The decision by the Ports of Long Beach and Los Angeles to levy fines to ocean carriers for excessive container dwell time has brought two trade associations to the doorstep of the Federal Maritime Commission (FMC) in a tug-of-war of whether the fees should be passed on to third parties.
In a letter to FMC chairman Daniel Maffei on Nov. 2, National Industrial Transportation League (NITL) executive director E. Nancy O’Liddy shared concerns about the fees being passed from ocean carriers to importers. The NITL asked the FMC to clarify that the fees must serve the intended primary purposes as financial incentives to promote freight fluidity, and to clarify that passing these fees to importers would be unreasonable.
While the NITL supports the fines themselves, O’Liddy said importers already pay demurrage fees to ocean carriers, “which serve precisely the same purpose as the container excess dwell fee. In other words, a pass-through of the container excess dwell fee to importers will be an unreasonable ‘double-dip’ by the ocean carriers.”
She argued that despite the fees’ intent to incentivize carriers from removing loaded containers at the port terminals, enabling a pass-through would undermine this ambition. The NITL also requested that the FMC confirm the requirement that if a dwell fee pass-through does occur, that the carriers provide 30 days’ notice before the charge takes effect.
Importers, freight forwarders and retail and trade associations alike have shared concerns about ocean carriers passing along these fines, even though importers and freight forwarders say they have little to no control over when containers are moved in and out of the ports. Although carriers do much of the heavy lifting from the sourcing country to the U.S., they may not want to assume liability for the entire shipment journey.
World Shipping Council president and CEO John Butler followed up with a letter of his own to Maffei on Tuesday, taking umbrage with O’Liddy and the NITL for calling the charges “reasonable” until they are passed on, and then become “unreasonable.”
He ultimately asked Maffei and the FMC not to follow through with enacting a ruling that the demurrage fees cannot be passed on.
“NITL has it backwards. Although there is a certain percentage of cargo for which the ocean carriers arrange inland carriage, the majority of the cargo to which the fee would apply is cargo for which the importer is responsible for arranging pick-up and transportation,” said Butler. “In other words, this is cargo for which the ocean carrier’s responsibility ends when the cargo is unloaded from the ship.”
Under these circumstances, placing a fee on cargo to incentivize importers to move it under their control would be most consistent with the FMC’s “incentive principle,” which is applicable to detention and demurrage charges. Conversely, charging the carrier when it is not the carrier’s responsibility to move that cargo would be inconsistent with how the incentive usually is applied.
Butler said that amid record levels of cargo moved at the ports, since Nov. 1 the amount of cargo that has dwelled at the ports has fallen from approximately 31,000 containers to roughly 24,000 as of Tuesday.
The Port of L.A. data suggests the fines are working to an extent, backing Butler’s claims. The number of long-dwelling containers stationed there fell 19 percent within a week of the announced plans for the charges, the port said.
“The suggestion that cargo owners are physically unable to move more cargo off the ports than they have in recent months is incorrect,” Butler said. “Despite the many legal questions surrounding these fees announced by the Ports, the possibility that cargo owners might ultimately be responsible for these fees has in fact incentivized them to remove cargo from the ports, underlining that a potential fee on those parties does in practice have the intended effect.”
Tacoma is the latest West Coast port to levy fines
While the surcharges at the Los Angeles and Long Beach ports have become the talk of the town, they aren’t the only West Coast gateways preparing to impose fines for excess container dwell times. The levies are now coming into play further up the coast at the Port of Tacoma in Washington in an effort to restore some room for incoming shipping containers.
The port’s Husky Terminal will not release containers that have been on the premises for more than 15 days until importers pay a one-time charge of $315. And starting Nov. 15, customers of the Washington United Terminal face a long-term dwell fee of $310 for containers at the terminal for more than 15 days.
These are one-off charges on top of late fees of $230 a day that kick in once a container has been at a terminal more than four days.
The Tacoma fines, while drastic on their own, don’t escalate the way those at Los Angeles and Long Beach do. After the 15-day mark, the Southern California port fines will rise in increments of $100 every day.
And in California, it is the port authorities that levy the fees, not individual terminals. Those charges are levied on shipping lines, whereas the terminals in Tacoma charge importers.
More than 15 ships at the Port of Tacoma were waiting for berth space as of Friday. In its notice to customers about the new charge, Husky pointed out that dwell time had grown exponentially in recent months.
The Northwest Seaport Alliance, which comprises the ports of Tacoma and Washington, has opened three temporary container storage yards near docks this year to mitigate the congestion. But while that has brought some relief, the ports seem to believe the surcharges may expedite the clearing process.
Importers are facing higher costs for containers not just stuck at the ports, but also at the rail yard and ramps. At the beginning of December, railway transportation company Norfolk Southern will cut free dwell time for importers at 27 second-tier rail ramps. From then on, importers have only two days—just the day they receive notification that the container is available, plus one more day—to collect it without incurring charges.
In addition, the rail carrier is raising demurrage fees in those 27 locations and will charge $200 on the first day beyond the limit, and $215 for each additional day.
Norfolk Southern wants to avoid container congestion spreading from its tier-one facilities to tier-two markets.
Like the port levies, the rail yard moves may encounter some pushback from frustrated importers and other parties facing higher charges. The Western States Trucking Association has written a letter to the California Governor Gavin Newsom, urging him to enforce state legislation to prevent terminal operators and ocean carriers from charging excessive container and equipment fees when truckers are unable to return empty containers and pick up loaded import boxes.
China-U.S. relations expected to remain neutral unless new tariffs are levied
The chaos at the ports may be the top issue dominating the supply chain conversation, but one elephant in the room has continued on regardless of administration or container cost.
Amid the recent remarks from U.S. Trade Representative Katherine Tai, the Biden administration plans to largely maintain the tariffs imposed by the Trump administration, reopen the tariff exclusion process and set out to begin a new round of talks with China.
With this trajectory in mind, the state of U.S.-China commercial relations is neutral, but getting better, according to experts at Google and Flexport. In a webinar on Wednesday, James Green, Google’s director of government affairs and public policy, described today’s era as “much calmer” given the overall volatility that existed during parts of the Trump administration.
And Chris Rogers, the principal supply chain economist at Flexport, believes the word “commercial” is key to the slightly improved state, but urged caution in understanding that it can be difficult to separate commercial relations from the overall broader geopolitical relations.
Rogers warned though that a new block of tariffs levied by Tai would increase the chances of U.S.-China relations getting worse.
“There’s been plenty of discussion about…the new Section 301 review of China’s practices with regards to supporting state-owned enterprises,” Rogers said. “On the assumption that there isn’t a big change in Chinese behavior, the existing tariffs could remain in place. Yes, they may come down a bit because of exclusions and so on. But if there’s a new block of tariffs out there, then as part of a new Section 301, or whatever that becomes, I’d almost see the weight of probability of things getting worse rather than better from where they are now.”
Organizations like the American Apparel and Footwear Association have called on Tai and her office to provide immediate and short-term relief by retroactively reinstating Section 301 exclusions that have expired and suspending the collection of Section 301 tariffs going forward. According to AAFA, the millions of dollars made available by the tariff exclusions would help companies getting battered by supply chain constraints, caused in part by the Section 301 tariffs imposed on imported chassis.
Over the past 12 months, duties on Chinese goods have reached an average of nearly $4 billion on a monthly basis.
“It’s worth bearing in mind that these numbers have been pretty stable because most of the tariffs are applied to industrial goods rather than consumer goods,” Rogers said. “Overall duties have been going up more recently, just because the U.S. has been importing more of everything, not just the Section 301 products. But there is a pretty significant tariff package that’s out there that continues to be a cost for U.S. importers and continues to distort trade.”
While many tie the current U.S.-China trade war to the tariffs and rhetoric from the Trump administration, Green said that the roots of the tensions originated in the late 2000’s amid the fallout of the financial crisis as China became less interested in economic liberalization.
“Sometime around that period, the Chinese leadership looked at certain parts of the international system—like the Washington consensus of liberalizing your markets—and decided, ‘maybe Wall Street doesn’t have it right. Maybe that’s not the greatest way to run an economy.'”
China’s preference for wielding centralized control versus giving foreigners a larger stake in its powerhouse economy frustrated both the Bush and Obama administrations with their inability to foster productive economic dialogues with the Chinese government.
“I think by 2015-16, it was clear that the Chinese government really wasn’t that interested in doing things,” Green said. “By the time the Trump administration came in, certain members, particularly U.S. Trade Representative Robert Lighthizer, used that broader frustration to look at parts of the Chinese technology, infrastructure and policy framework to then say, ‘this is this is not acceptable. We’re going to go ahead with an investigation under Section 301.'”