Everything You Need to Know about the 2022 Ocean Shipping Reform Act
An overview of the Ocean Shipping Reform Act 2022 and what led to its passage.
The pandemic brought about issues that have caused continual disruption to global trade. Many countries were forced to lock down and restrict movements which caused labor shortages across the world. These labor shortages helped to spur shipping delays amid skyrocketing e-commerce sales. The increased sales led to elevated shipping container volumes, which exacerbated delays globally.
Exporters including American farmers labored to get their goods to global markets as ocean carriers denied cargo requests. At any given time, the busiest ports in the U.S., located in Los Angeles and Long Beach, had over 100 ships awaiting berth to offload goods. Importers were forced to pay millions of dollars in detention and demurrage charges. Shipping ports, terminals, and warehouses often operated at or over-capacity, choking the global trade market.
Several international shipping companies have formed a trio of alliances that controls roughly 80% of the global container shipping capacity. They also control 95% of the most crucial trade routes between Asia and the U.S. These shipping companies have reportedly elevated shipping prices by over 1000% since January 2020. As a result, consumer prices have dramatically risen affecting people’s pockets around the nation.
In response to the concerns of price gouging and unreasonable demurrage and detention charges by the global alliance, the White House and Federal Maritime Commission created a Special Envoy and Task Force to monitor unfair business practices. The data compiled by the task force led to the introduction and passing of the Ocean Shipping Reform Act of 2022 on a bipartisan basis.
What is the Ocean Shipping Reform Act?
President Biden signed The Ocean Shipping Reform Act of 2022 (OSRA) into law on June 16, 2022. It was developed and issued as a decree to alleviate problematic measures by ocean shipping companies that are affecting American importers and exporters. The act gives the Federal Maritime Commission (FMC) the means to enhance its supervision of international ocean shippers. The FMC will be able to:
- Eliminate unfair charges levied against importers.
- Prevent unreasonable denial of American exports.
- Relieve economic stresses against American businesses and consumers.
The most pertinent issue that the bill addresses are the high demurrage and detention charges that ocean carriers and ports levy. These charges are paid by importers and exporters and passed on to the consumer, adding to inflation. The bill does not say that carriers and terminals cannot charge detention and demurrage charges, only that they must charge in a way that promotes supply chain movement.
Under the new law, the Department of Justice (DOJ) will provide the FMC with attorneys and economists to administer sanctions for violations associated with OSRA 22. The FMC will provide the DOJ with support and industry knowledge to enforce actions related to Sherman Act and Clayton Act violations. The measure is seen as necessary and essential to:
- Combat inflation
- Improve global trade
- Decongest US ports
Demurrage and Detention
Demurrage: It is a charge raised when the full container is not moved out of the port/terminal for unpacking within the allowed free days offered by the shipping line. The charge is levied by the shipping line to the importer.
Detention: Also known as a per diem fee, is raised when the importer has picked up the container for unpacking, but the empty container has not returned to the nominated depot within the agreed free-time. It is normal for a port to offer 3-5 days of free storage. However, each terminal has slightly different rules which can change at any time.
Why Was Reform Needed?
The last big change to OSRA came in 1984. Since then, Congress has deregulated the ocean freight business in a way that has allowed ocean carriers to renege on their obligations to fair business practice.
2 Things Shippers Should Know About OSRA 2022
Prohibition on Retaliation
A common carrier, marine terminal operator, or ocean transportation intermediary may not retaliate against a shipper, an agent of a shipper, an ocean transportation intermediary, or a motor carrier by refusing, or threatening to refuse, an otherwise-available cargo space accommodation; or resort to any other unfair or unjustly discriminatory action as retaliation for patronized another carrier; or filing a complaint them; or any other reason.
Storage and Transfer of Dwelling Containers
Summary: The Assistant Secretary for Transportation Policy, in consultation with the Administrator of the Maritime Administration and the Chairperson of the FMC, will convene a meeting to discuss the feasibility of, and strategies for, identifying Federal and non-Federal land, including inland ports, for the purposes of storage and transfer of cargo containers due to port congestion.
From 1996 to 2011, the current group of alliances controlled approximately 30% of global container shipping. Currently, the companies’ control nearly 80% of the market. Since the pandemic began, these ocean carriers have increased shipping rates at an astronomical rate.
Since January 2020, freight shipping between Asia and the U.S. has increased over 1000%. Prior to the pandemic, shipping rates for 40-foot containers were approximately $1,300. By September 2021 however, shipping rates had risen to $11,000.
Freight owners have also been unjustly charged detention and demurrage charges, even though they are unable to access their shipping containers to move them.
According to the Federal Maritime Commission, July 2021 to September 2021 saw the top eight trio alliance companies charge shippers $2.2 billion, a 50% increase from the preceding quarter. It is estimated that shipping rate and fee increases raked in over $190 billion in profits in 2021 for the alliance, which is seven times more than 2020.
Because most of the traded goods around the world arrive by ship, U.S. consumers are bearing the brunt of imposed shipping costs and rate increases. Higher shipping prices are translating to higher consumer prices. So much so, that the Federal Reserve Bank of Kansas estimates that these increases will bring a 1% increase to consumer products within the next year.
Price increases are not the only thing affecting American importers, exporters, and consumers. The leading ocean carriers can cancel or change bookings and impose cancellation and late fees without notice to their clients. In some instances, ocean freighters have overcharged or refused to transport American exports. Instead ships with empty containers and empty ships sail back to China for quick turnarounds. Discriminatory methods such as these have been costly for American business.
The trucking industry has also been affected by actions of the trio alliance. Carriers have imposed rules that require truck drivers to use specific trailers to transport their cargo. Truck drivers are forced to wait for the correct trailer to become available, which contributes to congestion at ports. If truck drivers must wait, they lose wages, and carriers can keep charging detention and demurrage charges. This business practice has had an immeasurable negative impact on American industries by damaging the U.S.’s ability to deliver products in a timely manner.
What The Ocean Shipping Reform Act of 2022 Will Do
- Stop international ocean carriers from unreasonably declining American cargo, as determined by the FMC in new required rulemaking.
- Direct the FMC to self-initiate investigations of ocean carrier’s business practices and apply enforcement measures.
- Shift the burden of proof regarding overcharging certain fees, called “demurrage and detention” charges, from the complainant to the international ocean carriers to help level the playing field and improve the FMC’s enforcement capacity.
- Improve transparency of movement of agricultural and other American exports by requiring international ocean carriers to report to the FMC regarding how many empty containers are being transported.
- Stop retaliation by international shipping companies against exporters and importers.
- Formally establish the FMC Office of Consumer Affairs and Dispute Resolution Services to improve the complaint and investigation process for American businesses seeking assistance from the FMC.
- Improve chassis management by authorizing the Bureau of Transportation Statistics to collect data on dwell times for chassis and including a National Academy of Sciences study on best practices of chassis management.
- Direct the FMC to have temporary emergency authority to collect data during times of emergency congestion, among other improvements.
What’s In It For 3PLs?
The treatment of 3PLs by the largest ocean transportation carriers helped to play a role in passage of OSRA 2022. Freight forwarders and freight consolidators around the nation have had to incur cancellation and late fees after their initially contracted logistics details were rejected. Ocean carriers no longer honor contracted arrangements and instead charged what has amounted to exorbitant rates.
The 1998 OSRA was amended to allow non-vessel-operating common carriers, commonly referred to as NVOs to negotiate agreements and deals fairly and competitively with ocean carriers. What it did not do was regulate ocean transportation carrier ability to increase fees and rates based on perceived and actual market environments.
Ocean carriers began offering NVOs guaranteed spots for excessive fees. These fees could sometimes add several thousand dollars to the cost of transporting each container.
The bill will benefit freight forwarders and freight consolidators, cargo, and cargo space owners, & truckers, by instituting standards that efficiently:
- Certify charges
- Book declinations
- Allocate vessels
The pandemic was a catalyst to problems that stressed the global trade to capacity. These problems led to shipping delays and port congestion. Combined with increased shipping rates and fees imposed by a global alliance of ocean carriers, inflation was inevitable. Costs have trickled down to the American consumer and increased the prices of goods.
OSRA 2022 is being implemented to combat unfair business practices against importers and exporters levied by ocean carrier companies.
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Supply Chain Latest: Biden Warns Shipping Lines Amid Hot Inflation – Bloomberg
Text – S.3580 – 117th Congress (2021-2022): Ocean Shipping Reform Act of 2022 | Congress.gov | Library of Congress
Cantwell Applauds Unanimous Senate Passage of Ocean Shipping Reform Act – U.S. S…
Ocean Shipping Reform Act Section by Section Analysis.pdf (senate.gov)
What Shippers Need to Know About the Ocean Shipping Reform Act (OSRA) of 2022 (greenworldwide.com)
Congress Approves Shipping Reform Legislation to Help Ease Supply Chain Challenges | The House Committee on Transportation and Infrastructure
How the Ocean Shipping Reform Act 2022 will address US supply chain disruptions – or not.. (shippingandfreightresource.com)
White House announces measures to monitor ocean carrier freight pricing (shippingandfreightresource.com)
Shipping profit margins accelerate | Global Maritime Hub
Competition Issues in Liner Shipping (justice.gov)
FACT SHEET: Lowering Prices and Leveling the Playing Field in Ocean Shipping | The White House
Freight Rate Index / Freightos Baltic Container Index
3PLs frustrated by ocean service contracted rate upheaval – ACT Logistics (actllc.co)
Drewry – News – Is it time for investors to exit the container shipping space?
US importers pay millions in additional interest due to port congestion in US West Coast ports (shippingandfreightresource.com)
10 Largest Container Shipping Companies in the World (marineinsight.com)
Bill Signed: S. 3580 | The White House
How President Biden’s Ocean Reform Act can impact shipping, inflation (cnbc.com)
3PLs frustrated by ocean service contracted rate upheaval – ACT Logistics (actllc.co)
The relation of ocean freight prices to inflation – Federal Reserve Bank of Kansas City (kansascityfed.org)