Port Authority of NY and NJ have announced a new container fee payable by ocean carriers. The fee will be levied when the outbound containers don’t exceed inbound containers by 110% in the same period. The port authority also plans to find additional space to store containers near the port, and already has identified 12 acres on the port.
It seems that these two measures are what works to reduce congestion. The same two kinds of measures were invoked at the Port of LA and Port of Long Beach to get ocean lines to start moving empties out. In California, though, the container fees were just threatened; they never were begun. that alone was enough for ocean carriers to start moving containers out.
Perhaps we have found a credible set of options to get container carriers to move those boxes.
I am glad to see that the FMC has been looking at the container manufacturing situation. Their findings are clear– the Chinese virtual monopoly is harmful to most shippers in the aggregate. Prices have been artificially kept high.
What to do about it is another question.
Should the US try to create its own container manufacturing industry through subsidies? Chinese subsidies to the three state-owned container manufacturers are large, because the firms create lots of jobs. That’s an important thing for the Chinese government, and they are unlikely to back down on it.
I think one question to address is whether Chinese container manufacture is a more sophisticated way of ‘dumping’ steel. There is a minimum of added work in making a container out of a specialized steel product. One could imagine some sort of sanction for selling steel at below-market prices. Perhaps this would create some sort of tariff. I think a quota would be out of the question since there are so few sources of new containers.
Carl Bentzel, an FMC commissioner who wrote the report, doesn’t go into the question of recycling empty containers back to where they are most needed. There’s an excess of empty containers in the US because of our huge imports. These constitute a form of ‘pollution’ in the US.
To the extent that ocean carriers do not transport the containers back to places that are net exporters, they are contributing to degradation of the environment in the US. We can see that effect near several ports, where State governments are brokering deals to find extra space to store the empties. We already saw huge congestion, first in West Coast ports, due to empties being left in the terminal yards, and preventing finding space for newly imported containers full of shipments. Ocean carriers, who own most of the containers, were skipping ports and not loading the empties. Loading empties takes crane moves and other activity in the terminal, and not taking them meant more moves could be used for paying cargo.
My calculations show that it costs very little more to buy a new Chinese container for a shipment from say Shanghai to Los Angeles than it does for an ocean carrier to bring an empty used container back to China. And a new container may be more desirable than a used one, because it does not require the same level of inspection and cleaning that the used empty one does.
I think another arm of the solution is to get ocean carriers to ‘recycle’ the empty containers to exporting locations. Perhaps the FMC could require them to take a certain number each month, based on the number of TEUs imported in a lagged period. Such a rule would guarantee that US ports would not need to spend millions housing empties that ocean carriers are ignoring.
Another weapon is the detention charges threatened by Long Beach and Los Angeles ports on empty containers. Though the huge charges ($100 for the first day after a free period, followed by $200 for the second day, $300 for the third, and so on) were never applied to any container, the threat was enough to get empty containers moved out. From that point on the congestion at LA and Long Beach eased. The threat was sufficient. Soon, East Coast ports will feel the burden of the empty container buildup. Rather than finding space at an additional cost, a similar detention and demurrage charge should be considered.
The problem will be worse at the East Coast ports. One reason is that there are fewer calls there, thus fewer opportunities to load empties. If the ocean carriers blank sailings, it may be hard to get rid of the empties.
Some empty containers are needed in the US for agricultural exports. US ag products are in worldwide demand, but it is inconvenient to load them into containers. I think it is a good idea to commission special loading yards for ag products and route empty containers there. These need to be convenient drop-off points for ag products coming from inland, by truck or rail, and offer container loading services. Using empty containers for ag products is highly desirable. Several ports, including Oakland, have made arrangements to do this, and I hope ways can be found to take advantage of the facilities. Similar ag loading stations could be created nearer to major West Coast ag centers such as Washington state and Los Angeles. That would help a bit with the empty container dilemma.
However, it is a lot more expensive to ship ag products in containers than in bulk ships. Only high-quality products that cannot be mixed with lower quality goods can be handled that way, putting a ceiling on the number of containers required. Currently around 10% of soybean exports move by container instead of bulk. If that could be increased 5% by making it easier to ship in containers I would be surprised. Most soybeans for animal feed, the majority of US export production, can be moved in bulk ships without fear of mixing, and that is probably a lot cheaper, when the customer requires large quantities.
If unused empty containers can be viewed as a form of pollution, which is exacting a cost on communities and ports, perhaps there would be more effort to get ocean carriers to clean it up.
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
Supply Chain and Logistics 