The cure is worse than the disease, say critics of an emergency plan of the ports of Los Angeles and Long Beach backed by the Biden administration. If you think port congestion is bad now, just wait for what comes next.
On Wednesday, two days after the ports of Los Angeles and Long Beach announced a surprise emergency fee for containers lingering too long at terminals, the National Shippers Advisory Council (NSAC) held its inaugural meeting.
NSAC, created to advise the Federal Maritime Commission, is composed of 12 U.S. importers and 12 exporters. Members include heavy hitters like Amazon (NYSE: AMZN), Walmart (NYSE: WMT), Target (NYSE: TGT), Office Depot (NASDAQ: ODP) and Ikea.
Council members had a lot to say about the California port fees — none of it good.
‘I think it will be catastrophic’
Starting Nov. 1, the ports of Los Angeles and Long Beach will charge $100 per container for boxes dwelling nine or more days that move by truck and those dwelling six days or more that move by rail.
The fee will increase $100 every day. It will be charged to carriers, which will then almost certainly pass the fee along to shippers, meaning it will be the equivalent of an escalating demurrage charge.
“As far as the ‘hyper-demurrage’ announced in Los Angeles/Long Beach, I think it will be catastrophic,” said Rich Roche, vice president of international transportation at Mohawk Global Logistics, during the NSAC meeting.
“Chassis are already in short supply and this will artificially suck out the rest of the containers that may be sitting in there [at terminals] that didn’t need to be on a chassis and now they’re going to be parked somewhere. It’s probably going to wipe out whatever’s left in terms of chassis,” predicted Roche.
According to Steve Hughes, representing the Motor Equipment & Manufacturing Association, “I’m concerned that this new fee is going to cause even more problems than it’s going to solve. I understand the logic behind it and it makes some sense, but unfortunately, because we don’t have the throughput at the front gate, I think this can cause us more problems than we have already.”
Bob Connor, executive vice president of global transportation at Mallory Alexander International Logistics, said, “This absolutely came out of left field. I don’t see this charge doing anything but adding more cost, and freight rates being what they are, this is the last thing we need.”
Both Connor and Roche urged that someone in government “step in and put the brakes on this.”
Carriers to pass along fees to shippers
NSAC members speaking during Wednesday’s meeting emphasized that the Los Angeles/Long Beach charges will ultimately be paid by shippers.
Daniel Miller, global container lead at Cargill, dubbed California’s emergency charges “crazy fees” and said, “We know this is all going to come back to us. I had a couple of calls with carriers yesterday and they’ve already admitted that yes, they are going to come back to us.”
Rick DiMaio, senior vice president of supply chain operations for Office Depot, said, “All fines and fees flow to us, to the beneficial cargo owner.”
According to Ken O’Brien, president of Gemini Shippers Group, “What was done this week at the ports of Los Angeles and Long Beach is effectively an indirect tax on the American consumer.”
Connor reported, “When we heard about the new charge, we immediately reached out to some of our contacts at the FMC. From the conversation we had, it was pretty obvious that the FMC was not forewarned that this thing was coming.”
Connor said that his company asked its FMC contacts whether the ports had to give 30-day notice to carriers before implementing the charge, and whether carriers had to give 30-day notice to pass the charge along to shippers. Connor said that it was his understanding that the ports could implement the charge without that notice, but carriers would have to give 30-day notice to shippers.
However, that’s not the case if carriers already have language in tariffs allowing them to pass along port charges immediately. Ocean carrier HMM’s current tariff includes a clause that states, “The shipper shall be liable for payment of any charges or surcharges imposed on the carrier by any marine terminal, port authority, government authorities or other third party.”
In an online post explaining the clause, Stephen Nothdurft, vice president of the Midwest region at HMM, said, “This new charge [by Los Angeles/Long Beach] is going to be a pass-through for all of the ocean carriers. The carriers will hit the mark with the invoices. As it relates to HMM specifically, this was created based on the strong chance of such surcharges. Such fees have been blowing in the wind for quite some time, so any carrier would be astute to protect their interests.”
Do fees incentivize faster moves?
The point of the “Hail Mary” Los Angeles/Long Beach fee plan is to forcibly unclog the terminals and get containers moving faster. The members of NSAC argued that these emergency port fees — as with traditional demurrage and detention fees — are not increasing container velocity given the current supply chain situation.
According to Miller, “I don’t think anybody on this committee would admit to using the port to let containers sit there because they want to. Everybody has the full intention to get these containers out, but they physically can’t.”
Adnan Qadri, director of global imports at Amazon, said, “In the past, the whole idea of detention and demurrage was incentivizing faster turns, returning of equipment and bringing fluidity into the network and the supply chain. But in its current state, the way supply chains are moving right now, I don’t think detention and demurrage are incentivizing anything.
“Folks are not sitting on returns because they want to. They’re sitting on them because they can’t get those containers returned. It is very difficult for us [Amazon] to wrap our heads around the idea of these detention and demurrage charges, which don’t drive any kind of positive behavior [given] the way the supply chain is currently set up.
“What concerns me is that these charges aren’t driving any benefit to the current state we’re in,” said the Amazon executive.
Carriers’ demurrage and detention fees have faced heavy criticism over the past year. They are a focus of FMC regulators as well as proposed legislation to reform the Ocean Shipping Act. And yet, the Los Angeles/Long Beach plan, with the explicit blessing of the Biden administration, will have the same effect as demurrage.
Nothdurft said in his online post, “It’s ironic that the international community has been pleading to the government about the absurdity of demurrage/detention charges only to have said government administer more of the same.”
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