New York terminal loses court bid to block Maersk exit

container terminal

A last-minute court plea – infused with rhetoric about coronavirus fallout – has failed to derail Maersk’s plan to switch from the GCT New York terminal on Staten Island to the APM Terminals (APMT) facility in Elizabeth, New Jersey.

A Maersk spokesman confirmed to FreightWaves that a New York district court judge has “ruled against GCT’s request for a restraining order regarding Maersk’s announced transfer of three services” to APMT Elizabeth. He said the carrier is making the move to “achieve better operational efficiency” after the recent $200 million upgrade to the APMT facility. The judge’s final ruling was filed in court on Tuesday.

Maersk Line informed GCT New York on April 10 that it would pull out as of May 1. APMT, Maersk Line and Hamburg Sud are owned by Copenhagen-listed AP Moller-Maersk (APM).

The three affected services are: a Caribbean-U.S. East Coast (USEC) service operated by Maersk; an East Coast South America-USEC service operated by Hamburg Sud and Hapag-Lloyd; and a West Coast South America-USEC service operated by Hamburg Sud and Hapag-Lloyd (Hapag-Lloyd had no service contract with GCT New York).

Maersk initially offered to pay GCT a settlement of $5.5 million, including an early termination fee of $2.1 million and additional consideration of $3.4 million. GCT fought back – and lost, at least in terms of securing the temporary restraining order (TRO).

Asked whether talks have resumed on the initial settlement offer, the Maersk spokesman replied, “We generally do not comment on the existence or substance of settlement negotiations.”

GCT allegations

GCT sought an emergency TRO through court filings on April 20, arguing that the service contract signed by Maersk couldn’t be terminated until December 31, 2021, and only then with six months’ notice.

GCT alleged that “the timing couldn’t be worse … in the middle of an unprecedented and crippling global pandemic”; that Maersk’s decision would “reverberate through the Staten Island economy and have adverse tax-revenue effects for the city and state of New York”; that the carrier’s “reprehensible conduct [its early contract termination] is magnified by the fact that Maersk is essentially stealing business from GCT to give to its own corporate affiliate, APMT”; and that as a result of Maersk’s decision, the Staten Island terminal could “cease to be a going concern” and 100% of Staten Island’s longshoreman jobs could be “at risk.”

Maersk’s rebuttal in court

Maersk alleged in court documents filed on April 22 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,” because “it unquestionably knew Maersk planned to transfer the business to APMT when space became available.”

Maersk pointed to written correspondence showing that when the 2018 contact amendment was negotiated, Maersk specifically told GCT that “our concern is that by the end of 2021, our sister company [APMT] may have had space available and we will be unable to move … [so] we want to build a flexible tool that works for both of us.” Maersk said the early termination clause was negotiated to address that concern.

Maersk’s court filing confirmed that the coronavirus did indeed play a role in the company’s decision to make an earlier-than-expected switch to APM 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,” said the carrier.

Maersk alleged in the court filing 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.”

The carrier disputed GCT’s claims on loss of longshoremen jobs, noting that GCT also operates a terminal in Bayonne, New Jersey, and could shift some ship calls to Staten Island, and that port workers who lost work in Staten Island would be eligible based on seniority for work at other terminals in the Port Authority of New York/New Jersey complex (PANYNJ). The service switch by Maersk to APMT Elizabeth does not, in itself, lower volumes through PANYNJ properties.

The bigger picture

The coronavirus outbreak has prompted a vast reduction in container line services across the globe. The number of vessels bringing cargo from Asia to the U.S. could decline by 20% or more in May, June and subsequent months.

Fewer services may prompt carriers to change which terminals they call at and rationalize the number of terminals they use. This could prompt terminals on the losing end to seek protection from local courts, with different outcomes possible in different jurisdictions.

Maersk asserted that its decision to leave Staten Island early “was a legitimate business decision” and pointed out that the U.S. Second Circuit Court of Appeals has previously ruled that a contract “may be breached for legitimate business reasons.”

Maersk disputed the contention that GCT – which operates four terminals and is owned by three “multi-billion-dollar” institutional investors – would be driven to bankruptcy by the loss of the Maersk services in Staten Island. And even if that were true, emphasized the carrier, GCT would “have itself to blame for a failed business model.”

In general, the container giant argued that it is bad public policy to protect parties “from bad contracts or bad business models.” The New York judge appears to have agreed. Click for more FreightWaves/American Shipper articles by Greg Miller