Commentary: US ag exporters, trucking industry urging FMC to regulate carriers
The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates. In times of crisis, a united front is always stronger than fragmentation. A great example of this strength is the ocean carriers and their business strategy during the COVID-19 crisis.
But their tremendous success in navigating the pandemic has U.S. exporters and logistics now calling for regulation. The potent power of the carriers can easily be tracked through their blank sailings, which created a floor in pricing, as well as their collaboration in the rapid increase in rates for the trans-Pacific eastbound lane. But their muscle was no match for China.
Chinese transport authorities reportedly stepped in demanding the carriers curb rates as well as reinstate some canceled sailings. It was a win for Chinese exports and U.S. importers. But now a new trend has emerged.
Carriers are rejecting U.S. agriculture exports in favor of sending back empty containers so they can be filled with Chinese exports. Equipment shortages are not uncommon this time of year, but the deficiency is being exaggerated by the COVID-19 container surge. If you read my August column, I warned about this shortage.
The reason behind this new container strategy is an economic one.
U.S. agriculture exports are cheaper to move and take longer to unload. In a world in which time is money, carriers can turn a larger profit by sending back the empty boxes to China and filling them with Chinese exports. Those boxes can then be charged the higher rate on the trans-Pacific waterway.
Germany-based Hapag-Lloyd announced this change in tender in October. Other carriers that have joined this decision are Evergreen, headquartered in China, and ZIM, based in Israel. But while this model may be hailed as strictly business for the carriers, it has the appearance of foreign-owned companies picking favorites.
Weston LaBar, CEO of the Harbor Trucking Association, said the carriers’ decision to selectively move the empties out of the ports will have a damming trickle-down effect on the entire U.S. logistics chain. “What is the Federal Maritime Commission going to do to protect American producers, truckers and shippers from these unreasonable business practices?” he asked. “These cases are perpetrated by foreign-owned, and sometimes foreign government-owned, entities. The FMC needs to step in.
Carriers are picking winners and losers in trade.” Ag exporters are also expressing their frustrations with the denial of logistics and have shared them with the Federal Maritime Commission (FMC). Peter Friedmann, executive director of the Agriculture Transportation Coalition, shared this commentary from an agriculture exporter out of central valley California:
“We are no longer customers of the carriers. We are prisoners. If you are an exporter, what other option do you have?
We can stomp our feet and get as mad as we want but, when it is all said and done, we need them more than they need us. They are acting as mercenaries towards us and not as partners. When a carrier cancels booking just hours/days before the last receiving date, what is the dynamic behind that decision?
What is so urgent that you would forsake your exporters on such an urgent basis? How terribly awful are they at forecasting? Why wouldn’t you honor your customers’ bookings for the next one/two vessels with a notification that beyond that, the customer needs to make other arrangements?
Why not cancel a percentage of the bookings on each vessel rather than all/most of them?” When asked about these recent rejections while on a panel at the Port Houston Appreciation Day, FMC Commissioner Louis Sola sternly said, “The FMC absolutely has this on their radar. It is very troublesome to have U.S. exporters of any type, especially agriculture, being discriminated on not having availability on ships.”
The key word in that comment is “discriminated,” and here’s why: The U.S. ag and logistics industries are hoping the FMC will discipline the carriers by using the U.S. Shipping Act. The legislation’s purpose is to ensure a “nondiscriminatory process” for ocean transport of U.S. exports.
This legislation broadens the FMC’s regulatory authority. Could the FMC be showing its hand on possible regulation? It would be welcomed by U.S. ag exporters, which have been under stress since the start of the U.S.-China trade war.
The denial of these exports can have a significant impact on the overall U.S. trade deficit and the ag industry’s reputation in being a reliable trading partner. These rejections create elbows in the export trade pipeline. These delays cost both time and money.
Once these exporters receive word their product is denied, there is a race to find alternative routes and ports to move their product. It creates a slowdown in the delivery of their goods, as well as adds to their total costs because of the additional trucking, chassis rental, storage costs and detention and demurrage associated with the new logistical route. “Even if one finds a carrier with westbound space right now, it won’t come cheap,” explained Friedmann. “They will pay the new spot rate, which carriers have been announcing this past week, GRIs ranging from £300 to £1,000 per container, in addition to the normal freight rate.”
With razor-thin margins, Friedmann cautions the higher freight rates can only ensure the sale of ag products at a loss. “Our ag exporters have learned the hard way, during disruption of our transportation supply chain, that when we can’t deliver to our foreign customer affordably and dependably, they will find sources in other countries that can,” explained Friedmann. “We may never get those foreign customers back. This is undermining the economic vitality of U.S. agriculture by denying affordable, dependable access to our most important foreign markets.”
The denial of trade is not the only carrier complaint before the FMC. It is also fielding requests for regulation on the carriers’ detention and demurrage penalties against American companies. In a letter exclusively obtained by American Shipper, the HTA and other trucking trade groups are asking the FMC for more oversight on the detention and demurrage that truckers and shippers are paying.
This fight over these penalties is part of a five-year battle. The group had asked both the ports of Los Angeles and Long Beach to step in but with no resolution, the HTA said it’s time for the FMC to seriously look at regulating the carriers. “Our members have paid well over £100 million in unreasonable detention and demurrage charges this year in these twin Southern California ports.
We believe the assessment of detention and demurrage in this situation goes against the heart of the Interpretive Rule on Demurrage and Detention, which the commission issued last year,” it said. The letter described the San Pedro Bay port complex in “virtual gridlock” due to a “lack of collaboration needed for advanced planning.” LaBar said this blame should be squarely placed on the carriers. “Much of this lack of collaboration can be attributed to the foreign-owned ocean carriers,” LaBar said. “Unfortunately, it is the American businesses – the U.S. importer, U.S. exporter and domestic supply chain – who must bear the financial brunt of these inefficiencies.
These costs of this inefficiency will ultimately be passed on to the U.S. consumers.” LaBar argues in the end, the carriers have created the perfect scenario of getting rewarded for being inefficient. “The carriers are profiteering on their restrictions,” he explained. “The truckers and shippers are limited to perform their job and it has created gridlock.
The carriers then penalize the truckers and shippers for not being efficient. In any other industry, detention would be outlawed. We believe the carriers should be better policed and regulated.”
With the U.S. trade gap at its highest level in 14 years, the recent actions of the carriers will only add to that deficit.
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