Background

The Federal Maritime Commission issued May 31 the results of a two-year fact-finding investigation into the effects of the COVID-19 pandemic on the U.S. international ocean transportation supply chain, in which importers and exporters highlighted the high cost of shipping cargo and excessive demurrage and detention charges as recurring pandemic-related concerns.

The investigation found that the current market for ocean liner services in the Trans-Pacific trade is not concentrated while the Trans-Atlantic trade is only minimally concentrated; competition among ocean common carriers, the three major alliances and the members in each of these alliances is vigorous; and the market for ocean services remains highly contestable, particularly in the Trans-Pacific trade. The investigation also determined that “although certain ocean transportation prices, especially spot prices, are disturbingly high by historical measures, those prices are exacerbated by 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.”

The fact-finding officer responsible for the investigation expressed concern that certain ocean carriers are not in full compliance with the incentive principle of the FMC’s interpretive rule on demurrage and detention, which provides the shipping public with an enforceable principle that the FMC employs to assess the reasonableness of demurrage and detention practices and regulations under the Shipping Act of 1984 and describes a non-exclusive list of factors that the FMC may consider in evaluating claims and complaints.

An additional concern expressed by the fact-finding officer was the FMC’s lack of regulatory tools to deal with numerous new charges imposed on U.S. shippers and truckers by ocean carriers and marine terminals through tariffs as well as with other supply chain dislocations within the FMC’s authority. The report noted that “the most productive path forward for shippers and ocean carriers alike would be to enter mutually enforceable and binding service contracts – true “meeting of the minds” – that are enforceable commercial documents.” According to the report, without enforceable contracts shippers are unable to protect themselves from volatile shipping rates and ocean carriers have few forecasting tools to provide the shipping capacity necessary to serve their customers.

The report includes the following recommendations to further alleviate dislocations in the U.S. international ocean supply chain:

- a new FMC international ocean shipping supply chain program with dedicated personnel;

- a rulemaking to provide coherence and clarity on empty container return practices;

- a rulemaking to provide coherence and clarity on earliest return date practices;

- continued FMC support for the new vessel-operating common carrier audit program, including developing a new requirement for ocean carriers, seaports, and marine terminals to employ an FMC compliance officer;

- an FMC outreach initiative to provide more information to the shipping public about, among other topics, FMC competition enforcement, service contracts, shippers associations, and forecasting;

- enhanced cooperation with the Department of Agriculture on container availability and other issues;

- an FMC investigation into practices relating to charges assessed by ocean common carriers, seaports, and marine terminals through tariffs;

- a rulemaking to provide coherence and clarity on merchant haulage and carrier haulage;

- a new National Seaport, Marine Terminal, and Ocean Carrier Advisory Committee to work cooperatively with the FMC’s National Shipper Advisory Committee;

- a revival of the rapid response team program as agreed to by all ocean carrier alliance CEOs;

- FMC international ocean supply chain innovation teams engagement to discuss blank sailing coordination and other matters as needed to support recommendations; and

- a reinvigorated focus on the extreme problems at Memphis rail heads and around the country.

ST&R offers a wide range of FMC-related services, including help addressing unreasonable shipping charges. For more information, please contact Jason Kenner (at (212) 549-0137 or via email), Andy Margolis (at (305) 894-1021 or via email), or Ned Steiner (at (202) 730-4970 or via email).

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