Loyola University Chicago School of Law, JD 2022
Container ports from coast to coast are inundated with empty cargo containers. The Federal Maritime Commission has commenced an investigation into America’s import and export flows, as many ports are overcrowded with empty containers that have yet to be collected or transported back to their point of origin. Carriers that fail to remove empty containers from the port run the risk of incurring fines or penalties, but there is widespread inconsistency with regard to port authorities and their enforcement practices. In addition, the global pandemic has exacerbated container congestion, as shipping flows reached an all-time high in 2020 and citizens around the world have become increasingly reliant on online retailers to deliver household goods.
The Federal Maritime Commission
The Federal Maritime Commission (“FMC”) has started an investigation that will examine import and export flows at all major U.S. ports. These ports are currently grappling with unprecedented demand, which has resulted in significant increases in shipping costs on all types of goods. Senior members of the FMC have also commented on the unresolved tension between parties involved in intermodal transport, such as railroad authorities, truckers, and retailers. More specifically, the FMC investigation will reevaluate established practices used by some port authorities in which late fees are tacked onto containers that are overdue for return or pickup. While the FMC updated port rules in 2020, particularly with respect to demurrage and detention penalties during heavy congestion periods, it is clear that there has not been universal adherence and noncompliance remains a predominant issue.
Enforcing the rules
The FMC’s rules have fallen short in that they are oftentimes disregarded, thereby stalling progress to eliminate port congestion. Compliance is lacking and therefore, the ports will remain overcrowded unless the ongoing investigation provides new recommendations. In Europe, the European Commission has commenced talks with maritime executives and port authorities to determine whether anticompetitive actions are taking place, but such investigative efforts have yet to confirm whether price hikes actually occurred.
Meanwhile, Asian carriers deployed several additional vessels last year to help meet increased demand along Pacific routes. Both Chinese and Korean shipping conglomerates receive substantial state support and therefore, they are in a stronger position to ensure the timely transport of national exports. Nevertheless, South Korea’s Ministry of Oceans and Fisheries recently announced plans to increase its supervisory role regarding transpacific and Asia-Europe freight lanes. Vietnam has also followed suit by appointing a governmental agency to investigate price hikes and container withholdings.
Carrier conflict and supply chain disruption
Some experts attribute the industry’s shortcomings, namely container supply bottlenecks and excessively high shipping costs, on the fact that the industry has become more concentrated, with three conglomerates dominating global maritime transport. Not only are manufacturers frustrated by the arbitrariness in setting shipping rates, but they are also disappointed by poor carrier performance. It is increasingly clear that the carrier alliances need to foster greater cooperation and coordination in order to better facilitate the movement of goods.
US exporters are being hit especially hard, as ports are overwhelmed, and container shortages are on the upswing for transpacific sea routes. This translates to lost business and major delays for exporters. The Port of Los Angeles is particularly beleaguered, as ocean carriers have inundated the port to the extent that upwards of thirty cargo ships have to remain anchored outside nearby ports as they await their turns to unload, a process that typically takes between two and four days. While these delays come at the expense of manufacturers and retailers alike, carrier conglomerates stand to reap financial benefits from spikes in demand. Moreover, some industry experts allege that container liners are withholding capacity in order to maintain artificially high shipping rates, which, if true, can have devastating consequences on global supply chains. Fewer than 45% of container ships arrived on time to their destinations in December 2020, down from 76% the previous year. This figure represents a ten-year low in arrival timeliness, lending credence to allegations that carriers prioritize short-term profits over strengthening customer relationships. Shippers of low value commodities are being hit especially hard, as they are effectively being priced out of the market. Unless the FMC finds evidence of anticompetitive behavior, it is unclear how quickly, if ever, mounting cargo congestion can be alleviated. If, on the other hand, the FMC finds major shortcomings in carrier performance, then it may call on industry leaders to increase efficiency and cost-effectiveness alike, or otherwise face steep fines and penalties as a way to combat noncompliance.