President Joe Biden has signed a bipartisan law aimed at addressing port congestion, skyrocketing overseas shipping costs and other issues amplified during the Covid-19 pandemic.
The Ocean Shipping Reform Act (OSRA) updates shipping regulations last modified in 1998. The law gives the Federal Maritime Commission (FMC) new oversight and enforcement tools to target unfair shipping practices or pricing.
“There hasn’t been an update since 1998, and we have seen dramatic changes in shipping industry,” said Andrew Walmsley, senior director of government affairs for the American Farm Bureau Federation, one of the organizations pushing for the bill.
“We hope this provides more transparency. I think generally it’s a notice to carriers that shippers are paying attention,” he continued.
Senators Amy Klobuchar, D-Minn., and John Thune, R-S.D., introduced the bill in the Senate early this year. It ultimately passed the chamber unanimously in March. Three months later, in June, the House approved the measure and Biden signed it a few days later.
The measure emerged from shipping challenges that emerged largely during the Covid-19 pandemic. Shippers have faced rapidly rising prices for containers and disrupted schedules. By September of 2021, shipping rates for a 40-foot container had jumped to around $11,000 from a pre-pandemic rate of $1,300, according to federal data. Some carriers also are refusing cargo space on their vessels.
Between July and December of 2020, shipping carriers rejected at least $1.3 billion in U.S. agricultural exports, according to the FMC. In October and November, carriers rejected an estimated 177,938 containers, according to analysis of data compiled by the U.S. Census Bureau and the ports of Los Angeles and Long Beach, in California, and New York and New Jersey.
This happens because carriers can make more money shipping from Asia to the U.S. than the reverse, and the U.S. currently has a great surplus of empty containers. Pressure exists to move containers back to Asia as quickly as possible, especially as carriers are in some cases fined for leaving empty containers lying around the docks.
The new law passed by Congress gives the FMC improved power to address these issues. It prohibits common ocean carriers, marine terminal operators or ocean transportation intermediaries from unreasonably refusing cargo space when available, or resorting to other unfair or unjustly discriminatory methods.
Shippers and groups that represent them around the world argue the problems are caused by a few bad actors rather than being endemic to the entire industry. “Recent weeks have seen several attempts to demonize ocean carriers by deploying ‘us versus them’ rhetoric,” the World Shipping Council said in a statement.
“That is not only inaccurate but dangerous, as it undermines the ability to understand and work towards solving the root causes of America’s supply chain problems,” the group continued. “Ocean carriers are the longest link in the global supply chain that delivers vital supplies to American businesses, government and consumers. The supply chain is not foreign, it is global.”
The group said increased shipping rates are a function of demand for shipping outstripping supply. They also attributed it to landside congestion, “exacerbated by pandemic-related disruption.”
The World Shipping Council, which represents Maersk and other big carriers, also took issue with the assertion that nine common ocean carriers constitute inadequate competition in the U.S. carrier market, saying there are actually 22 carriers servicing the country.
“While nine lines in and of itself is evidence of competition and not concentration, there are an additional 13 ocean liner companies that operated over 30 percent of the sailings from Asia to the U.S so far this year. In fact, competition increased during the pandemic, with new shipping services entering the market and the share of the largest alliances dropping,” the council said.
The Shipping Act allows the FMC to investigate unreasonable denial of American exports and establishes a system for registering price complaints. The new law also shifts the burden to the carrier to prove charges are reasonable.
“These improvements come at a time when inflation has reached a 40-year high,” said David French, senior vice president for government relations with the National Retail Federation (NRF). “NRF has championed the effort to pass OSRA as one of the steps necessary to … ease pressure on American businesses, workers and consumers.”
The Ocean Shipping Reform Act will shift the burden of proof regarding the reasonableness of late fees — known in maritime language as “demurrage and detention” — from the invoiced party to the ocean carrier that issues the charge.
The law also will require carriers to report how many empty containers they are transporting and prohibit retaliation against shippers or threatening the denial of cargo. It also creates an Office of Consumer Affairs and Dispute Resolution Services and aims to improve chassis management through new data gathering efforts.
This last feature addresses the problem of an insufficiency of chassis in ports, caused by the surplus of empty containers. Trucking companies have difficulty returning empty containers to the ports, as there is little room for them among the empty containers already there. •