WSC Statement on the Framework for the to-be-introduced “Ocean Shipping Reform Act of 2021”

A bill is expected to be introduced in the U.S. House of Representatives today that seeks to amend the U.S. Shipping Act as a means of attempting to address supply chain congestion resulting from the confluence of record U.S. consumer and business import demand, coupled with disruptions resulting from the COVID-19 pandemic.  While text of today’s legislation is not yet available, a “Framework” outlining the legislation has been shared with members of the media.  The legislation is based upon a flawed “Discussion Draft” that was a wholesale incorporation of unworkable, unnecessary and duplicative proposals—some of which contain serious due process of law concerns—that was suggested by certain shippers and agricultural exporter interests.  

The Framework carries most of the Discussion Draft’s flaws forward into today’s legislation, and thus warrants an initial response.  The most significant of these flaws are:

·     First, a suggestion that ocean carriers are solely responsible for the current supply chain congestion;

·    Second, today’s legislation is infused with fundamental unfairness; and,

·    Third, the bill ignores the fact that all supply chain participants are working collaboratively to find solutions to today’s problems.

The suggestion that ocean carriers are solely responsible for the current supply chain congestion is simply untrue

The supply chain congestion is widespread.  Every link in the supply chain—from marine terminals, to truckers, to rail cars and warehouses—is under tremendous strain.  It is unrealistic, inequitable, and unproductive to try to address these supply chain-wide challenges by regulating only one class of supply chain participants—ocean carriers.  It is doubtful that regulating all supply chain actors—ports, marine terminals, labor, truckers, railroads, warehouse operators—would have any discernible positive impact on the current supply chain challenges.  What is crystal clear is that regulating only ocean carriers—or any other single class of supply chain provider—is doomed to fail.  This approach will not improve supply chain performance, and it risks undermining the regulatory and market structure that has served the nation’s international trade well for many decades.  It is possible to make the situation worse, and this bill would do just that.

Today’s legislation is infused with fundamental unfairness. 

The bill would require ocean carriers, under the threat of penalty, to guarantee the performance of other parties over whom they have no control—for instance by putting the burden on ocean carriers to ensure chassis, trucks and rail cars are available from third party providers. 

It is also infused with due process violations. 

For instance, once again under threat of penalty, it requires ocean carriers to make certifications of fact on why customers do not return equipment on time, in situations in which the facts are not, and in most cases cannot be known to the carriers.  Such provisions will not result in supply chain improvements, precisely because they charge parties with doing the impossible.

Supply chain participants including ports, carriers, labor, marine terminal operators, rail, truckers, chassis providers and shippers are collaboratively working to find operational solutions to increase efficiency and cargo velocity. 

These operational solutions have born some success.  Notwithstanding the ongoing congestion, U.S. import cargo is moving at historic levels, and U.S. government statistics indicate that agricultural exports are moving at or near pre-pandemic, and in some cases record levels.[1] 

Today’s legislation ignores these facts, and instead seeks to have the government step in and tilt the market in favor of shippers in commercial disputes.  If the government is going to step in, it must be to assure fairness for all parties, and that means that the law must spell out responsibilities and consequences for nonperformance by all parties.  The legislation does not take that even-handed approach.  Just because the market has temporarily turned under stress from unprecedented U.S. consumer and business import demand does not warrant legislatively creating a commercial playing field that is unlevel and which will persist for many years if enacted.

Finally, Congress should pause and reflect on the impacts on trade partners whom this legislation, if enacted, would incentivize to enact similar protective legislative and regulatory frameworks in their countries.  Starting a protectionist race to the bottom in the regulation of international ocean transportation is not a winning strategy for the U.S. economy.  For U.S. consumers and businesses, today’s bill runs a serious risk of making transportation contracts less flexible, slowing cargo velocity, and making all imported and exported goods more expensive.  This is because risks cannot be efficiently apportioned by parties if there are too many restraints on freedom of contract, and lack of efficiency translates into additional cost.  WSC instead urges Congress to allow commercial solutions and market forces to mitigate and balance the current supply chain stress, with the Federal Maritime Commission using its ample existing authority as a backstop to investigate and enforce against any unreasonable practices—a process that the FMC has already initiated.                                

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[1] U.S. Department of Agriculture Outlook for Agricultural Trade: May 2021, “U.S. Agricultural Exports in Fiscal Year 2021 Forecast Up $7.0 Billion to Record $164.0 Billion; Imports at $141.8 Billion”, available at www.fas.usda.gov/data/quarterly- agricultural-export-forecast.