FMC seeks to avoid coronavirus-linked port gridlock

FMC seeks to avoid coronavirus-linked port gridlock

The Federal Maritime Commission will open a dialogue with all stakeholders to prevent cargo disruptions from crippling the supply chain and turn ports into mobile warehouses as retailers and manufacturers remained closed due to coronavirus. Photo credit: Ari Ashe/JOC.com.

The Federal Maritime Commission (FMC) will engage key executives in the maritime industry to keep supply chains fluid even as many non-essential retailers and manufacturers are closing their doors amid the US lockdown to slow the spread of coronavirus disease 2019 (COVID-19).

Commissioner Rebecca Dye hopes to navigate the disruption by opening up a line of communication between the agency, port directors, and supply chain innovation teams that would link ports, terminal operators, ocean carriers, beneficial cargo owners (BCOs), freight forwarders, longshore workers, truckers, railroads, and chassis providers.

“This initiative is an effort by the Commission to do everything we can to eliminate pressing problems in the freight delivery system,” Dye said in a statement.

The steady flow of containers became a challenge a month ago when coronavirus-linked blank sailings in the wake of Chinese New Year left no conduit to return empties to Asia. Now, with Chinese factories producing again, US cargo owners are unwilling to retrieve loaded containers from ports because their customers have canceled orders.

The Harbor Trucking Association on March 6 asked the FMC to intervene because empty containers were piling up on the lots of BCOs and trucking companies. Cargo flow was disrupted because truckers were unable to return the boxes and there were no vessels to take empties back to Asia. 

In a Monday statement, ocean carriers warned that the failure of cargo owners to pick up their import containers and return empty containers threatens port flow and the availability of chassis. 

"A major concern is inland equipment velocity. If not maintained, this alone can cause disruption of our intermodal networks. It is important for intermodal equipment to keep moving in order to maintain fluidity," Jeff Lawrence, executive director of the Ocean Carrier Equipment Management Association (OCEMA), said in a statement. "Keeping distribution centers and warehouses open and turning intermodal equipment is essential in this effort. 

Famine than feast 

While Chinese factories have reopened in the last four weeks, US stores and factories have now shut as COVID-19 restrictions take hold. US retailers and manufacturers have canceled orders, requested that containers not be placed on ships, and have investigated ways to keep containers in US ports. Suppliers for retailers such as Macy’s, Nordstrom, Kohl’s, Bed Bath and Beyond, and Havertys, among others, have also grappled with the question of how to handle inbound containers with their end-customers no longer placing orders. 

That has prompted a renewed discussion about minimizing detention and demurrage penalties by restoring normal cargo flow, with stakeholders eager to see how the FMC decides on a proposed rule in 2019 concerning reasonable detention and demurrage practices.

The fact that BCOs have chosen to risk demurrage penalties or invoke rarely used detention in transit requests demonstrates how coronavirus has seriously disrupted cargo flow in the US. Some freight forwarders, ocean carriers, terminal operators, and port authorities tell JOC.com that supply chain disruption could force ports to declare force majeure.

“As we make choices during this crisis, we must all act to protect the supply chain. Our national container intermodal system must remain fluid, which requires all of us to prevent terminal [ports and rail] gridlock,” said Adriene Bailey, a partner with Oliver Wyman, a supply chain consultancy. “Shippers need to do everything possible to take delivery, unload and release containers or ground them somewhere, and release the chassis back to service to keep essential freight moving.”

That may involve BCOs finding temporary offsite storage locations to unload cargo and return the empty container and chassis. By holding a container in a port, the BCO risks ocean carriers running short on containers for other customers. If BCOs remove the container but don’t unload it, then they detain both the box and the chassis, which would also trickle down to other customers.

Ports trying to help 

Dye is particularly concerned about what small and medium-sized BCOs will do when containers arrive, but their warehouses are filled to capacity.

“[They] are running out of options of where to send shipments once offloaded,” Dye said. “The Pacific Northwest Seaport Alliance has identified sites in their complex that can be used to stage cargo and containers off-terminals. I applaud their initiative.”

The Port Authority of New York and New Jersey (PANYNJ) is talking to warehouse owners and operators to gauge their vacant capacity and considering options for how different parts of the supply chain can adapt to handle the excess cargo. That could include finding additional space, but the port will first determine how much is needed before deciding who should secure the space, or where it would be, said Beth Rooney, PANYNJ deputy port director.

The Georgia Ports Authority has opened new storage space inside the Garden City Terminal in Savannah capable of storing 11,130 TEU. Of the total, about 5,000 TEU of capacity is available today, and the remaining 6,000 TEU will be added by mid-April.

In Virginia, an $800 million upgrade to Virginia International Gateway and Norfolk International Terminals in recent years has created available space to handle a surge in storage.

“Requests for storage are a very real possibility and as a result we have been having internal discussions about how we would handle the issue,” said John Reinhardt, CEO of the Virginia Port Authority. “A one-policy-for-all solution is not an option because each request will be different. We will consider the requests on a case-by-case basis and create agreements that are beneficial to both sides.”

Jim Newsome, CEO of the South Carolina Ports Authority, said there is enough open space in Charleston, too, although he cautioned against BCOs using the Wando Welch Terminal as a mobile warehouse.

“There is a lot of cargo that comes in and it needs to move,” Newsome told JOC.com. “The cargo must be picked up; it needs to be gone.” He said he informed ocean carriers that his terminal is ready for any extra loaders placed into service for cargo unable to be stopped.

Contact Ari Ashe at ari.ashe@ihsmarkit.com and follow him on Twitter: @arijashe.