Updated on October 04, 2022
Ocean freight remains the backbone of the modern supply chain network. With most goods using ocean lines for at least one leg of the journey, concerns over long loading/unloading times, port backlogs, rising costs, and other freight-related issues have been at the forefront of economic debates. Managing many shipping routes and trade lanes is difficult at the best of times and overwhelming at best with everything going on in the world today.
According to the Federal Maritime Commission, time is of the essence when it comes down to implementing the newest ocean shipping reform act (OSRA) rulings. “The Commission reports it is moving expeditiously to fulfill the new law's requirements. The most immediate deadline the Commission must meet is initiating and completing a rulemaking on unreasonable refusal to deal or negotiate on vessel space accommodations... The Commission is on track to have a Final Rule by the statutorily mandated deadline of December 2022.
Understanding how the ocean shipping reform act aims to improve ocean freight transportation and conditions across the board remains vital for shippers and forwarders working in these uncertain times. The following ocean shipping reform act of 2022 summary aims to help bring all the pieces together to improve the movement of international freight and cargo.
The supply chain, domestic and international, has experienced unprecedented levels of upheaval, disruption, and pressure. Despite recovery efforts, the market remains unstable, and fluctuating prices, expenses, and profit margins are taking their toll on shippers, manufacturers, farmers, suppliers, and consumers alike. The Ocean Shipping Reform Act aims to address these sorts of issues and will strive to improve the transparency of the movement of U.S. agricultural and other exports. Experts will achieve this by requiring international ocean carriers to track, record, and report the number of empty containers transported regularly. Stop retaliation by global shipping companies against international shipping importers and exporters.
In a report from the US Senate on June 16, 2022, Senator Cantwell noted, "Consumers are tired of paying higher prices for everyday goods, and our farmers are tired of paying skyrocketing shipping costs. With President Biden’s signature, the Ocean Shipping Reform Act will level the playing field between big international shipping lines and agricultural exporters so all our products – from hay to apples – will no longer be stranded on the docks.” The need for improved planning and insights into supply chain management and import/export logistics is clear. The US government is trying to manage and improve conditions for all involved parties.
Port congestion reached a tipping point during the COVID-19 pandemic, leaving exporters, including American farmers, struggling to get products to consumers through traditional freight marketplaces. Between rising shipping costs, long delays, and issues with food spoilage and cargo loss, the perfect storm for supply chain disruption arose. A 40-foot container’s shipping cost rose from an average of $1,300 before the pandemic up to nearly $11,000 by the end of 2021.
Shipping costs continued to rise, cutting into profits and making it harder for consumers to purchase needed goods. On average, in 2021-2022, shipping costs remain 41% higher according to Freightos reports compared to last year. The OSRA 2022 initiative will hopefully help reign in these rises expenses, control fluctuating markets, and provide a more even playing field.
Mainly, the OSRA 2022 act’s objective is to stimulate container exports from the country. The act aims to enhance initiatives and provide protection for US exporters to help stimulate the economy and keep the supply chain moving. This will be achieved through new tools of control and regulations over the shipping lines operating in the ports utilized by USA importers.
There are also measures focused on controlling and independently assessing invoices for container demurrage and detention charges, among other logistics and management services. The government expects to reduce inflation in the country and decongest container terminals by cooperating with the Federal Maritime Commission and implementing the OSRA 2022 act.
Signing the ocean shipping reform act 2022 will provide the trade administration with the additional authority it needs to address unfair business practices that have existed for decades. These discrepancies and practices dramatically came to a head during the worst phase of COVID closures and lockdowns. The OSRA 2022 act comes at a critical time when inflation has reached a 40-year high and focuses on short and long-term goals to help relieve the financial burden from consumers, farmers, manufacturers, and shippers.
In a recent CNBC Report, Steve Lamar, CEO of the American Apparel and Footwear Association, stated, “the bill will directly address price gouging in the ocean shipping industry, which played a large role in the empty shelves, late deliveries, and increased prices American consumers have faced during the past year and will protect American companies from predatory practices that threaten their businesses.” The innovations of the 2022 ocean shipping reform act include the following measures:
Enables Federal Maritime Commission the option to launch an investigation of carriers’ unfair and unreasonable practices, check for unjust or discriminatory methods, and decline to do business with those working deliberately against US shippers.
Allows investigation of unjustified refusal by US shippers or offers the option to negotiate for allocating available cargo spaces on ocean freight vessels.
Introduction of a ban on unfair or discriminatory practices, particularly about any commodity group or type of shipment, where excessive and unnecessary fees are added simply due to the type, weight, size, or classification of the cargo in question.
OSRA 2022 enables the FMC to impose penalties on those ocean carriers which violate the introduced rules while requiring ocean carriers to provide reasonable grounding on demurrage and detention invoices.
OSRA 2022 prohibits a carrier’s retaliation against a shipping company, forwarder, or service provider and ensures they do not refute service or capacity purely in retaliation.
The act enables administrations and appropriate authorities to query and publish import/export volumes of shipping lines in TEU and the volumes of full/empty containers on ships in TEU.
Regulations are also in place within the provisions to provide regular checks and balances to look for signs of nefarious practices or actions that undermine the industry.
Statistics show that as much as 80 percent of goods entering and leaving the country are transported by ships. The volume of seaborne trade has increased steadily every year since 1990. In the years leading up to 2020, the volume of cargo transported by ships more than doubled, hitting an estimated 10.7 billion tons. Likewise, the global merchant fleet's increasing capacity has added to the supply chain's strain. Between 2013 and 2020, the capacity of the worldwide merchant fleet grew by about 37 percent, reaching almost two million deadweight tons in 2020. And that upward trend continues steadily in 2022, even as recovery efforts remain strong and some semblance of a new normal becomes established. The ocean shipping reform act 2022 offers government-backed support when it is needed the most.
Despite the efforts to improve import and export processes and address concerns over prices and shipping expenses, much work still needs to be done. It is unknown whether congestion in US ports will decrease just because the ocean shipping reform act 2022 was passed. Joe Biden and other US political leaders see the OSRA 2022 as an initiative to help significantly reduce inflation, improve supply chain logistics, and overcome disruptions.
The US logistics system must adapt to new market conditions and invest in developing container terminals, ports, and storage infrastructure to significantly affect congestion on water and land. A June 2022 report from Gartner noted that “the impact OSRA will have on ocean shipping in the U.S. will rest squarely on the FMC, and how they enforce the new rules. For example, fining one carrier $2 million for unfair detention charges when their quarterly EBIT exceeds $4 billion is hardly going to dent ocean carrier behavior.” There is still much to learn, and only time will tell how effective the ocean shipping reform act of 2022 will be in the years to come. But forward-thinking and robust initiatives are paving the way to a better future for shippers, managers, suppliers, and consumers impacted by container shipping trends.
These effects hopefully will be coming soon. However, there is no quick fix to an issue that has been decades in the making. Industry experts believe this act can only help to improve conditions by stimulating container shipments from the United States and addressing critical concerns within the supply chain network. The hope is that these steps will help normalize container terminals' work in exports, while issues such as inflation and shipping costs remain an ongoing concern that must be addressed.
To make the most of the ocean shipping reform act of 2022 and to prepare for the changes that will inevitably come as a result, contact FreightMango today to get connected with industry leaders who understand the value of ocean freight logistics and management.