U.S. shippers, including California farmers, are struggling to find space on container ships to export their goods. California almond growers alone report up to a billion pounds of almonds in warehouses awaiting shipment.
What’s the issue?
From the shipping lines’ perspective, market forces have made it significantly more lucrative to return empty containers to Asia to be re-filled, rather than to load up with U.S. exports. Loading in the U.S. can entail additional wait times and possibly a call at a secondary U.S. load port, plus similar delays at the discharge end. From an economic perspective, there is little to be gained from risking such delays when freight rates for the Asia-U.S. leg are currently up to ten times the rate for U.S.- Asia legs.
From the shippers’ perspective, their agreements with freight forwarders or container shipping lines have not provided respite. Terms for provision of ocean freight services can permit a liner or freight forwarder to cancel or divert, or simply to refuse a shipment which is likely to face delays or is deemed not commercially viable. Shippers often find freight providers are not bound to any particular lead times or minimum volumes under their agreements.
The plight of U.S. exporters has led shipping lines to draw the ire of legislators, with President Biden having promised a “crackdown” against liner operators back in March, and the U.S. Senate then voting unanimously to approve the Ocean Shipping Reform Act of 2022. The Act requires the Federal Maritime Commission to investigate complaints about detention and demurrage charges and to order refunds for unreasonable charges. It also prohibits ocean carriers or transportation intermediaries from unreasonably refusing cargo space or “resorting to other unfair or unjustly discriminatory methods”. The Act is currently pending in the House, where previous drafts of it have already been approved. In addition to this pending legislation, Reed Smith have previously reported on the Biden administration’s call for increased scrutiny of this sector from U.S. competition/antitrust enforcers.
What’s the solution?
Solutions are likely to involve a concerted attempt to clear backlog and delays at U.S. ports (and there are signs this is underway), and possibly a rebalancing of risk and reward allocation between shippers and freight providers under their contracts. With U.S. legislation and increased scrutiny in the pipeline, shippers, liners and freight forwarders would benefit from a close review of their terms and conditions in this changing landscape.