLEMENTARY INFORMATION:
    Submit Comments: Non-confidential filings may be submitted in hard 
copy or by email as an attachment (preferably in Microsoft Word or PDF) 
addressed to [email protected] on or before July 9, 2012. Include in 
the subject line: ``FMC Export Index--Response to NOI''. Responses to 
this inquiry that seek confidential treatment must be submitted in hard 
copy by U.S. mail or courier. Confidential filings must be accompanied 
by a transmittal letter that identifies the filing as ``confidential'' 
and describes the nature and extent of the confidential treatment 
requested, e.g., commercially sensitive data. When submitting documents 
in response to the NOI that contain confidential information, the 
confidential copy of the filing must consist of the complete filing and 
be marked by the filer as ``Confidential-Restricted,'' with the 
confidential material clearly marked on each page. When a confidential 
filing is submitted, an original and one additional copy of the public 
version of the filing must be submitted. The public version of the 
filing should exclude confidential materials, and be clearly marked on 
each affected page, ``confidential materials excluded.'' Questions 
regarding filing or treatment of confidential responses to this inquiry 
should be directed to the Commission's Secretary, Karen V. Gregory, at 
the telephone number or email provided above.

[[Page 31014]]

Background

    Published containerized freight rate indices have proliferated in 
the past several years. In chronological order of their initial year of 
publication, these include the China Containerized Freight Index (CCFI, 
1998), Drewry Freight Insight Index (2006), Shanghai Containerized 
Freight Index (SCFI, 2009), Container Trade Statistics Index (CTS 
Index, 2009), the Transpacific Stabilization Agreement Index (TSA 
Index, 2011), and the Drewry-Cleartrade World Container Index (WCI, 
2011). Each of these indices includes one or more U.S. trade routes, 
but most of them focus only on the U.S. import leg. The two exceptions 
are the CTS Index, which issues a lagged monthly index of U.S.-Europe 
rates benchmarked to 2008, and the WCI, which last year began providing 
coverage of container rates for freight shipped from Los Angeles to 
Shanghai and Rotterdam among the 11 route-specific indices it provides 
weekly. Most of these indices were developed in the wake of recent rate 
volatility in the major international liner shipping markets. In 
principle, the availability of credible rate benchmarks allows shippers 
and ocean carriers an opportunity to manage freight rate risk.
    Last fall the Commission issued a proposed rule for freight index-
based service contracts to provide flexibility and certainty to ocean 
carriers and their customers. The final rule went into effect in March 
and makes clear that service contracts can reference freight indices or 
other outside terms, so long as they are readily available to the 
contracting parties and the Commission.
    Beginning this year, the Commission has received informal requests 
from several large U.S. agricultural shippers, intermediaries, and 
derivative brokers to consider issuing an index based on service 
contracts filed with the Commission because they have not found the 
available indices for U.S. export routes useful for the level of market 
intelligence they need, for adjusting rates in contracts, or for 
hedging freight rate risk. These large U.S. exporters, as well as the 
Agricultural Marketing Service at the U.S. Department of Agriculture 
(USDA), have expressed an interest in having access to reliable 
container freight rate indices that are specific to U.S. agricultural 
export commodities. They assert that the U.S. export market likely 
would be quick to adopt index-based contracting because many exporters 
already are accustomed to hedging risk exposure in the bulk shipping 
markets and because freight rates represent a much larger portion of 
the delivered value of their products, which means even quite small 
freight rate movements can have a large impact on the delivered value. 
These agricultural exporters also point out that they have excellent 
visibility into bulk shipping rates through the Baltic Dry Indexes, but 
have no similar visibility into container shipping rates for exports.
    Some U.S. agricultural exporters have told Commission staff that a 
properly constructed index would help them increase exports by allowing 
them to use contracting and hedging strategies to increase the 
certainty of their transportation costs. These U.S. agricultural 
exporters have said that ocean carriers generally are reluctant to 
offer them service contract rates that are valid for more than 30 to 60 
days, and that this inability to lock in a rate hinders their ability 
to sell agricultural exports for delivery more than 60 days into the 
future out of fear that changing transportation costs will make the 
sale uneconomic. Releasing an appropriately designed index could 
provide a market-based approach to this problem by allowing shippers to 
protect themselves through contracting and hedging strategies in 
private markets. U.S. agricultural exporters and derivative brokers 
also have told the Commission that the lack of a reliable container 
rate index for export grain shipments in particular disadvantages 
container shipping relative to bulk shipping because of the superior 
pricing transparency afforded by the Baltic Dry Indexes.
    In response to the exporter requests, Commission staff inquired 
whether and why the indices currently published were not meeting U.S. 
shippers' exporting needs. These agricultural exporters raised concerns 
about the present export indices' transparency in the way the 
underlying data are collected. They also claimed there is poor 
correlation between the general rate trends represented in these 
indices and the actual rates U.S. exporters incur for the ocean 
transportation of specific agricultural products.
    Other parties, on the other hand, have raised questions or concerns 
about the concept of the Commission sampling service contract data for 
commodity-specific freight rate indices. For example, they have asked: 
(1) Whether commodity-specific indices can be aggregated in a manner to 
protect confidential individual service contract rates; (2) whether 
release of such indices would further or contravene the purposes of the 
Shipping Act; (3) whether release of indices would benefit U.S. 
exporters or instead advantage their foreign competitors; (4) whether 
any benefits to exporters would be sufficient to justify the commitment 
of Commission resources to developing and releasing the indices; and 
(5) whether issuance of such indices is better left to private index 
publishers.
    The Commission is interested in evaluating whether more targeted 
indices utilizing information in the service contracts filed with the 
Commission could materially assist U.S. agricultural exporters while 
furthering the Commission's governing statutes and the Administration's 
goal of promoting U.S. exports. One of the stated purposes of the 
Shipping Act is to ``promote the growth and development of United 
States exports through competitive and efficient ocean transportation 
and by placing a greater reliance on the marketplace,'' 46 U.S.C. 
40101(4) and, in January 2010, the President launched a National Export 
Initiative with the goal of doubling U.S. exports over the next five 
years. Later, on March 11, 2010, the President issued Executive Order 
No. 13534 and has directed the use of every available federal resource 
in support of that effort.
    Following the requests from large agricultural exporters and 
others, Commission staff has conducted some initial testing of the 
technical feasibility of using service contract data filed with the 
Commission to develop a container rate index for a few targeted major 
U.S. export commodities such as grains, cotton, hay, and frozen meat, 
and has assessed the resource implications. To fully protect the 
identity of individual shippers and ocean carriers, data extracted from 
service contracts would be aggregated at an appropriate level prior to 
making public an average rate or index. The Commission wishes to stress 
that this concept is still in its formative stages and wants to hear 
the views of all parties before deciding whether or not to produce it.

The Current Inquiry

    At this time, the Commission is seeking written comments and 
information from U.S. exporters, intermediaries, ocean carriers, and 
any other interested parties on whether it would be useful, advisable, 
and appropriate for the Commission to publish a few targeted export 
indices based on an aggregated sampling of service contract data. The 
Commission is particularly interested in: (a) Understanding whether and 
to what extent the shipping public would find U.S. export rate indices 
beneficial; (b) assessing whether it should extract rate information 
from service contracts or whether suitable alternatives exist; (c) 
determining the positive and negative

[[Page 31015]]

influences on the export commodities and ocean transportation 
marketplaces that greater price transparency via such indices might 
provide; and (d) gathering views on whether these indices, if 
developed, should be commodity-specific for different prescribed routes 
or whether more broadly based indices would meet the needs of U.S. 
exporters.

Questions

    1. Is there anything that prevents private index developers and 
publishers from developing indices of the kind being sought by U.S. 
agricultural exporters?
    2. Has your company used or considered using any existing freight 
rate index to adjust rates in its export service contracts or to hedge 
freight rate risk? If so, what is your company's view on the products 
it used or considered?
    3. Would it be appropriate to use service contract data filed 
confidentially with the Commission to develop indices of the kind being 
sought by U.S. agricultural exporters (assuming the data is aggregated 
so as to protect the identity of individual shippers and ocean carriers 
before being released to the public in the form of an average rate or 
index)?
    4. Should these indices be optimized for use in service contracts, 
for use in financial hedging instruments, or both?
    5. What kind of competitive issues would the public release of a 
broadly based or route and commodity specific rate index create for 
U.S. export shippers or ocean carriers?
    6. If developed using service contract data filed with the 
Commission, should a U.S. export rate index be route and commodity 
specific or should it be more broadly based? If the former type of rate 
index would be more useful to your business, explain what type of 
commodity, specific route, publication frequency, or other index-
related factors are most needed.
    7. Should either or both parties to a service contract have the 
option of not having their contract rates incorporated into an index?
    8. If made available by the Commission, how would an export rate 
index affect your company's export sales?
    9. If made available by the Commission, how likely is your company 
to use an export rate index in its service contracts to adjust rates?
    10. Has your company or related subsidiary traded in freight 
derivatives? If so, describe that experience and the outcomes obtained?
    11. If a U.S. export rate index is made available by the 
Commission, how likely is your company to trade in a derivatives market 
based on that index?
    12. What impact would trading in a freight derivative market based 
on a U.S. export rate index have on the physical U.S. export container 
market?

Along with comments, respondents should provide their name, their 
title/position, contact information (e.g., telephone number and/or 
email address), name and address of company or other entity and type of 
company or entity (e.g., carrier, exporter, importer, trade 
association, index publisher, etc.).

    Responses to the NOI will help the Commission decide whether it 
would be useful, advisable, and appropriate for the Commission to 
publish a few targeted export freight rate indices based on an 
aggregated sampling of service contract data filed with the Commission, 
and if so, what type of indices would best serve the needs of U.S. 
exporters.
    To promote maximum participation, the NOI questions will be made 
available via the Federal Register and on the Commission's Web site at 
www.fmc.gov in a downloadable text file. They can also be obtained by 
contacting the Commission's Secretary, Karen V. Gregory, by telephone 
at (202) 523-5725 or by email at [email protected]. Please indicate 
whether you would prefer a hard copy or an email copy of the NOI 
questions. Non-confidential comments may be sent to [email protected] 
as an attachment to an email submission. Such attachments should be 
submitted preferably in Microsoft Word or PDF.
    The Commission anticipates that most filed NOI comments will be 
made publicly available. The Commission believes that public 
availability of NOI comments is to be encouraged because it could 
improve public awareness of the benefits and drawbacks of establishing 
rate benchmarks for major U.S. exports. Nevertheless, some commenting 
parties may wish to include commercially sensitive information as 
relevant or necessary in their responses by way of explaining their 
liner shipping experiences or detailing their responses in practical 
terms. To help assure that all potential respondents will provide 
usefully detailed information in their submissions, the Commission will 
provide confidential treatment to the extent allowed by law for those 
submissions, or parts of submissions, for which the parties request 
confidentiality.

    By the Commission.
Karen V. Gregory,
Secretary.
[FR Doc. 2012-12666 Filed 5-23-12; 8:45 am]
BILLING CODE 6730-01-P