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Will the Shipping Reform Act help rebalance scales? The FMC chairman thinks so.

‘We need to make sure the industry is on a level playing field,’ says Maffei

The Port of Houston at sunset. (Photo: Jim Allen/FreightWaves)

The scales of trade for U.S. importers and exporters have been severely tilted against them since the pandemic. President Biden is expected to sign the Ocean Shipping Reform Act on Thursday. Importers hope this update giving the Federal Maritime Commission more power will help restore that balance. SONAR charts show the current actions of the ocean carriers on rejecting container orders which has smacked U.S. exports.

SONAR: TEU rejections from all ports. To learn more about FreightWaves SONAR, click here.
SONAR: Ocean TEU volume index. To learn more about FreightWaves SONAR, click here.

American Shipper spoke with Federal Maritime Commissioner Dan Maffei on the passage of the bill and what participants in the world of trade should be aware of.

LL: First off, some are concerned this bill will not give the FMC enough regulatory authority to implement all 12 of FMC Commissioner Rebecca Dye’s final recommendations in her two-year fact-finding investigation into ocean shipping supply chain issues during the pandemic. Do you believe it will?

Maffei: I think this will do substantial good, particularly with the D&D [detention and demurrage] rule, which we all passed universally. D&D should not be a revenue source. It should be a deterrent to move cargo. I am bullish on the bill and restoring credibility to the supply chain. In terms of D&D, [the bill] gives us the authority we need. We don’t want to go too too far. Not all D&D is unreasonable. You have terminals filled with containers being used as shortage facilities because of the lack of warehouse space. You need to have the fee. We will write the best rule we can and we will go back if we need to. You don’t know until you do it. I thought the interpretive rule was good, but it is a work in progress. This legislation is not the end all be all, but it will restore confidence in the supply chain.

LL: Detention and demurrage has been a problem for importers for years. Over the summer, the Department of Justice was folded in. Did that help speed up the process at all? By transferring the burden of proof regarding the reasonableness of detention or demurrage charges from the invoiced party to the ocean carrier, are you expecting more filings, and if so, will the FMC be able to handle the load?  

Maffei: I’m hoping there will be more filings, more cases where shippers come forward.  That said, you don’t know. The other good thing is this bill does address the fear of retaliation. Will we catch every unfair carrier? No, but I can say they are not going to get away with it forever. Can we handle it with current staff? No, but I expect there will be more resources coming along and that is what [congressional] committees indicated and have the president’s support.

LL: My reporting and investigation into the decrease in U.S. exports uncovered the two ocean carriers declining the most U.S. exports are the two Chinese government-owned Ocean Carriers-OOCL. The Phase One obligations by the Chinese have never been met yet the Chinese have two carriers that could easily carry the agreed to trade products. How quickly will we see this change?

Maffei: There are a couple of steps here. There has been some improvement because Congress has made it serious and we started asking about exports. Even asking about it is encouraging many carriers to have more robust export programs. Passing this bill sends a clear message, and we have to have a rule made in the first six months. I think there will be progress. Once the carriers know what the rules will be, they generally want to get ahead of them. This bill may not be as stark as the House bill, but it is the biggest overall change to exports.

LL: What about the new entrants? When will we start to see action on them?

Maffei: Yes, but with an asterisk. It will take a while to implement this rule. It is a top priority, but even at full speed ahead, because of administrative procedures, we are looking at six months. I honestly don’t know if all of them will still be in existence. If they want to stay in this business, they have to be fair to exports.

LL: Long-dwelling chassis are a problem at ports on the West Coast and East Coast. This is a reflection of packed warehouse space. Studies take time. How quickly will the industry see recommendations on best practices for chassis? Are you going to address the agreements between the chassis providers and the ocean carriers?  Maffei: We will certainly implement the bill as written.

LL: Are empty container restrictions on the table?

Maffei: We are very cognizant equipment issues are going to remain one of the biggest impediments for exports. The House bill addressed it but that does not mean the FMC is not handling it. There are a number of ideas. FMC’s Rebecca Dye and Carl Bentzel’s teams are looking for ways to help but it is a trickier issue.  

LL: FMC Commissioner Carl Bentzel has been an advocate for the FMC to have more jurisdiction over the railroads. The problems on the West Coast is one of the biggest reasons for the ports’ inability to swiftly move out containers. You also have carriers having fewer intermodal containers going inland. What will we see here?

Maffei: There is a fair amount of precedent if a container comes from the ocean the FMC does have jurisdiction over the container. We are continuing to address the issue.

SONAR: Total inbound international rail container volume showing inbound empty international containers (20s,40s,45s) moving via rail into the Los Angeles market versus inbound loaded international containers (20s,40s,45s) moving via rail into the Los Angeles market. To learn more about FreightWaves SONAR, click here.

LL: A digital line of site into the supply chain and logistics is needed in the United States for efficient trade movement. Has there been any discussion with the ports on how can be done on a collective basis? You have seen the Port of Oakland and AWS teaming up. The Port of Long Beach with their initiatives with the inland Port of Utah. There are many siloed bubbles within ports that inhibit efficiency. Isn’t it time for these bubbles to be

Maffei: This is outside the jurisdiction of the FMC and the bill. We are providing a forum for the port parties to get together. As an independent commission we aim to be an honest broker. There is a data collection provision in this bill but that is in the process of being reviewed.

LL: Finally we have spoken about this before and that’s the rate on containers. You have said it is the free market and it’s a reflection of supply and demand. How will the FMC navigate this price of containers?

Maffei: You have a bunch of things going on. You have decreases in rates partially related to the decrease in demand. It’s one step back for two steps forward. We continue to look for any artificial lowering of supply for a potential violation. The Justice Department is looking into it. If we find there is a negotiation of price amongst alliance members that is not in their agreement. We are giving a lot of scrutiny but we don’t have a smoking gun. The market today is more concentrated. When the president says from “20 to nine,” he means market carriers. Importers and exporters now have nine choices, not 20. We need to make sure the industry is on a level playing field.

Read more by Lori Ann LaRocco

Lori Ann LaRocco

Lori Ann LaRocco is senior editor of guests for CNBC business news. She coordinates high profile interviews and special multi-million dollar on-location productions for all shows on the network. Her specialty is in politics, working with titans of industry. LaRocco is the author of: “Trade War: Containers Don’t Lie, Navigating the Bluster” (Marine Money Inc., 2019) “Dynasties of the Sea: The Untold Stories of the Postwar Shipping Pioneers” (Marine Money Inc., 2018), “Opportunity Knocking” (Agate Publishing, 2014), “Dynasties of the Sea: The Ships and Entrepreneurs Who Ushered in the Era of Free Trade” (Marine Money, 2012), and “Thriving in the New Economy: Lessons from Today’s Top Business Minds” (Wiley, 2010).