Demurrage and Detention are on everyone’s minds in ocean logistics today. The FMC proposes to regularize the information and timing of billing practices.
This could be very helpful in reducing the chaos of D&D billing today. It’s impossible to tell exactly which incidents happened when, and even who should pay. Those kinds of questions must have evidence to settle them, and it’s not being provided in bills. That results in long conversations and debates over the bills. It’s a huge time-waster, and fertile ground for complaints, refusals to pay, and legal action. These add cost while reducing consumer value.
In any principal-agent situation, when the cost of monitoring rises too much, the overall deal can’t be made. D&D charges are part of the cost of monitoring ocean trade. And in principal-agent models, monitoring costs often take the form of data collection and verification.
For years, ocean container traffic flowed fairly smoothly, and the events that triggered D&D charges did not happen very often. In those days, perhaps we could get away with settling claims by email and phone discussion. But with massive congestion worldwide, and only weak motivation to pick up empty containers, those days have changed.
We need accurate information for the parties to be able to resolve the D&D charges, and get the right bills paid by the right party. The FMC has it about right to take this first step, to regularize the bills.
Once that happens, if the D&D problem continues to be big, firms will recognize the value of investing in correct data gathering, and sharing it, and establishing standards for handling it.
John Gallagher, Washington Correspondent Monday, February 7, 2022
The headline makes you think that things are worse. However, in one way they’re better. Apparently ocean carriers are making a concerted effort to move empty containers out of LA and Long Beach Ports. And that will make a big difference in yard space at terminals.
Figures show that from late October and January 27, there have been 27 sweeper voyages from LA, carrying 68,000 empty containers to Asia, and 29 from Long Beach, carrying 76,000 empties. It sounds like a lot.
Ocean carriers certainly want to avoid the proposed fees at these two ports for letting empties sit in a yard. At times recently around 45% of the containers in the yards at LA and Long Beach have been empties.
However, when you consider that there are more than 600,000 containers per month coming into LA and Long Beach, the number removed does not seem that high— less than 23,000 per month on average from LA and 24,000 per month from Long Beach. It seems that more work is needed. And more jawboning.
And it’s important to also encourage exports using those containers. We don’t want empties being scarfed up when they could be used for exported products, say agricultural products, which are plentiful in California. The effort to create a port-based empty container filling station for ag products on the West Coast could help, but most ag products sail bulk to the Far East.
But I think more pressure on ocean carriers and others is still necessary.
Here’s one view from Alphaliner staff and others. Thre is some good data on charters and shipping supply.
But I don’t think the problems we are having in the supply chains now are due to shortages or issues in the maritime sector itself, even though shipping freight rates are sky-high. As the authors say, it’s landside.
While there are many coordination issues on the landside, in both China and the US, a serious bottleneck has been availability of chassis and space to put containers on. The US port terminals were not built for the kind of traffic we have been seeing; their yard space for both imported and for empty containers, is not adequate. Making space available near theport for storing empties isuseful, but still requires yet another two moves and chassis to be returned to the proper place in the supply chain.
The entire process can be seen as dumping containers onto the busy ports. Ports with lots of exports can reuse them easily; those with a big import trade imbalance cannot, and they build up, taking space. In the US, thre aren’t many ports with export excesses; most US exports are bulk goods like oil, grain,s and coal, which do not use containers. Some grain can be exported in containers, but to date int heUS, single-digit prercentages of export grains such as soybeans or corn go in containers. Most of the container soybean export goes from Gulf Coast ports, not West Coast ports, because the containers can be barged there rather than needing rail.
The dumping of containers is a problem for the ocean carriers, though they may not realize it, since they are principal owners of many of these containers, and even if they aren’t owners, they rely on containers as much as the shipper to carry the cargo. It’s unrealistic for the ocean carriers to think countries who are major customers for imports are going to sit around and let them continue to dump containers without a recycling plan.
It’s interesting that the space problems of ports and terminals in the US, especially the West Coast ports at LA and Long Beach, are not seen as sustainability or ESG issues.
Many US companies doing package shipping have gone to great lengths to adapt their packaging to mnake it more sustainable. That has been going on for a few years now, and we can see the results when we grab our Amazon package.
But ocean shipping is still conducted with packages essentially created in the 1950s with few changes. It’s just a matter of time before success leads to greater ‘pollution’ by excess containers at import-heavy countries’ ports. When the space at a terminal runs out, something has to be done with the trash.
One option is to place penalties on those wh do not move their containers away from the ports and terminals. LA and Long Beach are trying that, and other ports are following suit, with monetary demurrage and dentention penalties.
Another option is to destroy the excess containers. They can be scrapped; there is some value in the steel; and owners could be made liable for scrapping fees to cover the cost of the work. A problem in the US is that, unlike Bangladesh and ship scrapping, there is no established infrastructure to do this readily. To a point scrap yards would buy the containers, but too many would overwhelm their system. They do not have automated techniques for cutting up the containers, and uisng human blowtorch carriers who work by the pound, as in Bangladesh, is neither legal nor acceptable in developed countries.
Currently most container manufacture happens in China. There are three main state-owned firms there who manufacture the majority of new containers. They supply employment for lots of people in China. And China is one of the cheapest steel manufacturers in the world. So prices for new containers currently hover around $2000 USD for a twenty foot unit and maybe $3000 for a forty-foot unit. These prices are way up from even two years ago, and Chinese manufacturers would like them to stay there. The demand will support that, especially if empty containers are not substituted by customers.
And if a new container already in China can be purchased for that price, it’s just about cheaper to use one than to go to the work of repatriating to China a used container from the West Coast US, let alone from the interior US or the East Coast. Why bother?
So container users see no need to engage in the complex process of obtaining chassis and drayage to get to the port, loading at an already congested port, engaging in a long voyage with empty containers who do not pay any freight, possibly incurring damage to the containers, and offloading them somewhere in China for reuse.
The empty container supply chain is a form of reverse logistics. It needs more attention. It’s also part of a picture for green supply chains. How does the shipping world plan to cope?
Greg Miller, Senior Editor Wednesday, February 2, 2022
Supply Chain and Logistics 