How the Ocean Shipping Reform Act Can Impact the Supply Chain Crisis

By Trent Cotney, Cotney Attorneys & Consultants.

Over the past several months, multiple industries — including construction, automotive and electronics — have been hit hard by the supply chain crisis.

Materials have been scarce and severely delayed, leading to manufacturing slowdowns and projects falling behind schedule. These challenges are affecting the bottom line of both small companies and large corporations, and consumers wonder when the supply chain will get back to some version of normal.

With hopes of alleviating some of the distribution issues, Representatives John Garamendi (D-CA) and Dusty Johnson (R-SD) have introduced the Ocean Shipping Reform Act of 2021, HR 4996 (OSRA21). This bipartisan legislation is intended to address port congestion, loading and unloading delays and related fees, equipment availability, and other issues adding to the bottlenecks that shipping is experiencing. It can also be viewed as a “Shippers Bill of Rights” to make their relationship with the ocean carriers more equitable.

How the bill came about

In March 2021, the Federal Maritime Commission (FMC) gathered a group of shippers to study the problems that the shipping industry has been facing. Many of those problems made it into the news, as we all heard about ports closed due to COVID-19 outbreaks, causing ships to anchor off-shore, unable to deliver or pick up scheduled shipments, throwing the entire world’s distribution process off schedule. The group reviewed the issues and shared their findings with the FMC. This was followed by a June 15 hearing on the shipping container crisis in the House Subcommittee on Coast Guard and Maritime Transportation, after which Garamendi and Johnson introduced OSRA21 in August.

What the bill addresses

Due to the supply chain crisis, U.S. exporters and importers have been stretched thin throughout the pandemic, but many systematic problems have existed for years. Among these are detention and demurrage. Detention refers to costs that customers incur for using equipment beyond the designated free time, usually outside of the terminal. Detention fees are charged when the shipper or its designee is still using the carrier’s equipment beyond the LFD (last free day), whether the containers are full or empty. Demurrage refers to costs that customers incur for using equipment beyond the designated free time, usually inside the terminal. These fees are charged when full containers are under the control of the shipping line and have not cleared customs or been picked up by the consignees.

Even before the pandemic, these charges could seem unreasonable and caused hardship for many cargo owners. But now, as the pandemic has caused delays beyond everyone’s control, detention and demurrage fees have become more unmanageable for those affected. Although the FMC had previously offered guidance on detention and demurrage, not all ports followed those guidelines, resulting in U.S. shippers and their transportation partners facing millions and millions of dollars in unfair penalties.

Per the revisions outlined in OSRA21, several terminal and carrier practices would be updated to be more reasonable. For example, detention and demurrage charges would be prohibited when containers are unavailable to the shippers, including when terminal access is not available. Carriers would have limited ability to charge detention or demurrage to third parties, such as customs brokers and truckers. In addition, the bill calls for carriers to be required to provide more information regarding container return locations, cargo availability, and prior notice of container arrivals at the terminals. Carriers would also be required to provide detailed documentation of detention and demurrage charges, as well as an adequate process for dispute resolution.

Other stipulations

Beyond those detention and demurrage provisions, the bill directs the FMC to promote U.S. vessels to meet commercial needs instead of only national security. And it calls for reciprocal trade to be part of the FMC mission, rather than only promoting U.S. exports. The bill provides more rules for service contracts and updates best practices for common carriers. The legislation also establishes a National Shipper Advisory Committee and requires that details about U.S. trade imbalances be added to the FMC annual report to Congress.

How U.S. businesses will be affected

American businesses rely on foreign trade, so these revisions to unreasonable shipping practices will support the livelihoods of both U.S. exporters and the U.S. businesses that are dependent on imports. If enacted, this legislation will enable businesses to secure the goods they require.

While businesses and industries are often understandably hesitant to support more regulations, there are times when such regulations are necessary and make good business sense. Undoubtedly, companies combatting the supply chain crisis can benefit from fewer fees and more reasonable shipping practices.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

Trent Cotney is an advocate for the roofing industry, General Counsel of the National Roofing Contractors Association (NRCA) and several other industry associations. For more information, contact the author at 866.303.5868 or go to www.cotneycl.com.