US eyes shipping reform, faces carriers’ criticism

Two US congressmen have introduced the “Ocean Shipping Reform Act of 2021″, the first major update of federal regulations for the global ocean shipping industry since 1998.

The bill was introduced by congressmen John Garamendi (D-CA) and Dusty Johnson (R-SD) on 10 August.

As explained, the legislation would support American exports by establishing reciprocal trade opportunities to help reduce the United States’ longstanding trade imbalance with China and other countries.

“Congress has not updated federal regulations for the global ocean shipping industry since China was granted permanent, normalized trade relations under the World Trade Organization in 2001. Now is the time to ensure reciprocal opportunities for American exporters in trade with other countries to reduce the United States’ trade imbalance with cheap Asian imports,”  Congressman Garamendi said.

“Foreign ocean carriers aren’t playing fair, and American producers are paying the price,” Congressman Dusty Johnson added.

“It’s time for updated rules of the road. That’s what our bill does.”

In March 2021, Congressmen Garamendi and Johnson joined over 100 Members of Congress in a bipartisan letter to the Federal Maritime Commission (FMC) urging action on unfair, anti-competitive, and likely illegal business practices by some ocean carriers.

In July 2021, the FMC established a new audit program to assess ocean carriers’ compliance with federal regulations on detention and demurrage and to step up the federal agency’s monitoring of the marketplace for ocean cargo services.

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Specifically, the Ocean Shipping Reform Act of 2021 would:

  • Establish reciprocal trade to promote U.S. exports as part of the FMC’s mission.
     
  • Require ocean carriers to adhere to minimum service standards that meet the public interest, reflecting best practices in the global shipping industry.
     
  • Require ocean carriers or marine terminal operators to certify that any late fees —known in maritime parlance as “detention and demurrage” charges—comply with federal regulations or face penalties.
     
  • Shift burden of proof regarding the reasonableness of “detention or demurrage” charges from the invoiced party to the ocean carrier or marine terminal operator.
     
  • Prohibit ocean carriers from declining opportunities for U.S. exports unreasonably, as determined by the FMC in new required rulemaking.
     
  • Require ocean common carriers to report to the FMC each calendar quarter on total import/export tonnage and twenty-foot equivalent units (loaded/empty) per vessel that makes port in the United States.
     
  • Authorizes the FMC to self-initiate investigations of ocean common carrier’s business practices and apply enforcement measures, as appropriate.

In late April 2020, the Federal Maritime Commission announced “Fact Finding No. 29” to investigate congestion, bottlenecks, and fees at US ports. In November 2020, the commission expanded this investigation to include reports of ocean carriers declining to ship American exports.

World Shipping Council criticizes the new bill

The World Shipping Council (WSC) — a trade association representing the international liner shipping industry — said that the legislation is based upon a “flawed discussion draft” suggested by certain shippers and agricultural exporter interests.

According to WSC, the most significant of these flaws are:

“First, a suggestion that ocean carriers are solely responsible for the current supply chain congestion;   

Second, today’s legislation is infused with fundamental unfairness; and,

Third, the bill ignores the fact that all supply chain participants are working collaboratively to find solutions to today’s problems.

WSC pointed out that the government’s action must assure fairness for all parties, meaning that the law must spell out responsibilities and consequences for nonperformance of all parties.

The council also said that the congress should pause and reflect on the impacts on trade partners whom this legislation, if enacted, would incentivize to enact similar protective legislative and regulatory frameworks in their countries.

“Starting a protectionist race to the bottom in the regulation of international ocean transportation is not a winning strategy for the U.S. economy.  For U.S. consumers and businesses, today’s bill runs a serious risk of making transportation contracts less flexible, slowing cargo velocity, and making all imported and exported goods more expensive.”

FMC has urged congress to allow commercial solutions and market forces to mitigate and balance the current supply chain stress, with the FMC using its authority as a backstop to investigate and enforce against any unreasonable practices—a process already initiated.