Gavin Magrath, Magrath’s International Legal Counsel, Toronto, Canada

On August 10th Congressmen John Garamendi (D-CA) and Dusty Johnson (R-SD) introduced the “Ocean Shipping Reform Act of 2021”, a bipartisan proposal which would, if passed, become the first significant update to US Maritime regulations since 1998. “Foreign ocean carriers aren’t playing fair, and American producers are paying the price,” said Johnson in their introduction; Garamendi emphasized that access to US markets was not a right and targeted the US trade imbalance with China.

These same Representatives were among those pushing for active FMC review of unfair or anticompetitive practices in the industry, discussed previously here.

The legislation will face opposition along expected lines: a group of 153 companies, mostly shippers, have expressed their “strong support” for the measure in an open letter, while the AJOT notes a somewhat smaller group of 27 companies, largely port and terminal based, oppose the measure and fear unintended consequences in storage and return efficiency.

In the author’s view, the global pandemic has exposed weaknesses in the supply chain but also inequality in bargaining power in the supply chain that places the burdens of those failures on shippers and their representatives, while the carriers largely benefit from sky high freight rates on available capacity. Carrier refusal to accept freight – on the basis that it is more profitable to forego ex North America revenues in order to quickly return the empty and obtain ex-Asia freight rates – has been one surprising consequence of supply chain bottlenecks and equipment shortages, and is addressed in the new Act.

According to the Representatives’ joint press release, the “Ocean Shipping Reform Act of 2021” would impose fairness and reporting obligations on carriers, in particular with respect to detention and demurrage and to carrier refusal to accept bookings:

  • Establish reciprocal trade to promote U.S. exports as part of the Federal Maritime Commission’s (FMC) mission.
  • Require ocean carriers to adhere to minimum service standards that meet the public interest, reflecting best practices in the global shipping industry.
  • Require ocean carriers or marine terminal operators to certify that any late fees —known in maritime parlance as “detention and demurrage” charges—comply with federal regulations or face penalties.
  • Shift burden of proof regarding the reasonableness of “detention or demurrage” charges from the invoiced party to the ocean carrier or marine terminal operator.
  • Prohibit ocean carriers from declining opportunities for U.S. exports unreasonably, as determined by the FMC in new required rulemaking.
  • Require ocean common carriers to report to the FMC each calendar quarter on total import/export tonnage and twenty-foot equivalent units (loaded/empty) per vessel that makes port in the United States.
  • Authorizes the FMC to self-initiate investigations of ocean common carrier’s business practices and apply enforcement measures, as appropriate.