The Los Angeles and Long Beach harbor commissions are scheduled to meet in emergency sessions Friday to consider penalizing ocean carriers that don’t quickly evacuate loaded containers, in an effort to reduce backlogs that are crippling supply chains.
The meetings suggest that Monday’s definitive announcement by port administrators that the surcharges will go into effect Nov. 1 is not a done deal, especially with heavy blowback coming from large swaths of the freight transportation community.
Under the planned measures, for every container scheduled to move by truck, and dwelling nine days or more, carriers will be fined $100 per day, increasing in $100 increments per day. The same penalty schedule will apply to containers scheduled to depart terminals by rail that linger for six days or more.
Vessel operators and logistics companies say they don’t know what to expect because the port authorities have released few details so far, but the industry consensus is that carriers will pass on the fees to their import customers. Many questions remain, including whether the ports will charge carriers directly, the legal basis for passing the charges to importers, how fees will be collected, if pickups controlled by merchants are covered, the frequency of assessments and under what authority the ports are imposing the surcharges.
It doesn’t make sense to hit carriers with fees, according to logistics professionals, when much of the bottleneck exists upstream: Warehouses are full and can’t accept more cargo, railroads are backed up, fewer truckers are working because of the delays, chassis are scarce because many yards are temporarily storing containers on them, and marine terminals are jammed with empty containers. Also, most of the containers are moved inland under the control of importers and consignees, not the ocean carriers themselves.
To many, the ports pulled the only lever they had — rules in terminal leases — with the understanding that the carriers would subsequently seek reimbursement from importers in hopes of spurring them to pick up cargo faster.
Port of Long Beach Executive Director Mario Cordero was vague during a virtual media briefing on Wednesday about how the late fees would be implemented but said he is “not beginning with the assumption that the beneficial cargo owners are to pay this fee. This is not intended as a pass-on cost. It’s intended so that we can start moving the needle” on improving fluidity.
Peter Friedmann, the head of the Pacific Coast Council of Customers Brokers and Freight Forwarders, praised Cordero and Los Angeles Executive Director Gene Seroka for their aggressive approach toward reducing freight delays, but urged them to quickly clarify the new policy.
“No solution will be easy, nor acceptable to all stakeholders, and you will hear a chorus of reasons why something won’t work, anytime you try something. But this does not mean you shouldn’t try to speed up the supply chain,” Friedmann said in a message to the port directors shared with American Shipper. As for the fees, “The fundamental question all are asking is who will ultimately pay the charge?”
Repeatedly asked for specifics, port officials stuck to the message that all parties in the supply chain need to do more to alleviate the shipping crisis and implement systems to handle future growth. The fee is a warning shot, they appeared to suggest.
“What I’m trying to make clear here is we need to take bold measures to address a very, very serious situation. The objective is to move cargo,” Cordero said, adding that he had good conversations with shipping lines in the past 24 hours.
“We’re working with all our stakeholders, carriers, marine, terminal operators, truckers warehouses, to see how we can address this issue,”Codero said. “Doing nothing is not an option.”
Terminals are so choked that 74 vessels are waiting at anchor for a berth to unload.
Before the pandemic, the average dwell time for containers was 2.5 to 3.5 days. Now, 40% of loaded important containers fall into the category of local delivery moves that linger for nine days or more, or intermodal containers dwelling in the terminal for six days or more.
And officials say the situation will get worse without transforming how the ocean supply chain operates. The San Pedro Bay ports are on track to handle a record 20 million twenty-foot equivalent units this year. The Port of Los Angeles had its busiest September ever, while Long Beach had its second-busiest. Year-to-date, port volumes are up about 25% versus 2020 and officials estimate volumes will reach 24.7 million TEUs by 2025 and 28 million TEUs by 2030.
“This action is not taken lightly, nor in isolation. This is simply the latest action in a series of actions that we’re undertaking here at the ports to keep the supply chain moving,” Noel Hacegaba, Long Beach’s deputy executive director, said. “The fee is there to effect change and we’re hoping that the supply chain will come together to move those boxes out of the terminals … and get those goods to the store shelves in time for the holidays.”
The shipping line Maersk informed customers Wednesday about the emergency surcharges, but the notice didn’t provide the additional information that the charges target carriers.
“Naturally we understand this puts all parties involved in a rather difficult situation as truck, chassis and warehouse capacity are all extremely stretched. Rest assured, we are aggressively working on several solutions to help mitigate some of the impacts,” Maersk said.
Last month, Long Beach began a pilot program for expanded gate hours between 3 a.m and 7 a.m. in what officials hope will be a transition to a 24/7 operating model. They said other terminals are flexing operations, opening earlier and staying open later, with longer hours on Friday nights or over the weekend. Few truckers have embraced the late-night schedule citing closed warehouses and restrictions returning empties.
Cordero insisted the changes so far represent a framework for step changes.
He said that “24/7 operations can’t be implemented overnight with the flip of a switch. It’s a series of switches. We have started it off and we’re looking forward to other links in the supply chain to join us.” The initiative has strong support from the Biden administration, which is trying to coordinate stakeholder actions to address the gridlock.
On Wednesday, Long Beach officials announced plans to transship more containers by rail to an intermediate yard in Utah to help improve velocity through the terminals.
A short-term overflow yard opened last year at Pier S has grown to 64 acres and has 12,000 containers. And last week the City of Long Beach loosened zoning rules to allow truck yards and warehouses to stack containers twice as high as previously allowed to free up more storage space.