Agriculture interests press Congress to tackle shipping delays

• US ag exporters frustrated by global shipping delays and disruptions, warn situation is getting worse.
• Ag interests want Congress to intervene and provide Federal Maritime Commission with new authorities to expedite trade flow.
• Industry experts and regulators counter that situation is a global one, caution that US won't be able to solve problems on its own.

Global shipping issues are harming US agricultural exports and intervention by Congress is urgently needed to address delays and congestion at US ports, ag interests told the House Transportation Coast Guard and Maritime Transportation Subcommittee.

Prompted by the onset of the coronavirus pandemic early last year, an array of ocean shipping supply chain issues have combined to play havoc with US exports. Driven initially by a shortage of shipping containers, maritime trade has become increasingly unpredictable for US exporters. As US consumers have ramped up spending in the past year, ocean carriers have declined to carry US ag commodity exports, opting instead to return empty containers to Asian markets to fill them with consumer goods to export back to the US.

Delays and Fees

The North American Meat Institute (NAMI) contends shipping issues have cost the ag industry more than $1.5 billion in lost revenue, warning in testimony to the subcommittee that if current ocean practices persist US producers will lose access to vital export markets.

House Transportation Committee Chairman Peter DeFazio (D-Ore.) noted that the average cost of transporting a shipping container has increased nearly 195% over the past year.

"Concurrently, consumer demand for foreign made imports has grown exponentially, and ocean carriers are struggling to keep up," he explained. "This asymmetric demand for imports means that it is more profitable for shippers to carry high-value goods from overseas rather than lower value domestic exports. These conditions are taking a toll on West Coast exporters, including producers of citrus, almonds, walnuts, tomatoes, timber, seed, and hay, just to name a few. And with many agricultural products requiring refrigeration, delays in shipment could spell significant losses."

It is not just container shortages confounding exporters, but delays and additional costs - known as demurrage fees - when shipments are held in ports longer than expected. Ag producers and other exporters contend ocean carriers and marine terminal operators are charging unreasonable detention and demurrage fees and that US regulators should intervene.

"Today there is no predictability, continual changes and confusion," said Oregon farmer Alexis Jacobson, who testified on behalf of the US Forage Export Council, the National Hay Association and the Agriculture Transportation Coalition.

National Pork Producers Council (NPPC) President Jen Sorenson said there are "hundreds of documented instances of ocean carriers declining or canceling export bookings, often at the last minute, when the cargo is loaded in a container, already on train to the ports."

"Ultimately, these additional costs are passed down the supply chain to farmers," she told the subcommittee.

The entire transportation system is feeling the effect, she explained, as containers sit at terminals, incurring detention and demurrage fees.

"The domino effect continues, tying up equipment at the ports, signaling packing plants that they need to adjust harvest capacity, and backing up supply all the way to the farm," Sorenson said. "This same scenario is being replicated throughout all of agriculture."

"It is not just Asian markets seeing these delays," she added. "Hapag-Lloyd, the world's fifth-largest container line, recently halted all bookings coming from Latin America. The situation seems to be worsening as bottlenecks continue."

Sorenson called for expanded port hours and for the FMC to ramp up enforcement of fees imposed by carriers and terminal operators.

"The federal government can help us," Jacobson told the subcommittee. "Please give the FMC teeth to make carriers obey their demurrage and detention rule, make the FMC a resource to help us when dealing with the ocean carriers, and encourage the carriers to carry our export cargo rather than depart with empty containers."

Congress should amend the Shipping Act to bolster FMC's enforcement powers and encourage ocean carriers to maintain carriage of American exports, she said, and press US ports to operate additional hours to work through terminal congestion.

"Every day, our exporters and our truckers struggle through these challenges," Jacobson said. "Our harvest season is quickly approaching. Many exporters are very worried as we begin to harvest our crops soon what challenges the market will begin, especially for those with carryover from the 2020 harvest. We need action soon.'

Republicans on the subcommittee said they were drafting legislation that could help the ag industry.

"We have a problem where the shipping industry is able to discriminate against American exporters," said Rep. John Garamendi (R-Calif.), who touted work on a bill to amend the Shipping Act to require ocean carriers to include a statement of compliance with Shipping Act regulations. The legislation would also bar ocean carriers from declining all cargo bookings for exports, require FMC to disclose findings of false certifications and encourage the commission to ensure export opportunities for US exporters and promote reciprocal trade.

"What's currently happening to American exporters is not fair and not justified," Garamendi said.

Power and global pressures

FMC Commissioner Daniel Maffei said he would work with lawmakers on their proposal, noting that the FMC has limited power to take actions against a carrier or a terminal unless they engage in prohibited anticompetitive behavior, discriminatory practices against US companies or products, unlawful deception, or some other unreasonable practice.

"The law does not allow us to set rates or set a ceiling for what it costs to move an ocean container," he told lawmakers. "It does not allow us to demand that ships service certain ports, carry particular products, or establish a quota for the number of export containers it must accommodate. If a sky-high cost for shipping a container is due simply to the laws of supply and demand, we have no authority to change that."

In response to the current crisis, Maffei said the FMC has launched a formal investigation of issues at ports in Los Angeles, Long Beach, New York and New Jersey. But beyond ensuring compliance with the Shipping Act, there is little the US can do to address the underlying issues, he said.

"The nature of the current crisis and the ocean freight system make it impossible for the FMC - or even the US government as a whole - to alter or counteract much of the current situation," he explained. "Congestion, reliability, and cost issues are impacting ports, businesses, and ocean linked transportation networks not just in the United States but in Europe, Asia, the Indian Sub-Continent, Australia. Point to a spot on the map and you will find a portion of the world's ocean cargo system struggling."

"Problems overseas create problems here and vice versa," Maffei added. "That is of no comfort to a US-based importer or exporter trying to move their cargo, but it does point to the enormity of the underlying problems. It also illustrates that solutions, if there are any to be had, will not be US-derived ones alone."

Consumer demand

The head of the World Shipping Council challenged the criticism that ocean carriers are taking advantage of the situation.

"What's really driving these problems is the massive increase in US imports," said John Butler, president and CEO of the council. "Some people have characterized that as essentially Asian exporters pushing product to the US. But on the shipping side, the majority of import cargo is contracted by US importers - they are US companies bringing these goods to the US for US consumers."

Butler highlighted the interconnected network that makes up the global shipping industry and pushed back at the idea that US ag exports have been unfairly hit by disruptions.

"US government data does not support such claims," he said, pointing to USDA statistics that find US ag exports are at record levels.

The problems with maritime shipping were not caused by "any one part of the supply chain, and no part of the system has been untouched," Butler added. "To the contrary, all parts of the chain are affected, and all parties are working overtime to keep cargo moving. And while there are obviously disruptions, costs, and delays, the fact is that the international ocean and U.S. intermodal transportation system is moving more cargo right now than at any time in history. The system has bent, but it has not broken."

Posted 21 October 2021 by Jonathan Pegg, US Correspondent, IHS Markit

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.