Ocean Shipping Reform Act is examined by supply chain experts

Late last year, the United States House of Representatives signed off on the bipartisan Ocean Shipping Reform Act of 2021, H.R. 4996, by a convincing 364-60 vote.

The bill was introduced by Representatives John Garamendi (D-CA) and Dusty Johnson (R-SD) in August, with the objective of making the Federal Maritime Commission (FMC) “a more effective federal regulator.”

As previously reported by LM, Key components of the Ocean Shipping Reform Act of 2021 include:

• establishing reciprocal trade to promote U.S. exports as part of the Federal Maritime Commission’s (FMC) mission;
• requiring 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;
• shifting the burden of proof regarding the reasonableness of “detention or demurrage” charges from the invoiced party to the ocean carrier;
• prohibiting ocean carriers from declining opportunities for U.S. exports unreasonably, as determined by the FMC in new required federal rulemaking; and
• requiring 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

While the bill still needs to be sent to the U.S. Senate, to be considered, there is no shortage of opinions about some of the bill’s key elements.

Brian Whitlock, Senior Director Analyst with Gartner’s Supply Chain practice, explained that the most positive impacts will come from the bill’s provisions directing the FMC to establish rules prohibiting unjust and unreasonable detention and demurrage fees, as well as rules requiring carriers to meet minimum service standards.

“The bill also shifts the burden of proof for reasonableness of detention and demurrage to carriers, meaning many more cases will likely be brought to the FMC,” he said. “The requirement to meet minimum service standards will finally bring relief to U.S. exporters who have seen a decline in exports of 22% (according to MarketWatch). No longer will carriers be able to take advantage of the U.S.’s highly profitable eastbound trade while ignoring westbound exports.”

As for how OSRA could make the FMC a more effective regulator, as Reps. Garamendi and Johnson noted, Whitlock explained that that the FMC has had a more passive role in ensuring fair trade given the limitations of its directives.

“Going forward, it will be much more active in defining how carriers must behave and holding them accountable through their rules making process and remedies, including refunding overcharges and issuing penalties,” he said. “It’s likely that, once this bill passes in the Senate, we will see an immediate change in how carriers treat detention and demurrage charges, as well as how they support exports, even without knowing the rules the FMC may set.”

With the expectation that the impact of the OSRA on supply chain delays and port congestion is likely to be limited, Whitlock pointed out that globalocean markets are highly disrupted due to significant increases in demand combined with major disruptions that have had the result of reducing supply of ships and containers. And he added that disruptions have also caused a precision network to no longer be reliable, having to operate with surges in volumes between ports globally.

“This has been the main cause of U.S. port congestion, combined with increased volume and port inefficiencies,” he said. “This bill will not impact the variables of demand and supply nor will it change how disruption impacts the market.”

On a longer-term basis, Whitlock said the FMC should consider how ocean carriers and terminal operators at U.S. ports combine to deliver minimum service standards.

“For example, in Los Angeles and Long Beach ports, five of the 13 terminals are owned or operated by carriers,” he said. “This combination should be looked at closely to ensure they are operating efficiently and in ways that reduce or avoid detention and support timely exports.”

Paul Bingham, Director, IHS Markit Economics and Country Risk / Transportation Consulting, said that there were not any big surprises in the House bill.

“However, this legislation will bear watching as it evolves, as it could force helpful changes in some of the practices under current law that have so upset BCOs, especially exporters during the pandemic,” he said. “Carriers may not be happy with this legislation, but they can’t be shocked by the reaction to the consequences of the situation they’ve benefitted from financially so strongly this past year.”

And he added that the final language of what would pass the Senate, go through reconciliation and then be signed by the President in to law is what really matters to the industry.

“If the language from the House bill survives in the final law passed, it will change how the FMC approaches their role with the added responsibility to promote exports and consider carriers services standards from a public interest perspective,” he said. “The annoying detention and demurrage charges having the burden of proof shifted to the ocean carriers would help shippers. The required quarterly reporting by the carriers to the FMC sounds useful but in reality likely to do little since that information is already available through commercial data vendors such as PIERS and Panjiva.”

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