Ocean Shipping Reform Passes Senate, Container Rates Decrease 12%

By Brendan Menapace

The Senate unanimously passed the Ocean Shipping Reform Act (OSRA) last week, paving the way for changes regarding shipping costs and associated fees.

In short, the bill would require ocean carriers to certify that late fees comply with federal regulations. It would also shift the burden of "detention or demurrage" charges, aka the cost of goods sitting at a port for longer than originally planned, from the importer to the ocean carrier. Because of the immense backups at ports, the importers would no longer be on the hook for not being able to access their goods within the spelled out time period, often only a few days.

The bill would also:

Prohibit shipping companies from "unreasonably declining shipping opportunities for U.S. exports, as determined by the Federal Maritime Commission in new required rule making" per Logistics Management.
Authorize the FMC to investigate ocean carriers' business practices and apply enforcement measures when appropriate.
Require shipping companies to report total import and export tonnage and 20-foot equivalent units per vessel to the U.S. to the FMC quarterly.

The Biden Administration has been taking steps to limit costs associated with shipping, and has formed a new partnership between the FMC and Department of Justice, where DOJ attorneys and economists would work with the FMC to enforce violations of the Shipping Act, and the FMC would provide industry expertise and support the DOJ's enforcement of Sherman Anti-Trust Act and Clayton Act violations.

The passage of OSRA, which will now go to the House before landing on Biden's desk, shows that the wheels of government are turning to try to alleviate some supply chain issues U.S. companies and consumers are facing. But some experts warn that it won't be the immediate relief that some might hope for.

"[OSRA] was originally written in support of U.S. exporters who were refused space by the carriers last year," Steve Hughes, founder of automotive parts industry consulting firm HCS International, told Repairer Driven News. "So, there is very little in the bill that will help the current situation."

Others still expect container shipment gridlock at crowded ports to last through the year thanks to issues like strict shutdowns in China and labor shortages.

The good news, however, is that container shipping costs have fallen by about 12% in March of this year, according to the Drewry World Container Index.

According to MarketPlace.org, that's happening because of COVID-related shutdowns in China. With a decrease in items to ship, freight rates drop alongside decreased demand for space. That also leads to the easing of pressure on West Coast ports like Los Angeles and Long Beach, giving crews more time to unload goods.

"It's not just that they're no longer waiting, and that things are taking slower, but it's also that that capacity is actually available now, for sale on the market," Lisa Ellram, a supply chain management professor at Miami University in Ohio told MarketPlace.

There's also the possibility of decreased demand for products from abroad because importers stocked up when supply chains were more congested, leaving them with more inventory than usual.

Finally, those declining costs could actually be tied to the increasing price in gas. As the use of trucks becomes more expensive, importers look for alternative ways to get their products into the supply chain network.

"And you see reports of carrying companies saying, 'Man, loads that we would have rejected for the last six months, we are now more than happy to take because we have way less business than we did for all of 2021,'" Zac Rogers, another supply chain management professor at Colorado State University, told MarketPlace.

Whether these reduced ocean freight rates will hold steady or increase again is anyone's guess. Yearlong freight contracts are expected to nearly double this year, while Russia's unprovoked invasion of Ukraine has already begun driving up fuel costs. It will take time for supply chains to feel the impact of these and other factors.