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Experts urge quick action to comply with ocean shipping reform law

With OSRA 2022 in effect, shippers and carriers need to make changes now

Container shipping reforms warrant immediate action by carriers, shippers. (Photo: Port of LA)

American shippers and the lawmakers supporting them were ecstatic that the Ocean Shipping Reform Act of 2022 (OSRA) passed less than a year after it was introduced in Congress. However, that means all companies involved in ocean shipping must quickly start making operational changes to comply with the law, which addresses carrier billing and related issues.

The Federal Maritime Commission (FMC) underscored that message on June 24, when the agency’s general counsel issued an opinion confirming several provisions of the law had taken effect immediately.

Those provisions include prohibitions on noncompliant invoices charged by ocean carriers to their customers for demurrage or detention, as well as other new requirements related to demurrage and detention invoices.

The general counsel’s opinion on the timing of such provisions also has financial implications: Under the new law, if the FMC determines after an investigation that an invoice was inaccurate or false, it can now assess penalties or direct carriers to issue refunds, as well as impose possible civil penalties.

Stakeholder limbo

Elizabeth Lowe/Venable LLP

Despite the agency’s guidance, however, “we’re getting a lot of questions about how [new invoicing procedures] are going to work in practice,” Elizabeth Lowe, a partner with the law firm Venable specializing in maritime shipping and international trade, told FreightWaves.

“My personal estimation is that a lot will be addressed as part of the rulemaking process [on demurrage and detention, another provision required under the law], but in the meantime, it does put people in a little bit of limbo due to some unanswered questions. There’s going to be an adjustment period for carriers to figure out what is required of them, and what shippers should be expecting from the carriers.”

Lowe pointed out that the FMC itself may not be quite ready for the changes to the demurrage and detention invoice and claim process.

“There is a possibility and a concern that the FMC could be flooded with these invoice charge complaints,” Lowe said. “Yes, they did get additional funding through the law [to ramp up staffing], but that takes time, and this process is effective immediately. And right now they don’t have the capacity to necessarily address those complaints in an efficient manner.”

Lowe recommended that for regulated entities affected by the law — ocean carriers (both vessel and non-vessel operators), beneficial cargo owners, marine terminals, railroads and drayage truckers — the best advice is to examine the law as written and put in place practical changes to try to comply “but with the understanding there will probably need to be additional refinements to any procedure in the relatively near future. But steps need to be taken now to be as much in compliance as possible.”

Benefits for importers, exporters

Starting in March 2020, when then-President Donald Trump proclaimed the COVID-19 outbreak a national emergency, supply chain disruption and volatility in the container markets caused ocean rates to soar to record levels.

Spot rate in $ per FEU, March 2020 to June 2022 (peaking in Sept. 2021). Chart: FreightWaves SONAR

The marketing and operational decisions by carriers in the wake of the increasing rates led to a flood of complaints by cargo owners and grabbed the attention of Congress, which, through OSRA, has given the FMC more oversight of carrier billing.

Pushkar Mukewar/Drip Capital

Pushkar Mukewar, CEO and co-founder of Drip Capital, which invests in and finances small and midsize importers and exporters, said that giving the FMC more power to regulate late-charge invoicing will improve carrier behavior, thereby supporting their customers’ interests. Charges for late pickups from the ports (demurrage) and late returns (detention) of loaded and empty container equipment owned by the carriers — that shippers have alleged to be unreasonable — have been a key source of shipper complaints.

“For traders, the regulation will help lower transport and logistics costs, improving their profit margins and — presumably — encouraging more trade. It will also help [small and midsize businesses] manage their working capital health more efficiently,” Mukewar told FreightWaves.

“The act also focuses on assessing the level and benefits of the adoption of technology at U.S. ports, which would help the officials take the required steps to upgrade port infrastructure, making it more efficient in tackling congestion in the long term.”

Improving the chassis experience

OSRA also tries to address equipment shortages — intermodal chassis in particular — which are seen as a contributing factor in escalating rates and container fees. By April 1, 2023, the FMC will be required to contract with the Transportation Research Board to develop best practices for port-area chassis pools that serve terminal operators, drayage companies and railroads with the goal of “optimizing supply chain efficiency and effectiveness.”

Nimesh Modi/Book Your Cargo

Nimesh Modi, CEO of Book Your Cargo, a non-asset-based drayage trucking broker, said the study is a “big step in the right direction” given that intermodal chassis are required for most of the containers moving in and out of the ports.

“Containers are being held at the terminal incurring demurrage and detention costs because there are no chassis available to pull those boxes out,” Modi told FreightWaves. “So a study may help figure out how to direct the chassis pools in a way that reduces dwell times and gets the chassis back in rotation quickly so that detention and demurrage can be avoided.”

Work in progress

Acknowledging that OSRA will begin to ease costs for cargo owners, Modi also contends that it will only go so far in addressing port congestion and untangling container supply chains.

“The reason we had a 1,000% increase in ocean freight rates during the pandemic is because the carriers made their own revenue-generating decisions, which created scarcity of capacity and equipment. Basically, every carrier is thinking differently — there is no unified approach to certain common factors.”

For a more even-handed approach, an international organization equivalent to the International Air Transport Association is needed to provide guidelines for commercial practices in container shipping, according to Modi. “That would be a better step toward improving the international supply chain, rather than the FMC addressing solely the U.S. part of it,” he said.

Mukewar sees a potential downside to OSRA as well.

“Lower detention and demurrage charges would lower opportunity costs for traders, and they may end up holding their containers in dockyards for longer,” he said. “Hence, regulated freight costs could translate into a shortage of containers in a few months. Since traders are seeking improved shipping times, this may only worsen the timeline for goods delivery.”

Click for more FreightWaves articles by John Gallagher.

John Gallagher

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of freight transportation. He has covered rail, trucking and maritime issues since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable Magazine. He graduated from Florida State University majoring in English and business.