Industry News

Ocean Shipping Regulations Expected

Aug. 16, 2021
By: Chaney A. Finn

As we have previously discussed, the independent federal agency responsible for regulating the U.S. international ocean transportation system, Federal Maritime Commission (FMC), was called on by U.S. Congress to investigate reported discriminatory shipping practices by ocean carriers when U.S. agriculture exports were being rejected. While shipping conditions continue to worsen, other government agencies are now getting involved to mitigate shipper constraints.

Impacts are occurring for both imports and exports as carriers are refusing to honor negotiated rates and minimum cargo capacity, forcing shippers to buy space on the record high spot market. An imported container from China to the U.S. West Coast was approximately $2,700 in 2019, now a minimum of $15,000. U.S. exporters were reported to have been threatened by carriers if they were to complain to the FMC about increased rates, cancellations, or delays by having their freight blacklisted from vessel operators. Ocean carriers are accused of prioritizing higher valued foreign goods over U.S. shipments.

Carriers are pushing back on the allegations of threats and market manipulation, arguing that the ongoing COVID19 pandemic and unprecedented demand for imports has created operational challenges which is causing the supply chain bottlenecks. President and CEO of the World Shipping Council, John Butler, testified recently at a hearing before the House Transportation & Infrastructure Committee to oppose commercial contracts being subject to further regulations. The World Shipping Council represents 90% of the global container trade.

The FMC has concluded its ‘Fact Finding No. 29’ investigation which aimed to identify operational solutions to cargo delivery system challenges, issuing a series of recommendations for Congress to consider. Recommendations included more protection for shippers that make complaints to the FMC and reforming the Shipping Act. Representatives John Garamendi (DCA) and Dusty Johnson (RSD) have since introduced a bill to do just that, dubbed the “Ocean Shipping Reform Act of 2021” as the first reform since 1998. The bill includes provisions that prohibit carriers from refusing to book U.S. shipments and grants the FMC greater authority to ensure the law is being followed so shippers are not subject to unfair disadvantages, in attempt to create a more competitive environment.

U.S. Secretary of Transportation, Pete Buttigieg, announced plans to consult with the FMC in identifying solutions to port backups and congestion when testifying in front of the House Transportation & Infrastructure Committee. This is in attempt to assist in resolving the dispute between shippers and carriers and reduce the amount of spoiled agriculture caused by the supplyshock shortages. Buttigieg touted the collaboration between agencies as taking a wholeofgovernment approach.

Additionally, President Biden issued an executive order that allows shippers more ability to challenge inflated rates on routes with low competition. The order also calls on the Justice Department to assist the FMC investigate the nine largest ocean carriers that service the U.S. market to determine if they are abusing their market power to profit from overcharging shipping rates in a formal audit. The ocean carriers were selected regardless of the number of formal or informal complaints against them. The audit will pertain primarily to detention and demurrage practices and the findings are expected to result in changes to FMC regulations and industry guidance.

If you have any questions or would like more information, do not hesitate to contact an attorney at Barnes, Richardson & Colburn LLP.