Ocean Carrier Complaints & What Might Change

Summary

Over the past three years in particular, steamship lines have come under scrutiny for billing and shipping practices, from detention and demurrage charges to powerful alliances and export procedures. The Federal Maritime Commission has been at the center of many of these conversations, as it handles complaints against ocean carriers and is the subject of the proposed Ocean Shipping Reform Act of 2022. In this article, we break down the main complaints leveled against ocean carriers, as well as what legislation is currently being considered to improve these processes—hopefully without causing further disruption to the supply chain.

Detention and Demurrage Charges

As any shipper is well aware, detention and demurrage charges can result in significant costs, particularly in the ongoing logistics crisis that continues to cause severe delays and shortages.

Detention and demurrage fees are intended to compensate carriers for extended use of their equipment, and to motivate shippers to keep cargo moving at an efficient pace.

These charges become problematic when carriers enforce steep fines for dwelling cargo that is the direct result of port congestion, equipment shortages, and other factors that prevent shippers from moving their goods any faster. For example, when ports or rail yards become severely backlogged, it is not uncommon to have a return window—an allotted period of time for an empty container and chassis to be returned—that fills with appointments quickly, and gets pushed out again and again.

Shippers find themselves holding onto equipment that they would otherwise be able to return in a timely manner. Detention charges are then no longer an incentive, but an unnecessary fine.  

Ocean Carrier Alliances & Price Gouging

UPDATE 6.3.22: The FMC’s Fact Finding Investigation 29 Final Report concluded that the “disturbingly high” spot prices are not due to a lack of competition, but “the pandemic, an unexpected and unprecedented surge in consumer spending, particularly in the United States, and supply chain congestion, and are the product of the market forces of supply and demand.”

Alliances between the biggest ocean carriers were referenced in the 2022 State of the Union Address, when President Biden claimed, “Capitalism without competition isn’t Capitalism. It’s exploitation…” A fact sheet released by the White House provides the following explanation:

“These companies have formed global alliances—groups of ocean carrier companies that work together—that now control 80% of global container ship capacity and control 95% of the critical East-West trade lines.”

FACT SHEET: Lowering Prices and Leveling the Playing Field in Ocean Shipping | The White House

Historically, ocean carriers have largely been exempt from normal antitrust legislation in order to encourage trade. Now, concerns are rising that ocean carriers have taken advantage of importers and exporters by raising shipping costs beyond what would have been necessary due to logistics complications during Covid-19, with little to no accountability.

“[Ocean carrier companies] increased spot rates for freight shipping between Asia and the United States by 100% since January 2020, and increased rates for freight shipping between the United States and Asia by over 1,000% over the same period.”

FACT SHEET: Lowering Prices and Leveling the Playing Field in Ocean Shipping | The White House

2M Alliance

  • Maersk
  • Mediterranean Shipping Company (MSC)  

THE Alliance

  • Hapag-Lloyd
  •  Ocean Network Express (ONE)
  • Hyundai Merchant Marine (HMM)
  •  Yang Ming Marine Transport Corp

Ocean Alliance

  • COSCO group
  • CMA CGM group
  • Evergreen line

Source: Ocean Carrier Alliances – The Tripartite | AJOT.COM

Export Procedures

Senator Klobuchar (D-MN) and Senator Thune (R-SD) who proposed the Ocean Shipping Reform Act of 2022 have emphasized in Senate hearings that their experience living in agricultural states affected their understanding of barriers to American exports.

The problem, they explain, is that ocean vessels often leave American ports with a significant number of empty containers, while exporters (particularly of agricultural goods) are increasingly struggling to find an available spot.

The Journal of Commerce has published a very helpful article on the complex relationship between exports and empties that goes more in depth on this subject: Empties vs. exports highlights precarious balancing act for US supply chain | JOC.com

The Ocean Shipping Reform Act of 2022

OSRA 2022 seeks to expand the Federal Maritime Commission’s (FMC) ability to enforce fair trade practices on ocean carriers for the benefit of U.S. importers and exporters. In contrast to the bill passed by the House last year, the Senate’s legislation intends to take a longer term approach to avoid causing further supply chain complications. Regulating ocean carriers could be necessary to ensure fair practices, but any regulation would need to account for possible ramifications of making the already bogged down supply chain more complicated.

The U.S. Senate Committee on Commerce, Science, and Transportation has listed several anticipated goals and results of the pending bill, including:

“Stop international ocean carriers from unreasonably declining American cargo, as determined by the FMC in new required rulemaking…

Shift the burden of proof regarding overcharging certain fees, called “demurrage and detention” charges, from the complainant to the international ocean carriers to help level the playing field and improve the FMC’s enforcement capacity.

Improve transparency of movement of U.S. agricultural and other exports by requiring international ocean carriers to report to the FMC regarding how many empty containers are being transported.”

Cantwell Applauds Unanimous Senate Passage of Ocean Shipping Reform Act – U.S. S…

While OSRA 2022 received unanimous support in the Senate, some have expressed concern regarding unintended consequences of additional legislation, and the burden it may add to an already stressed supply chain.

This piece of legislation passed the Senate in late March, and was sent to the House in early April to be considered.

Update 6.15.22: OSRA 2022 passed in the House on June 13, 2022 and must now be signed into law by President Biden.

Update 6.17.22: President Biden signed OSRA 2022 into law on June 16th, 2022.

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