A new rule being considered by the Federal Maritime Commission (FMC) aims to address a common shipper headache over carriers refusing to make space on their ships for certain cargo.
The FMC said last week it opened a 30-day public comment period for stakeholders to weigh in on a rule that could make it more difficult for shipping lines to refuse space on their ships, while also clearly defining the parameters around what can be deemed “unreasonable” refusal of space and service to shippers. The effort is the latest in a number of moves the FMC has made to swiftly begin implementing the Ocean Shipping Reform Act of 2022 (OSRA), which was signed into law in June.
Central to this latest proposed rule is a common complaint among shippers, particularly exporters, who have accused shipping lines of not accommodating their shipments and instead bypassing them in favor of pricier imports from Asia to the West Coast.
“The ocean common carriers must establish that its refusal to deal or negotiate with regard to vessel space, which in some cases results in a decision not to accept cargo, was reasonable,” the FMC has proposed.
In other words, the responsibility of justifying a decision to refuse cargo would fall on carriers under the rule.
Meanwhile, the FMC is also looking to shore up language left murky under OSRA in defining terms such as “unreasonable” or “refuse to deal or negotiate.”
Ultimately, the FMC suggested in its rule, “a situation where an ocean common carrier categorically excludes U.S. exports from its backhaul trip will create a presumption of an unreasonable refusal to deal.”
“[Carriers], particularly those on the major east-west trade lanes between the U.S. and Asia and the U.S. and Europe, make operational decisions regarding the import and export goods they carry based on both economic and engineering considerations,” the FMC said. “Export loads are, on average, heavier than import loads. This means that ships that come into U.S. ports largely laden with goods cannot safely load the same number of laden twenty-foot equivalent units [TEUs] when leaving the U.S. for foreign ports.”
The rates charged for U.S. imports have climbed steadily since the pandemic, perhaps explaining the reason for the imbalance between imports and exports.
The FMC used the example of rates charged to move goods from Shanghai to the West Coast.
Rates for a 20-foot container traveling that Trans-Pacific route in January 2019 totaled $1,740. That jumped to $4,270 in January 2021 and then $8,130 in January 2022.
Rates for exports traveling the reverse route, from the West Coast to Shanghai, totaled $730 in January 2019, $800 in January 2021 and $1,220 in January 2022.
“The economics of this trade imbalance results in very different revenue returns for import and export trades. U.S. imports feature higher value items on average and the rates that shippers pay to move these goods are historically higher than the rates paid to move U.S. exports,” the FMC said.
When the regulatory agency looked at the ratio of twenty-foot equivalent unit imports compared to export TEUs, it found the ratio to be 39 percent in April of this year. The ratio pre-pandemic sat above 50 percent.
“[Carriers] should offer service in both directions within the trade lanes in which they operate in common carriage, regardless of trade lane, length of time active in the trade or vessel size,” the FMC suggested.
OSRA’s passage marked the first major overhaul to U.S. shipping laws in more than two decades and armed the FMC with greater oversight authority over carrier service, ranging from how late fees are assessed to import-export imbalances.
The regulatory agency, since the passage of OSRA, has created a new Bureau of Enforcement, Investigations and Compliance, created a temporary process for shippers to file complaints disputing carrier charges, issued an advisory putting carriers on notice of billing procedures required under OSRA and is considering an emergency order that would require greater transparency of information from carriers and terminals to shippers, truckers and railroads.