Ocean Carriers: Shipping Reform Act 'Doomed To Fail'

Container carrier representatives in Washington are pushing back hard against legislation introduced Tuesday aimed at addressing yearlong complaints against carriers by their customers alleging service failures and unfair pricing they say would have disastrous consequences for container markets.

The Ocean Shipping Reform Act of 2021, spearheaded by Reps. John Garamendi, D-Calif., and Dusty Johnson, R-S.D., imposes minimum requirements on ocean carrier service contracts and shifts the burden of proof in regulatory proceedings from shippers to the container lines. It also establishes reciprocal trade as part of the FMC's mission – including mandating that ocean carriers cannot decline export cargo if the containers can be loaded safely and within a reasonable time frame.

"An effective marketplace has to be fair and predictable. Unfortunately, foreign ocean carriers aren't being fair and predictable, and it's time to change that," Johnson said during a briefing of the legislation. "This update is overdue. It's been since 1998 that we've had major changes to this regulatory environment and a lot has changed since then."

Among other new powers given to the FMC in overseeing the ocean carriers, the legislation:

• Updates requirements on ocean common carriers to incorporate best practices in the shipping industry.
• Requires ocean common carriers or marine terminal operators to certify that any demurrage or detention charge complies with FMC regulations or face penalties.
• Limits exemption for marine terminal operators for any terminal detention or demurrage charges if such charges are based on public port tariffs set under state law.
• Effectively codifies the FMC's Interpretive Rule on Demurrage and Detention Under the Shipping Act and obligates ocean carriers to adhere to minimum service standards that meet the public interest, determined by the FMC in new required rulemaking.
• Requires ocean carriers or marine terminal operators to maintain all records regarding invoiced demurrage or detention charges for at least five years and provide such records to the FMC or invoiced party on request.

In addition, the legislation allows third parties to challenge anti-competitive agreements in FMC complaints and establishes a new process for addressing demurrage and detention complaints giving the FMC a more active role in investigating them.

"The goal is to create a level playing field where the exporters, the importers and the shipping companies all play a role in a competitive environment in which there is no undue power held by the shipping industry," Garamendi said. "You have to have a rational, reasonable market in which there are rules of the road that are fair to both sides."

But instead of creating a level playing field, the government reforms would tilt the market in favor of shippers in commercial disputes, according to the World Shipping Council, which represents 90% of global container capacity.

"If the government is going to step in, it must be to assure fairness for all parties, and that means that the law must spell out responsibilities and consequences for nonperformance by all parties," WSC said in a statement. "The legislation does not take that even-handed approach. Just because the market has temporarily turned under stress from unprecedented U.S. consumer and business import demand does not warrant legislatively creating a commercial playing field that is unlevel and which will persist for many years if enacted."

WSC maintains that the reforms ignore the fact that all supply chain participants, including ports, marine terminals, truckers, railroads, warehouse operators are working to find solutions to what is essentially a supply-demand issue, not one of improper actions on the part of the ocean carriers.

"What is crystal clear is that regulating only ocean carriers — or any other single class of supply chain provider — is doomed to fail," WSC stated, adding that if the reforms were to be enacted, it would incentivize U.S. trading partners to enact similar legislative frameworks. "Starting a protectionist race to the bottom in the regulation of international ocean transportation is not a winning strategy for the U.S. economy."

Johnson asserted, however, that while the top 10 ocean carriers controlled 12% of the volume two decades ago, the top 10 now controls 80%. "Clearly we're dealing with a very different environment."

In addition to service issues, Johnson, a former state utility regulator in South Dakota, said he is also concerned about market concentration in the ocean carrier sector and the effect it can have on rates.

"I'm a believer in the free market, but the free market is about many buyers and many sellers, and when you have unreasonable amounts of concentration and merger activity, you give certain market participants asymmetrical power. That's a market failure and it can at times be a reasonable place for regulation."

Related articles:

• Congress drafting law barring ocean carriers from refusing US exports
• US company sues ‘collusive' ocean carriers, alleging price manipulation
• Swiss megaship operator rejects allegations of collusion by US shipper

Click for more FreightWaves articles by John Gallagher.

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