OSRA21’s many benefits not intended to solve port congestion

OSRA21’s many benefits not intended to solve port congestion

The National Industrial Transportation League (NITL) has a legacy of advocacy for US shippers and works tirelessly to earn the label “The Shippers’ Voice Since 1907.” Our organization collectively and our members individually continue to contribute experience and expertise to the development of solutions that are so desperately needed to address the congestion problems in our ocean freight delivery system.

It is important to recognize, however, that the League’s May 2021 proposal that became part of HR 4996, the Ocean Shipping Reform Act of 2021 (OSRA21), was not designed to solve port bottlenecks. We have seen OSRA21 denigrated because it does not solve the critical congestion problems, but those criticisms are overlooking the very real but different concerns impacting US businesses that led to the League’s call for regulatory action to modernize the Shipping Act to address present-day challenges involving ocean carrier service and practices.

We have tremendous regard for the work being done by Federal Maritime Commission (FMC) Commissioner Rebecca Dye in her Fact Finding 29 and Commissioner Carl Bentzel in his data Initiative, as well as other public and private efforts under way throughout the industry to improve the ocean cargo delivery network. We have seen how bringing together the participants in the system can result in a fair and practical conclusion to what had been viewed as an overwhelming dilemma. The outcome of Fact Finding 28 that led to the FMC’s Interpretive Ruling on Demurrage & Detention was one such shining example. Unfortunately, it has also become the embodiment of how the agency’s articulation of likely unreasonable demurrage practices has not resulted in the performance of reasonable practices, as carriers continue to invoice millions of dollars in demurrage and detention under unreasonable circumstances when delays are beyond the control of the cargo.

For this reason, NITL supports the reforms outlined in OSRA21 that will require demurrage and detention charges to be consistent with their long-recognized purpose of incentivizing efficiencies in the ocean cargo delivery network. The FMC’s rule made clear that demurrage and detention may not be assessed when no efficiencies in cargo pickup or return of equipment will be achieved. OSRA 2021 simply requires codification of the FMC’s interpretation to improve carrier compliance and address ongoing unfair demurrage practices.

But OSRA21 is not just about demurrage and detention.

Since early 2021, League members have suffered the most extraordinary ocean freight rate increases in return for the most unreliable ocean carrier service on record. Ocean carriers are declining booking requests at unprecedented levels, leaving businesses scrambling to secure carriage for the products and materials needed to fill sales orders and meet production schedules. US supply chains have been put at risk with companies unable to anticipate when — if ever — their shipments will move. To make matters worse, many US businesses are often left no option but to obtain carriage on the spot market at rates that rise exponentially on a bi-weekly basis. In some instances, working outside of an agreed service contract with an ocean carrier has been necessary even though space commitments have not been satisfied in the contract. Although contract breaches are reserved for the courts, OSRA21 would require a common carrier to engage in “just and reasonable practices” with respect to service contracts.

US businesses harmed in current environment

US importers and exporters depend on timely access to equipment and vessel space to meet their production and delivery requirements, as well as customer and consumer demand. These critical ocean service needs have not been adequately satisfied and allocations have been inconsistent and unpredictable. Further, agricultural and other exporters have expressed concerns that ocean carriers are transporting increasing levels of empty containers back to Asia to maximize their profits in the eastbound trade, while denying them access to boxes and vessel space to meet their business demands in overseas markets.

In response, OSRA21 provides increased oversight of container and vessel space allocation to prevent unreasonable practices and stipulates that a common carrier may not “fail to furnish … containers or other facilities and instrumentalities needed to perform transportation services, including allocation of vessel space accommodations, in consideration of reasonably foreseeable import and export demands.” OSRA21 also specifies that a common carrier may not “unreasonably decline export cargo bookings if such cargo can be loaded safely and timely … and carried on a vessel scheduled for the immediate destination of such cargo.”

For the US importer who managed to secure carriage for their goods — even if at inflated spot rates — the service problems did not end. Schedule delays, voyage cancellations, and port bypasses resulted in delayed arrivals to port. And additional delays followed while containers booked to move inland by rail under the terms of the ocean bill of lading sat on the piers for weeks before moving toward their destinations.

OSRA21 would address these sort of service problems by requiring the FMC to initiate a rulemaking proceeding to include the “duty to perform the contract of carriage with reasonable dispatch” and a “requirement of ocean common carriers to establish contingency service plans to address and mitigate service disruptions and inefficiencies during periods of port congestion and other market disruptions.” Clarifying a “reasonable” standard for common carrier service and focusing on advance contingency planning would help to identify what minimum level of service is required meet the needs of the shipping public and to mitigate harms such as those caused by severe port congestion.

In the early part of 2021, concerns about unreasonable practices faced by importers and exporters continued to grow in number and breadth, leading to the recognition that the current Shipping Act, last updated over two decades ago, does not specifically address current day challenges and that the “reasonableness” that US businesses deserve from the ocean delivery system would not be reached voluntarily. These ongoing unprecedented challenges have left US businesses unable to rely on the essential ocean freight delivery system that is integral to their supply chains and, quite possibly, to their sustainability.

More than 20 years ago, the Ocean Shipping Reform Act of 1998 made regulatory changes that were appropriate for the time. In today’s environment where three alliances control more than 80 percent of the ocean capacity to and from the US and where global trade is the lifeblood to so many US businesses, the Ocean Shipping Reform Act of 2021 seeks to update the ground rules for reasonable practices for the protection of US businesses who depend on efficient and competitive ocean transportation. There is no doubt that one byproduct of having those guidelines in place will be the ability for US businesses to operate more efficiently. The enhanced predictability of cargo movement that would naturally result from more reasonable practices might just contribute to lessening some of the congestion problems as well.

Contact Lori Fellmer at lfellmer@basstechintl.com.