August 13, 2021
Ag exporters have faced substantially increased costs to ship their goods overseas, challenges obtaining containers and other equipment to deliver their goods to ports and beyond, and often incur booking cancellations or delays for vessel space. New legislation, the Ocean Shipping Reform Act of 2021, looks to support American exports by establishing reciprocal trade opportunities to help reduce the United States’ longstanding trade imbalance with China and other countries and establish rules of the road for fair trading.
Owing in part to the Covid-19 change in American online orders, imports have affected vessel operations and container availability, diminishing export options for American products including produce, wine, dairy and fresh pork. Ocean carriers have exacerbated this situation with high detention and demurrage charges, the increased shipment of empty containers back to Asia, and other unfair practices.
“Where we are at is unpredictable,” says Rep. Dusty Johnson, R-S.D., one of the bill sponsors. Johnson was joined by John Garamendi, D-Calif., in offering the bipartisan legislation following on a letter signed by 100 House members earlier this spring highlighting the shipping challenges and a hearing held earlier this summer.
According to the Agriculture Transportation Coalition, “…on average 22% of U.S. agriculture foreign sales cannot be completed due to ocean carrier rates, declining to carry export cargo, unreasonable demurrage and detention charges, and other practices.”
Garamendi says on the West Coast, containers came to America, were emptied, and then returned to the port and put on a ship going back to China empty. “They just simply sent them back to China empty, leaving no ability for American agricultural exporters to get a container, let alone get them on a ship,” he says.
Johnson shared that at hearing earlier this summer, Jen Sorensen, president of the National Pork Producers Council, says that China wants chilled pork, not frozen. However, shippers’ refusal to ship without unreasonable delays or the highly unpredictable shipping environment forces the freezing of pork, and in turn limits the premium that could otherwise be received in the Asian market for fresh, rather than frozen, pork.
Johnson notes that in order for Chinese shippers to utilize U.S. ports and have access to this stream of commerce, they should accept some basic rules of the road and not unduly discriminating against American agricultural exports.
The Ocean Shipping Reform Act would provide new authority to the Federal Maritime Commission to address unjust and unreasonable practices by ocean carriers. It would institute new penalties against ocean carriers and marine terminal operators for violations of the Shipping Act, require expanded public disclosure from the FMC and carriers, and establish a series of new regulations against unfair carrier practices.
Johnson says it shifts the burden of proof to the carriers to prove there is no wrongdoing. And also helps to increase transparency and the reporting of any wrongdoing.
The bill also offers new oversight of carriers’ charges and fees and will permit the FMC to dedicate collected penalties as restitution to impacted exporters.
Johnson says shippers can continue to set their own rates, but the basic expectation of carriers to not send boats back empty. The bill requires ocean carriers to adhere to minimum service standards that meet the public interest, reflecting best practices in the global shipping industry. It also prohibit ocean carriers from declining opportunities for U.S. exports unreasonably, as determined by the FMC in new required rulemaking.
Garamendi adds the bill is empowering the FMC to take action and to put in place fines and empower exporters too. “Our goal is to create a level playing field for exporters, importers and shippers to all play a role in a competitive environment,” he says.
Johnson notes an update of federal regulations for the global ocean shipping industry hasn’t occurred since 1998 when the top 10 ocean carriers controlled 12% of the shipping volume. Today those top firms control 80%.
“It is not healthy that four carriers control 80% of this maritime volume, just as its not healthy to have four packers control 80% of the meat processing capacity in this country,” Johnson notes.
Garamendi says issue is likely to get included in the discussion in executing President Biden’s executive order to tackle anti-competition issues. He also anticipates Congress has a desire to look deeper at market concentration, whether that is through legislation or a more active Department of Justice.
Johnson says Coast Guard reauthorization is up for renewal this year, which offers a legislative vehicle to include at least components of if not all of the bill. Garamendi adds that the bill could also move separately.
If it happens this year, Garamendi anticipates it occurring in the November or December timeframe.
Garamendi says he’s been overwhelmed by the number of supporters for the bill.
In a release, the National Milk Producers Federation and U.S. Dairy Export Council appreciated the opportunity to work closely with both Congressional offices as the legislation was drafted and are pleased to endorse the bill.
“Dairy producers and manufacturers have faced unreasonable costs and unfair practices from ocean carriers that negatively affect U.S. exports, increasing costs and putting at risk established trading relationships,” says Krysta Harden, president and CEO of USDEC. “This legislation will hopefully curtail those abuses and encourage better export-oriented behavior moving forward.”
The economic effects from these challenges are significant – the average cost of transporting a container is estimated to have increased by approximately 200% over the past year, while the estimated impacts to dairy producers from just January to May 2021 include over $200 million in added shipping and related costs, approximately 10% of the export value during the same period.
“Dairy exporters have faced unfair detention and demurrage charges, unreliable and unfair booking practices and cancellations, and unwarranted challenges trying to obtain containers and other equipment,” says Jim Mulhern, president and CEO of NMPF. “While some of these challenges are due to Covid-19 changes in retail purchases, carriers have abused the situation to their advantage. Our members need the U.S. government to act, and we welcome the introduction of this legislation as an important, positive step.”
The Pet Food Institute says pet food makers are among the range of businesses impacted by a global shipping crisis due to unfair and anti-competitive practices among certain foreign ocean carriers. Dana Brooks, president and CEO of PFI, says, “The new bipartisan bill introduced by Representatives Johnson and Garamendi can help to solve some of these long-term problems that are impacting America’s exporters and prohibiting future economic growth.”
In the meantime, PFI urges the federal government to immediately enforce The Shipping Act, which provides the FMC the authority to prohibit unreasonable and unjust practices and promotes the growth and development of U.S. exports through competitive and efficient ocean transportation.
The following organizations have signed on in support of the reform bill: Agriculture Transportation Coalition; National Industrial Transportation League; American Farm Bureau Federation; National Retail Federation; American Trucking Associations (ATA); American Apparel & Footwear Association; Agricultural & Food Transporters Conference, ATA; American Chemistry Council; American Cotton Shippers Association; American Feed Industry Association; American Pulse Association; American Seed Trade Association; Consumer Brands Association; Corn Refiners Association; Cotton Warehouse Association of America; Dairy Farmers of America; Hardwood Federation; Intermodal Motor Carrier Conference, ATA; International Dairy Foods Association; International Housewares Association; International Paper; Institute of Scrap Recycling Industries, Inc.; Leather and Hide Council of America; Meat Import Council of America; National Association of State Departments of Agriculture; National Association of Chemical Distributors; National Chicken Council; National Cotton Council; National Council of Farmer Cooperatives; National Hay Association; National Milk Producers Federation; National Oilseed Processors Association; National Onion Association; National Pork Producers Council; North American Meat Institute; North American Renderers Association; Pet Food Institute; Specialty Soya and Grains Alliance; The Fertilizer Institute; Travel Goods Association; U.S. Dairy Export Council; U.S. Dry Bean Council; U.S. Forage Export Council; U.S. Meat Export Federation; U.S. Pea and Lentil Trade Association; United Fresh Produce Association; USA Dry Pea and Lentil Council; Western Agricultural Processors Association; Wine and Spirits Shippers Association.
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