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Mutually enforceable contracts are key to overcoming future supply chain crunch – Fact Finding 29


– Drastic ocean freight rate increase due to market forces of supply and demand
– A dozen recommendations made to alleviate US supply chains disruptions
– Main US Trade Lanes are still highly contestable

 

These were the key findings by Commissioner Rebecca Dye as she wrapped up Fact Finding 29 and submitted the final report..

Fact Finding 29 was an order set up by the Federal Maritime Commission (FMC) to investigate challenges to the freight delivery system in the USA and possible violations of the Shipping Act.

Commissioner Rebecca F. Dye was tasked by the FMC to carry out the investigation with the full authority under 46 C.F.R. §§ 502.281 to 502.291, to perform such duties as may be necessary in accordance with U.S. law and Commission regulations.

Fact Finding 29 was set up in response to many of the challenges faced by customers and complaints raised by them with the FMC convening teams of industry leaders to develop process innovations that would enhance supply chain reliability and resilience and address these industry concerns.

As part of Fact Finding 29, Commissioner Dye was directed to engage in public or non-public discussions with the various stake holders in the supply chain to identify solutions to unresolved supply chain issues affecting smooth operations of the US international supply chain.

Commissioner Dye identified and created Supply Chain Innovation Teams to address these issues and identified key measures to improve efficient cargo movement in the US ports.

Based on discussions with various stakeholders, the Fact Finding 29 identified 3 major areas of concern being

    • Increase in ocean freight rates during COVID-19
    • Unreasonable demurrage and detention charges imposed by ocean carriers and marine terminal
    • Supply chain disruptions including the impact of blank sailings

Port of Long Beach

The final report of the Fact Finding 29 found that

1) On the issue of the ocean freight pricing and monitoring of the three main ocean carrier alliances (2M, Ocean Alliance, and THE Alliance),

    • the market for ocean freight services remains highly contestable with the Trans-Pacific trade “not concentrated” and the Trans-Atlantic trade “minimally concentrated” meaning that it was open to more competition from lines outside of the alliances..
    • the ocean freight rates, especially the container spot freight market were the result of market forces of supply and demand driven mainly by the pandemic, and an unexpected and unprecedented surge in consumer spending in the United States leading to supply chain congestion..

2) On the issue of demurrage and detention, the Commissioner raised concerns that some of the carriers were not in full compliance with the incentive principle of the Commission’s Interpretive Rule on Demurrage and Detention.

The interpretive rule was intended to reflect three general principles:

    • Importers, exporters, intermediaries, and truckers should not be penalized by demurrage and detention practices when circumstances are such that they cannot retrieve containers from, or return containers to, marine terminals because under those circumstances the charges cannot serve their incentive function ;
    • Importers should be notified when their cargo is actually available for retrieval ;
    • Demurrage and detention policies should be accessible, clear, and, to the extent possible, use consistent terminology

The Fact Finding Officer submitted a dozen Final Recommendations to alleviate dislocations in the U.S. international ocean supply chain. These are:

    1. A new Commission “International Ocean Shipping Supply Chain Program” with dedicated personnel.
    2. A rulemaking to provide coherence and clarity on empty container return practices.
    3. A rulemaking to provide coherence and clarity on earliest return date practices.
    4. Continued Commission support for the new FMC “Vessel-Operating Common Carrier Audit Program” including developing a new requirement for ocean carriers, seaports, and marine terminals to employ an FMC Compliance Officer.
    5. An FMC Outreach Initiative to provide more information to the shipping public about FMC competition enforcement, service contracts, shippers associations, and forecasting, among other topics.
    6. Enhanced cooperation with the federal agency most experienced in agricultural export promotion, the Department of Agriculture, concerning container availability and other issues.
    7. A Commission Investigation into practices relating to charges assessed by ocean common carriers, seaports, and marine terminals through tariffs.
    8. A rulemaking to provide coherence and clarity on merchant haulage and carrier haulage.
    9. A new “National Seaport, Marine Terminal, and Ocean Carrier Advisory Committee” to work cooperatively with the Commission’s National Shipper Advisory Committee.
    10. A revival of the Rapid Response Team program as agreed to by all ocean carrier alliance CEOs.
    11. FMC International Ocean Supply Chain Innovation Teams engagement to discuss blank sailing coordination and other matters as needed to support recommendations.
    12. A reinvigorated focus on the extreme problems at Memphis rail heads and around the country.

In conclusion, the final report on the Fact Finding 29 is of the belief that the implementation of its Interim and Final Recommendations will alleviate the pressing problems experienced by the US customers..

 

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