The ocean freight industry has been dealing with an unprecedented set of challenges brought about by a shortage of shipping containers. These challenges are not only driving up shipping costs, but are creating a ripple effect throughout much of the global supply chain. This ripple effect is causing a number of disruptions and delays; down to last-mile deliveries, much to the consternation of consumers waiting for their purchases. We here at Ocean Insights are honored to sponsor the upcoming convention with Carl Bentzer, the commissioner of the Federal Maritime Commission (FMC).
The conversation comes at a time when the industry is facing some critical issues:
- Demurrage and Detention practices followed by carriers and shipping lines.
- Carriers’ refusal to provide empty containers for exports out of the United States.
- A continuous climb of freight rates.
- Severe delays in trade created by port congestion in US-based ports.
The event will provide clarification on these industry issues and their implications to global trade.
Understanding the FMC’s Role in these Issues
The Federal Maritime Commission was established as a provision of the Shipping Act of 1984, 46 U.S.C. 40101 and is responsible for for regulating the US international ocean transportation system which regulates ocean freight transportation for international trade.
The Mission of the FMC is to “ensure a competitive and reliable international ocean transportation supply system that supports the U.S. economy and protects the public from unfair and deceptive practices.”
To fulfill this responsibility, the FMC has assembled teams of industry leaders and experts to address the above issues.
Actions from the FMC regarding these issues have become a hot topic in industry news, because trade disruptions in the United States have far-reaching implications on global trade as a whole.
Unpacking the Issues
In order to understand the issues within the ocean freight industry, it is important to understand the root cause of the delays. Of course, the immediate cause is the COVID-19 pandemic. As lockdown restrictions were put in place almost a year ago as an attempt to keep people home and flatten the curve, most consumers turned to the internet to do their shopping. This didn’t apply to just consumables, but a wide range of household goods, many of which are imported from other countries.
The spike in e-commerce remained high throughout the year and was compounded by the holiday sales, which climbed 8.3% overspending in 2019, according to NRF.
While this ultimately shouldn’t have caused the issues the industry is now experiencing, it’s the practices carried out by shipping lines that are requiring FMC intervention.
One of the biggest contributors to both the congestion and the cost to ship is the shipping container shortage. During the first waves of the pandemic, shipping lines cut the amount of ships in use as a means of curbing the losses incurred from the direct drop in production and demand. While this put a halt to the erosion of freight rates, it also meant that empty containers were not being moved back to Asia.
As Asia was the first hit by the pandemic, it was also the first country to bounce back and recover. With production back in full swing, the missing containers were felt more keenly. This presented a ripe opportunity for carriers, as hauling empty containers back to Asia, where the demand was incredibly high, proved to be more lucrative than simply waiting for the containers to be loaded with exports before shipping them out.
As a result, American goods are not being exported, and continue to pile up around port areas. The US currently faces an imbalance between exports and imports. For every 100 containers that arrive at US ports, only 40 containers are being loaded up for exports. All of which lends itself to the considerable port congestion that is being experienced, especially on the US West Coast.
Finding a Solution
Port congestions and container shortages are problems in their own right, but are also contributing to a number of other problems, especially in terms of demurrage and detention, which can very easily blow the annual shipping budget for smaller companies if not managed carefully.
To that end, the FMC is addressing these issues and will be looking for a means of ameliorating the situation so that both shippers and carriers can continue to operate profitably and without the series of disruption and other difficulties that the industry is currently facing.
If you work with or rely on ocean freight, then these issues are likely impacting your supply chain. We encourage you to sign up for this free webinar as Carl Bentzel, the commissioner for the FMC sheds some light on these challenges facing the industry.