[co-author: Isabella Peek]
Less than two weeks after President Biden officially announced his agreement with the Port of Los Angeles to begin operating 24/7, the ports of LA and Long Beach have decided to implement a new fee for containers sitting at the ports for extended periods of time. Combined, the ports of LA and Long Beach handle approximately 40 percent of the containers that are imported to the United States making them the two largest ports in the country.
On Oct 25 the Ports of LA and Long Beach issued a statement that, beginning November 15 new fees will be imposed on containers that dwell at ports. For containers that are leaving by truck, a $100 per container per day charge will be implemented if it sits for nine days or more. For containers leaving by rail, it’s three days or more.
The fee will be charged to the ocean carriers but it is expected that the carriers will pass these along to shippers, meaning shippers will, in effect, end up paying a port demurrage surcharge over and above hefty demurrage charges already in place which are already causing enough havoc in the industry. The fees collected reportedly will be re-invested into the ports to improve efficiency and address congestion throughout the San Pedro Bay. The ultimate stated goal of the fee is to encourage carriers to move containers, but the announced solution by the ports seems counterintuitive since the problem is not simply that carriers are not picking up containers in time, and misses the complexity of the causal factors resulting in demurrage. Further, since it has been announced that these charges are to be passed on to the shippers, this underscores the current status quo where demurrage and detention solutions have been shown to not be effective as a solution to the port congestion issues, but rather seem to aggravate the current overall malady in ocean shipping. The Federal Maritime Commission’s interpretative rules have yet to have impact on the incentivizing intent of such charges to create cargo fluidity. In general, ocean carriers have leaned on these charges as revenue streams rather than as curative tools for the efficient handling of shipping equipment by truckers, ocean intermediaries, and importers.
The problem at ports causes problems downstream as well. Railyards in middle America are similarly experiencing an overload of containers. Drivers qualified to move containers are in short supply, and most worrisome, chassis are in very short supply. Moving the ports of LA and Long Beach to 24/7 was an effort by the Biden Administration to solve the supply chain issues, or at least pave the way for recovery, but moving to a 24/7 operation will not help anything in the long term unless the supply chain issues are addressed holistically. Additionally, it seems that most importers, the intended recipients of the loaded containers sitting in ports, are not prepared from an employee work-day perspective to receive these containers during the extended conventional workday and/or during weekends, whereby labor costs would be significantly increased.
With chassis in short supply, the ports have reached a point where there are simply not enough chassis to move the stranded containers, making it physically impossible for carriers and/or shippers to timely move containers off the port yards. These chassis shortages are not new and are extant not only in the ports themselves, but also among the inland rail ramps which traditionally are the delivery points of containers moving on an intermodal basis into and from the Midwest. With these new fees, carriers/shippers will be scrambling to get containers moved and doing so will likely result in a further inefficient handling of the depleted chassis sources. Of course, a further aggravating factor is the well documented truck driver shortage which has been exacerbated by loss of revenue by drivers caught in long unproductive lines at congested ports. The paucity of chassis is impacting seriously on a most important element of ocean carriers and other parties providing transport to its customers—i.e. the ability to provide delivery to terminate the transportation transactions. Up until 2009 ocean carriers clearly had the delivery responsibilities until the ocean carriers decided to farm out that function in 2009 when they basically gave up their chassis to third parties.
Many of those in the industry are advocating for a more collaborative approach to solve the worsening supply chain problems. Heading into the holidays will likely trigger even more bottlenecks unless a more collaborative approach is developed, which is not a likely scenario. 24/7 manpower and extra fees alone are not a well thought out strategy and will not be enough. These strategies will likely cause more issues in the short and long terms for importers, to whom these fees will be passed. It is our opinion that neither governmental nor commercial “creative” solutions have yet shown their face.
However, we should not lose sight of the fact that two days after the port of Los Angeles and Long Beach announced the surcharges for containers which not timely picked up, National Shippers Advisory Council (NSAC) held its inaugural meeting with the Federal Maritime Commission. The NSAC, created to advise the Federal Maritime Commission, is composed of 12 US importers and 12 exporters, as well as representatives from the ocean transportation intermediary side of things. Members include heavy hitters such as Amazon, Walmart, Target, Office Depot, and Ikea. Initial responses from certain of the members on the actions taken by the ports of Los Angeles and Long Beach included statements such as “catastrophic”, “the last thing we need”, and that government action was needed “to put the brakes on the actions taken by the ports.” We are not sure whether the FMC has jurisdiction over the ports which are not acting as marine terminals in assessing these charges, but we do agree that these suggested strategies by the Ports are not productive as a solution for the ocean transportation congestion problems in our midst. We also question whether the [orts have the legal abilities to assess these charges. We are sure the FMC will be making that same inquiry.
We do, however, suggest that we keep an eye on the actions of the NSAC and the FMC in this new strategy environment of combined industry efforts with the FMC on these specific matters.
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