A last-minute court plea by Staten Island’s Global Container Terminals (GCT) has failed to block Maersk’s plan to move service to the APM Terminals (APMT) facility in Port Elizabeth, New Jersey.
A spokesman for Maersk confirmed to FreightWaves that a New York district court judge “ruled against GCT’s request for a restraining order regarding Maersk’s announced transfer of three services” to APMT’s facility in New Jersey. The spokesman said that carrier is making the switch to the Port Elisabeth terminal to “achieve better operational efficiency” after its recent $200 million upgrade. The final ruling was filed in the New York district court on Tuesday.
The affected services include:
- Caribbean-U.S. East Coast (USEC) service operated by Maersk;
- West Coast South America-USEC service operated by Hamburg Sud and Hapag-Lloyd*; and
- East Coast South America-USEC operated by Hamburg Sud and Hapag-Lloyd*.
*Hapag-Lloyd does not have a service contract with GCT New York.
GCT filed for an emergency restraining order on April 20, arguing that the service contract with Maersk couldn’t be terminated until December 31, 2021, and only if it provided six months’ notice. GCT alleged that Maersk was attempting the switch to Port Elizabeth “for the financial benefit of their sister company”, a direct competitor of GCT, and that “the timing couldn’t be worse… in the middle of an unprecedented and crippling global pandemic.”
Maersk’ and Hamburg Sud’s services through the Staten Island facility account for 60% of the terminal’s ocean container business, which represents 46% of all box throughput, including local barge business. The departure of the 2 container lines “will have immediate and catastrophic effects on the business and financial well-being of GCT and its employees, which are exacerbated by the timing of the purported termination.” GCT is one of the top employers on Staten Island, and the early loss would put all of Staten Island’s longshoreman jobs at risk and would “reverberate through the Staten Island economy and have adverse tax-revenue effects for the city and state of New York.”
In court documents filed on April 22, Maersk alleged that “GCT feigns shock and surprise that Maersk would transfer its container business to a competitor terminal in the port operated by Maersk’s corporate affiliate, APM,” and that “it [GCT] unquestionably knew Maersk planned to transfer the business to APMT when space became available.” As proof, Maersk pointed to written correspondence from its 2018 contract negotiations with GCT in which they specifically told GCT that “our concern is that by the end of 2021, our sister company [APMT] may have had space available, [so] we want to build a flexible tool that works for both of us.” Maersk said an early termination clause was negotiated into the 2018 contract to address that concern.
Maersk also alleged that “GCT has exaggerated the impact that an early termination of the [contract] will have on GCT’s business, the port and the surrounding community.” GCT – which operates four terminals and is owned by three “multi-billion-dollar” institutional investors – operates a terminal in Bayonne, New Jersey. The carrier noted that GCT could shift some calls from Bayonne to Staten Island and that port workers who lost would in Staten Island would be eligible, based upon seniority, for work at other terminals in the Port Authority of New York/New Jersey (PANYNJ). Maersk also said the service switch to Port Elizabeth, in itself, does not lower volumes through PANYNJ properties. And if it GCT were to file for bankruptcy, it would “have itself to blame for a failed business model.”
The carrier’s court filing confirmed that the Coronavirus did, in fact, play a role in the company’s decision to move their services to Port Elizabeth. “Ultimately, space became available at APMT sooner than Maersk anticipated. Given the uncertain economic environment caused by COVID-19, Maersk made the business decision to terminate the [contract] early.”
A Look at the Bigger Picture
The global Coronavirus pandemic has significantly reduced demand for container line services around the world, and experts predict the number of vessels bringing cargo to the U.S. from Asia could decline by 20% or more in the weeks and months ahead.
With fewer vessels in service, carriers may be prompted to prioritize some trade lanes, skip some ports due to heavy congestion, or change which terminals they call in order to reduce costs. This could prompt impacted terminals to seek protection from local courts, possibly with different outcomes in different jurisdictions.
In its case against GCT, Maersk pointed out that the U.S. Second Circuit Court of Appeals previously ruled that a contract “may be breached for legitimate business reasons,” and asserted that its decision to terminate its contract early “was a legitimate business decision.” The carrier also argued that it’s the courts role to protect parties “from bad contracts or bad business models.”
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