Maritime Industry Discusses Ocean Shipping Reform and More
The House T&I’s Sub-committee on Coast Guard and Maritime Transportation held a hearing on maritime transportation supply chain issues on March 28. The witnesses (listed below along with links to their written testimonies) represented a wide range of stakeholders from the maritime shipping industry.
- Bud Darr, Executive Vice President, MSC Group On behalf of the World Shipping Council | Written Testimony
- Matthew Leech, President and Chief Executive Officer (CEO), Ports America | Written Testimony
- William H. “Buddy” Allen, President and CEO, American Cotton Shippers Association | Written Testimony
- Mario Cordero, Executive Director, Port of Long Beach, California | Written Testimony
Chairman Daniel Webster (R-FL) introduced the panel, providing some background and context for the hearing. He spoke about the recent supply chain crisis, which was initiated primarily by the pandemic, following a massive increase in consumer demand, labor shortages, and disruptions to manufacturing.
The Ocean Shipping Reform Act (OSRA) of 2022 attempted to address this issue by setting standards that detention and demurrage charges must comply with set penalties, allowing Federal Maritime Commission (FMC) to set minimal contract standards for ocean shipping services to protect US shippers, and increasing protection given to American shippers from retaliation by foreign ocean carriers. The Bipartisan Infrastructure Law (BIL) allocates $6.5 billion exclusively for ports and makes available another $27 billion that ports will be eligible to apply for.
The hearing focused on getting insights from the industry representatives on the implementation of these recent laws and steps that need to be taken to prevent future supply chain disruptions.
Full committee Ranking Member Rep. Rick Larsen (D-WA) said that human infrastructure is critical to the US economy and federal dollars should not be used to put longshore workers out of job. Further, he said that the Port Infrastructure Development Program (PIDP) prevents federal dollars from being used to limit jobs. Ranking Member Rep. Salud Carbajal (D-CA) said that the astronomical profits realized by foreign shipping companies contributed to inflation in the US, with supply chain gridlock and unfair shipping practices causing food exports in California to fall by 17 percent. He emphasized that supply chain remains susceptible to market fluctuations, but OSRA and BIL already made progress toward building a more resilient supply chain.
Budd Darr’s testimony focused on three points. First, he said that, after the pandemic, the market responded the way it was supposed to. The consumer demand dropped during the pandemic resulting in a capacity reduction in the shipping network. After the pandemic, when demand came back very quickly, the volumes rebounded enormously, leading to congestion and overloaded supply chains globally and high shipping prices. Now, the market is experiencing volumes and rates similar to that of pre-pandemic. Second, making supply chains more resilient, he said, will need continued work to ensure that we are better prepared for future disruptions. He added, “we didn’t see a meltdown of ocean shipping. We saw a meltdown of shoreside elements, causing congestion in terminals and ports.” Third, he advised caution regarding government intervention in a market which has functioned well and delivered low-cost shipping services pre-pandemic. He said that it has to be ensured that well-intentioned policies don’t have an unintended impact.
Matthew Leech applauded the efforts of FMC to implement OSRA. He said that while FMC got it right in certain aspects, such as increasing investigation of new charges and practices, it has got it wrong in certain other aspects such as proposed rulemaking on demurrage and detention requirements. “In this industry, fees for storage of goods are and have always been a time-based service irrespective of the day of the week,” he added.
Buddy Allen said that the cotton shippers experienced unprecedented challenges and risks due to the supply chain crisis stemming from the COVID-19 pandemic. Efficient cotton shipping from country’s interiors to export ports requires coordination and synchronization among warehousemen, equipment providers, draymen, rail providers, ocean shippers, and terminal operators, but challenges at each point created collective dysfunction. He said, “meaningful structural changes must be made to prevent similar dysfunction from reoccurring.” Talking about OSRA, he outlined American Cotton Shippers Association (ACSA)’s views as follows:
- ACSA finds tremendous value in the documentation regime created by the FMC regarding detention and demurrage.
- ACSA is supportive of FMC’s recent decision that denial of choice in chassis procurement for merchant haulage is unreasonable and in violation of the Shipping Act.
- ACSA was a proponent of creating the National Shipper Advisory Committee (NSAC) and is supportive of their recommendations to the FMC.
- ACSA is committed to the development of a modernized culture in containerized shipping.
Mario Cordero said that he is aware of the balance that the FMC must strike between enabling competition among ocean carriers and terminal operators AND protecting shippers (ultimately, consumers) from unfair practices and placed before the committee six recommendations or considerations:
- Encourage investment in technology that provides transparency through an open platform that shippers, ocean carriers, container terminal operators, and trucking could use to efficiently plan and schedule their operations to prevent bottlenecks.
- Encourage the supply chain to operate 24/7 when needed to reduce bottlenecks and promote efficiency.
- Direct federal funding to projects that will facilitate goods movement and reduce greenhouse gas emissions, such as the MEGA program.
- Congress should continue to recognize the benefits of the PIDP program since ports are critical economic engines. It will take more than $2 billion to achieve goals of zero emission cargo handling equipment by 2030 and zero emission drayage trucks by 2035.
- Funds in IIJA and IRA directed to reducing emissions at ports are invaluable and will spur investments to expedite port electrification.
- Continue to support the resources required by FMC to ensure a reliable and competitive international ocean transportation supply system.
In response to Chairman Webster’s question about if there are any concerns regarding FMC’s proposed rulemaking on detention and demurrage, Darr said that all the witnesses agree that the detention and demurrage has a useful role to play, but the proposed rule seemed to abandon the incentive principle that FMC previously embraced. Leech concurred with that view and added that demurrage in terminals is storage. He further said that shippers should rather engage with MTOs that have storage capacity inside their asset base and can offer different service levels at different price levels. Allen highlighted that the number of erroneous charges and the lack of efficient appeal process beg for improvement.
Rep. Carbajal questioned Cordero about whether the investments to reduce emissions in Long Beach have resulted in reduced efficiency. Cordero said that there is no question that efforts to improve sustainability are creating more efficiency. To Rep. Carbajal’s question about the magnitude of investments needed to introduce alternative fuels, Darr said that it would cost $1 trillion- $2 trillion to help the shipping industry fully transition to net zero emissions via alternative fuels.
To Rep. Larsen’s question about technology investments to create open platforms that can improve transparency among shippers and carriers, Cordero said that the movement to augment technology is an aggressive one. He said that they are currently putting together a system that can integrate shipping operations and information.
Rep. Jeff Van Drew (R-NJ) asked Darr if offshore wind projects can have a major and potentially dangerous impact on maritime shipping on the east coast. Darr said that, while he can’t say with precision as to what impact it will have, he feels that the issue must undergo proper scrutiny through spatial planning analysis to ensure those usages are deconflicted or we may create something unintended.