Thursday, December 9, 2021

Passing of US Bill on Demurrage and Detention Charges Causes Mixed Reactions

Shippers and Carriers Take Opposite Views of New Legislation
Shipping News Feature

US – The passing of HR 4996, the Ocean Shipping Reform Act of 2021, by the House of Representatives this week, has brought vastly different reactions from those parties most directly affected.

On 8 December the Bill passed by 364 votes to 60, expanding the powers of the Federal Maritime Commission (FMC) with the intention of relieving pressure within the economy caused by the congestion witnessed at US ports over the last few months.

The reaction of the carriers has been the introduction of congestion and demurrage charges, often with no explanation as to how the sums involved are arrived at, saddling shippers with unexpected extra costs, often when they are powerless to do anything about relieving the situation.

These charges have incited those such as BIFA and FIATA which represent forwarding agents worldwide and the passing of the Act was welcomed by such as the American Feed Industry Association (AFIA) whose president of public policy and education, Leah Wilkinson, commented:

”Over the past year the ongoing Covid 19 exacerbated supply chain issues have created logjams at US ports and blocked the export of our members’ products, resulting in steep financial losses and irreversible friction with international customers.”

The Bill itself however is, to say the least, a little confusing as to how it can influence the situation. The key sections of the legislation appear thus. It:

  • requires ocean common carriers to adhere to minimum service standards that meet the public interest
  • directs the FMC to establish rules prohibiting ocean common carriers and marine terminal operators from adopting and applying unjust and unreasonable demurrage and detention fees
  • requires ocean common carriers to report to the FMC each calendar quarter on total import and export tonnage and the total loaded and empty 20-foot equivalent units per vessel that makes port in the United States
  • authorizes the FMC to initiate investigations of an ocean common carrier's fees or charges and apply enforcement measures, as appropriate

So let us examine those points one at a time. Surely any carrier strives to do the best job they can in a market where there is keen competition. Shippers are known to switch for numerous reasons, cost usually being the prime factor and therefore standards are usually self-policing. As for the ‘public interest’ that presumably means keeping the supply chain open and efficient.

Secondly, the FMC are already authorised to do this and in September laid out a ‘Final Rule’ on this very subject. As to reporting all import and export tonnage and the total of loaded and empty TEUs, this will be a useful analytical tool but, as pointed out by John Butler, President and CEO of the World Shipping Council recently, the authorities had better decide exactly what they want in this regard first before raising criticisms.

As to the last point the ocean carriers would doubtless say they are already scrutinised, but some clarity as to how they arrive at these charges when freight rates are already soaring would be more than welcome. John Butler’s comments to a Senate hearing express the confused situation rather well when he said:

”On the one hand the administration is pressing us to get our customers to come to the ports and pick up their cargo so that we can get it out of the way and move additional cargo. At the same time we have a House Bill and an expected Senate Bill that would restrict the ability to use detention and demurrage incentives to get that job done.

”As another example of mixed messages we are also being told that we must put empty containers on outbound ships in order to clear the ports. Again, at the same time the proposed legislation in both chambers would say that we have to load all export boxes before we can load empties.”

At that time Butler went on to say that all involved, ports, carriers, terminal management, hauliers and rail interests were working to try and reach optimal solutions. When the Act was passed by the House this week he added:

”The House today passed HR 4996 without proper debate or committee process. The bill is a political statement of frustration with supply chain challenges, frustrations that ocean carriers share. The problem is that the bill is not designed to fix the end-to-end supply chain congestion that the world is experiencing, and it will not and cannot fix that congestion.

”WSC will continue to work with the Congress to seek real solutions that further strengthen the ocean transportation system that has supported the US economy throughout the pandemic.”

Photo: Congestion in the ports of Southern California have been hitting record highs in the past few months.