U.S. Maritime Regulator Urges Freight ‘Silos’ to Unite in Crisis

Supply Lines is a daily newsletter that tracks Covid-19’s impact on trade. Sign up here, and subscribe to our Covid-19 podcast for the latest news and analysis on the pandemic.

Companies that violate U.S. supply-chain rules around inundated American ports may be penalized, according to a key maritime regulator in Washington who is pushing the fragmented freight industry to work more closely to address the nation’s unprecedented bottlenecks.

Rebecca Dye, a member of the Federal Maritime Commission, is leading an investigation into the pandemic-rattled flow of imports and exports. She initially thought the shocks to global trade last year would be a replay of the 2010 snapback from the financial crisis, but in an interview, she said “we quickly realized that was not the case.”

Now, U.S. ports are deluged with demand that’s underpinning surging shipping costs and complicating logistics for companies ranging from fitness-equipment provider Peloton Interactive Inc. to Timken Co., a maker of industrial bearings. The snarls have also heightened tensions within the shipping industry itself -- between the container carriers that crisscross the world’s oceans and the truckers, railroads, retailers and others linked to those services.

A focus of Dye’s probe is the practice used by some shipping lines and port-terminal operators of tacking on fees for late pickup or overdue returns of containers. Though the FMC announced rules last year restricting so-called demurrage and detention penalties during periods of congestion, Dye said there hasn’t been universal adherence.

Enforcing Rules

“We’re now collecting some examples and I will package those up and have a conversation with my colleagues, and if I had to say right now, I would say that I believe that we should move toward enforcement,” Dye said Friday. “I know that some carriers, some terminals who are doing their best to comply but I’m very concerned -- there isn’t a broad compliance with the rule.”

The FMC has four other members and an enforcement bureau that prosecutes violations of the nation’s shipping laws, administers civil penalties such as fines and negotiates settlements.

While Dye’s review continues, the surcharges have become a symptom of wider friction in global shipping. Groups including the Harbor Trucking Association, which represents drivers who haul containers at the ports of Los Angeles and Long Beach, have complained about an unwillingness of some carriers work together to ease supply-chain strains.

Dye, who has served on the FMC since 2002, said she’s sympathetic to those issues and is trying to get all parties to communicate more.

No Silos

“If the freight-delivery system in the U.S. is going to perform, then everybody engaged has to step out of his silo and work to resolve the inefficiencies -- nobody can do it alone,” she said.

Among the stakeholders at ground zero of Southern California’s congestion is Mario Cordero, executive director of Long Beach’s port, the nation’s second-busiest. He said he’s glad FMC officials are “rolling up their sleeves” to address the inefficiencies the pandemic has exacerbated.

While some talks have been helpful, he also suggested there’s a need for the carriers to get “more engaged with the American supply chain.”

“You just cannot bring a container from whatever part of the world and then drop it and pretend not to think that you should have some concern with regard to how that cargo will impact a supply chain,” Cordero said.

U.S. Maritime Regulator Urges Freight ‘Silos’ to Unite in Crisis

Cordero said the FMC could go a step further and look into the alliances that the companies formed a few years ago to share ship space after years of money-losing stretches of overcapacity. He was the FMC chairman in the Obama administration during a period when the 2M alliance joined the world’s largest carriers, A.P. Moller-Maersk A/S​​​ of Copenhagen and Geneva-based MSC Mediterranean Shipping Co.

Not all the benefits of industry consolidation are apparent to those currently paying record-high rates for delayed deliveries.

“The FMC is in an excellent position to look back and say, the carriers represented that not only this model of economies-of-scale was necessary for cost-effective measures but to create efficiencies,” Cordero said. “So under that umbrella, I think the Federal Maritime Commission can bring the carriers in and say, look, here’s what we see now and here’s what we think you need to do about it.”

Dye said the commission is always monitoring competition under the alliances and wouldn’t hesitate to act if it had evidence of anti-competitive behavior.

“If we find that the ocean carriers are exceeding their authority under the agreements, then the FMC would not be hesitant to take action against them,” she said. “So far we have not found that.”

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.