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Are Ocean Carriers Giving Exporters the Shaft? FMC Wants to Know

Ocean carriers are being asked by the Federal Maritime Commission (FMC) to offer more details on how they serve U.S. exporters as the federal agency expands the scope of an audit that began last summer.

The FMC’s Monday announcement comes amid increasing concern that carriers are bypassing exports in favor of expediting empty containers back to Asia for importers.

Eleven carriers will be asked to provide more details on their export services.

FMC chairman Daniel Maffei said the aim is to identify which carriers are servicing exporters well and which ones have room for improvement. The inquiry is in addition to notice that the FMC intends to have disputes brought by exporters flagged as priorities.

“If the shipping companies continue the cooperative attitude they have by and large shown the Audit Team to date, I am confident we can make progress on some of the issues that have frustrated exporters,” Maffei said in a statement.

Maffei went on further to say “I will not rule out any action within the bounds of the law that helps us achieve that goal.”

The FMC’s audit program, which began in July, initially focused on late fees charged by carriers, called detention and demurrage. The audit, to date, has included information from the nine largest ocean carriers on those fees, including quarterly reporting to the FMC.

The expansion of the audit program’s focus is one of a number of levers the government is pulling in its scrutiny of ocean carriers, which have been criticized for charging record-high freight rates.

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A Senate version of the Ocean Shipping Reform Act of 2021, which passed the House in a 364 to 60 vote in December, is currently being considered. The bill would hand more oversight power to the FMC, stop carriers that pass up exporters in favor of importers, and apply greater scrutiny around late fees. Proponents of OSRA21 and the Ocean Shipping Reform Act of 2022 (OSRA22) in the Senate say it modernizes current law and has won support from fashion industry trade groups.

The American Apparel & Footwear Association (AAFA) on Tuesday pressed the Senate to approve OSRA22, calling it an industry priority that addresses shipping cost increases and creates fairness in ocean shipping.

“Our industry has been hit hard by the shipping crisis. Long delays, contract breaches, price gouging and excessive and unjust fees by carriers and lack of access to equipment to move our product have resulted in huge delays and exorbitant costs that have translated into surging inflation that threatens our economic recovery,” AAFA president and CEO Steve Lamar said in a statement.

The Senate is also weighing proposed legislation, called the Ocean Shipping Competition Reform Act of 2022, that would strip carriers of their anti-trust legal immunity and expand the types of parties that can join anticompetitive lawsuits filed by the FMC to include shippers and ports among others.

FMC commissioner Carl Bentzel issued his own statement on the matter Monday, saying he remains “troubled about the expanding imbalance of cargoes imported into the United States versus those exported.”

Bentzel cited a portion of the Shipping Act that says carriers are not allowed to “unreasonably refuse to deal or negotiate” with exporters and said payment data on imports and exports indicates an imbalance.

“Though the maritime industry is successfully carrying record volumes of import cargoes, there are mounting indications that service to the import trade might have come at the exclusion of U.S. exporters,” Bentzel said. “Earlier this month, I visited the Port of Long Beach to assess certain entrants in the U.S. ocean carrier trade lanes. I am concerned these carriers are providing only import service and choosing to transport empty ocean containers back to China instead of export shipments.”

Carriers are being asked by the FMC to provide how many loaded and empty containers they carried back to Asia, supplying information that goes back to June 2021.

“Pop-up carriers,” a reference to new ocean liners in the market, and their practices around U.S. exports are also part of the expanded audit.

The FMC said that will include five shipping lines.

“New entrants to the market—including the so-called pop-up carriers—have all the same responsibilities as companies that have served the U.S. trades for decades,” Maffei said. “We are especially interested in how the identified companies plan to serve the U.S. export market and how those business models comply with requirements under statute.”

Sea-Intelligence, a Copenhagen-based supply chain research and advisory firm, said in February ocean shipping services from non-alliance members for the transpacific trade, or voyages from Asia to the West Coast, steadily rose over the past 18 months to now account for 35 percent of capacity.

Alliances are partnerships among two or more ocean carriers, sharing resources to offer joint services on different routes.

In the past, non-alliance carriers handled anywhere from 15 percent to 20 percent of container capacity between 2012 and 2020. That’s changed for the transpacific trade.

The growth is something Jon Monroe, who runs ocean shipping and supply chain consultant Jon Monroe Consulting, pointed to as one of the more interesting trends he’s seen in his 35 years working in the industry.

“When you look back, everybody that had a ship longer than 40 feet must have pointed it towards L.A. and put a container on it, because everybody wants to be in this business and I think carriers created this opportunity by not honoring their contracts,” Monroe said, speaking earlier this month at the TPM22 Conference in Long Beach, Calif., of the rise of non-alliance carriers.

Although, the rise of non-alliance capacity may prove a shipping alternative with more stability for shippers, not much is known about them, which Monroe suggested is to avoid pressure from the larger carriers.

“I think the bigger carriers are trying to put a squeeze on the smaller carriers and they can do that,” Monroe said. “They can do that through controlling of terminals and berths and whatnot. So I think [non-alliance carriers are] just looking to be able to slowly build their case in the market, and I think it’s here for good.”

Vincent Clerc, chief executive of ocean and logistics for A.P. Moller-Maersk, said at that same TPM event that Maersk is “in the market for the long run,” when asked to weigh in on the number of non-alliance operators entering the transpacific trade.