Chairman Michael Khouri told Senate Commerce Committee members that the agency is concerned how ocean carriers will pass IMO bunker requirement costs onto shippers.
The U.S. Federal Maritime Commission will monitor the impact of the International Maritime Organization’s Jan. 1 deadline for ocean carriers to burn fuel with a sulfur content of 0.5 percent on shippers.
“The commission is monitoring this issue because of our interest in an efficient marketplace and to ensure that carrier efforts to recover costs associated with the new standard do not violate the Shipping Act,” FMC Chairman Michael Khouri told the Senate Commerce Committee’s Security Subcommittee on Thursday.
“A primary concern to the commission under the Shipping Act is whether ocean carrier bunker charge adjustment formulas are clear and definite,” he said.
Khouri (pictured above) made his remarks before the subcommittee’s hearing, “Federal Maritime Agencies: Ensuring a Safe, Secure, and Competitive Future.”
The expectation among shippers is that their container shipping rates will increase sharply when the international low-sulfur fuel content mandate takes effect Jan. 1. Currently, ocean carriers can burn bunker fuel that has a sulfur content of 3.5 percent.
The low-sulfur requirement could increase ship-operating costs by one-third and add costs of $10 billion to $15 billion to the ocean carrier industry. Refineries also are scrambling to prepare to supply bunker with 0.5 percent sulfur content.
“There is uncertainty about how some ocean carriers will comply with the IMO requirements, whether adequate supplies of low-sulfur fuel will be available, whether adequate supply of scrubber equipment will be available, and how individual ocean carriers will try to pass on part or all of these additional costs to cargo shippers, especially if economic growth slows and container demand falls,” Khouri said in his prepared testimony.
Sen. Deb Fischer, R-Neb., asked Khouri what the FMC is doing to address concerns from shippers about continued congestion in West Coast port terminals that result in delays in container pickups and deliveries, as well as the assessment of demurrage and detention charges by marine terminals and ocean carriers, respectively, on shippers.
“Port congestion and resulting cargo delivery delays are indeed a continuing issue,” the FMC chairman said. “There are multiple causes for the container congestion that we’re seeing today.”
He highlighted four recent causes, including:
• Cargo surges induced by shippers anticipating and seeking to get ahead of announced import tariff increases;
• Accelerated shipments in front of the annual Chinese New Year’s holiday, which results in Chinese factory closures;
• Ever-larger containerships in the transpacific trade starting to call West Coast ports, resulting in cargo surges at the marine terminals;
• Continued problems with chassis availability in the terminals;
• And problems with recently implemented terminal reservation systems in the ports of Los Angeles and Long Beach, which are “simply not working as advertised.”
“A shipper asked me this week can the FMC mandate a master gray chassis pool for all chassis in L.A.-Long Beach-San Pedro Bay,” Khouri said. “The answer is ‘no,’ and I do not mean to suggest that Congress should give us such overarching and overreaching authority.”
Khouri explained that the commission’s ongoing Factfinding No. 28 investigation into demurrage and detention, under the direction of Commissioner Rebecca Dye, is expected to bring clarity to this shipper concern by instituting standard and transparent language for detention and demurrage; clear, simple and accessible billing dispute resolution; standard evidence that could be used to resolve demurrage and detention assessment disputes; and consistent notice for when shippers should pick up containers at the terminals. Dye’s final report is due by Sept. 3.
Sen. Maria Cantwell, D-Wash., who serves as ranking member of the full Senate Commerce Committee, supports the FMC’s work to bring resolution to the port congestion. “We cannot be at a standstill when it comes to moving freight,” she said.
