This week:

• The National Shipping Advisory Committee has asked that the FMC plays a role in regulating rail-assessed demurrage and that Congress increases the FMC’s jurisdiction
• A new bill has been introduced to the House of Representatives to repeal carrier anti-trust immunity
• The Ocean Shipping Reform Implementation Act, also before the House of Representatives, gains support
• Agriculture exporters affected by work shift cuts along the West Coast
• Doubts arise regarding a strong import recovery in the second half of 2023

Cargo Owners Want More Forceful FMC Regulation for Rail Storage Fees

The National Shipping Advisory Committee (NSAC), comprising numerous cargo owners, is asking the Federal Maritime Commission (FMC) to regulate rail storage fees using the same standards as those applied to other demurrage penalties inside US ports. NSAC’s request applies specifically to rail-assessed demurrage on through bills of lading/carrier haulage, where demurrage bills are sent directly to the shipper even though carriers are responsible for cargo transportation.

NSAC wants the FMC to correct the process and ensure that rail operators bill the ocean carriers directly instead. However, some grey area exists regarding where the FMC’s jurisdiction ends since railroads are not covered under the US Shipping Act. NSAC has therefore outlined three recommendations: that Congress increases the FMC’s jurisdiction to cover the billing of rail-related fees, that a rule be made restricting rail roads to invoicing only ocean carriers for storage fees, and that the Department of Transportation (DOT) and US Surface Transportation Board intervene to investigate the problem.

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FMC Questions Terminals and Carriers about Their Demurrage and Detention Charge Practices

A bipartisan bill called the Ocean Shipping Antitrust Enforcement Act was introduced to the House of Representatives on March 24, which aims to repeal limited anti-trust immunity for foreign ocean carriers. The three major carrier alliances 2M, THE Alliance, and Ocean Alliance, consist of 10 foreign-based ocean carriers that in 2022 controlled more than 80% of global ocean shipping. The bill will aim at preventing monopolies from manipulating the industry and using unfair trade practices while supporting US exporters by defending them against container rate increases, demurrage and detention charges, and the prioritization of empty containers over export containers.

Throughout the significant port disruptions caused by the pandemic, US exporters regularly reported that carriers refused to load their cargo, placing additional strain on US businesses that needed to get their products overseas.

If the bill passes, the FMC could formally comment on mergers and acquisitions as they are reviewed by the Department of Justice’s Antitrust Division. Opposition to the bill comes mainly from the World Shipping Council (WSC), who believe the bill would prevent vessel-sharing arrangements (VSAs), which provide more efficient services to more ports, supporting competitiveness.

Support Rises for the Ocean Shipping Reform Implementation Act

Another bill recently brought before the House of Representatives is the Ocean Shipping Reform Implementation Act, a bipartisan bill introduced to the House on March 28. The bill aims to improve last year’s shipping reforms while controlling China’s influence on US supply chains.

The bill will focus on speeding up the development of uniform data-sharing practices and standards between ports and stakeholders. A 2022 ReMo study predicted that improved data exchange practices could cut emissions by 22% and costs by 6% thanks to efficient cargo routing, reduced ship and truck wait times, and more effective infrastructure utilization.

The bill also focuses on bringing fairer trade practices into US shipping by giving ocean carriers greater accountability for maintaining trade flow. Placing the onus on ocean carriers is intended to benefit US exporters by providing more consistent service while helping to prevent ocean carriers from causing delays that impact US businesses and economic output.

Work Shift Cuts at West Coast Terminals Are Affecting Agriculture Exporters

The rerouting of cargo away from West Coast ports due to ILWU contract negotiations, combined with slipping Asia import volumes, has led to work shift cuts up and down the coast. Many West Coast ports have cut one work shift per week due to declining import volumes, but the cuts mainly affect US West Coast exporters, particularly agricultural shippers.

Ag exporters rely on ports shipping their low-margin cargo, and although carriers have put ships into service to carry high-value cargo, ag cargo is normally carried on the backhaul. Because of the increased competition with high-value cargo, the work shift cuts mean fewer opportunities for ag cargo to be moved, leading to delays and higher transportation costs. In January, ag exports to Asia fell by 5.2% year-over-year as customers began to look elsewhere.

Forecasts for Asian Import Rebound in the Second Half of 2023 Are Weakening

Previous forecasts that indicated a strong US import recovery for retail in the second half of 2023 are beginning to look less likely. However, there is still potential for a strong recovery if consumer spending doesn’t collapse. The possibility of a strong recovery in imports may be affected by the weakening US housing construction market, dropping retail sales, and continued surplus apparel, appliance, and furniture inventory in warehouses that still need to be cleared.

February 2020’s inventory-to-sales ratio for building materials, garden equipment, and supplies sat at 1.7, but months after the surge in orders to avoid ILWU-related port disruptions, that ratio still sat much higher at 1.96 in January this year. These inventory numbers are the highest in a decade, and furniture and home furnishing wholesalers are not doing much better, with an inventory-to-sales ratio of 1.9 in January compared with just 1.58 in 2020.

If consumer spending remains strong and retailers can clear inventory backlogs in April and May, there is still hope for a strong peak season across July, August, and September. However, if consumer spending drops before inventories are cleared, then there might not be a recovery until Chinese New Year 2024.

The diversion of discretionary cargo away from the West Coast has led to many importers of Asian-made goods favoring ports in the Southeast, Savannah in particular. 2022’s Asia import volume only decreased by 0.3% after 2021’s 13.5% spike, however, the Southeast’s market share rose by 1.1% from 19.8% to 20.9% between these two years, a 5.2% volume increase, while the West Coast’s market share dropped from 59.9% to 56.4%.

Savannah led the Southeast ports with a market share increase of 0.7% to an 11.1% total, increasing the port’s import volume by 6.1%. Charleston followed suit with a market share increase of 0.5% to a market share of 3.8% after a 14.6% spike in shipment volume.

Although it remains to be seen whether the Southeast will maintain its market share after ILWU contract negotiations finish, the Southeast ports are a gateway to North and South Caroline, Georgia, Tennessee, and Florida. And as Southeastern ports get more upgrades and improved supply chain infrastructure investments, shippers may prefer to send imports from Asia directly to the Southeast ports rather than to the West Coast, where they must make the intermodal journey across the country.

(Source: John McArthur | Unsplash)