Regulatory intelligence for US exporters

Ag Sector Plagued by Penalties, Shipping Uncertainty Due to Coronavirus, Industry Rep Says

Agricultural exporters and shippers are losing “hundreds of millions of dollars” due to shipping uncertainty and cargo detention penalties caused by the response to the coronavirus pandemic, said Peter Friedmann, executive director of the Agriculture Transportation Coalition. Friedmann was critical of the Federal Maritime Commission, which has yet to finalize a proposed rule issued last year that would provide guidance about how the FMC assesses the fairness of demurrage and detention practices. The rule’s public comment period ended in October.

“There's nothing going on over there at the FMC other than dragging their feet,” Friedmann said in an interview. “If the Federal Maritime Commission wants to be a positive force during this coronavirus crisis, it has something right on its table that is ready to do.”

Friedmann and the AgTC, which was one of more than 60 trade groups that signed a March 16 letter urging the FMC to finalize the rule (see 2003170058), said detention penalties have been one of the major pain points impacting agricultural exporters and shippers as the coronavirus has spread. In the letter, the groups said they are specifically concerned about detention penalties charged “when equipment cannot be returned or containers cannot be picked up during the free period” -- the period when exemptions apply for detention and demurrage penalties.

Despite asking ocean carriers to extend free time (see 2002030034), the carriers continue to impose the penalties, Friedmann said, adding that “a couple” of AgTC members have been penalized “$30 to $50 million.” Penalties are particularly an issue in Los Angeles, where there is a “tremendous lack of capacity to handle the huge flow of cargo,” he said. “Chinese ocean carriers are desperate to get piles of empty containers that are stacked up in Southern California back to Asia, with cargo in them or not. That's created congestion.”

The rule delay “really leaves many of us to wonder why we have an FMC anymore if they can’t act in their one area of jurisdiction,” Friedmann said. He said the group has “communicated to Capitol Hill” about the delay. “We’re very, very puzzled why the [FMC] chairman would be dragging his feet,” Friedmann said. The FMC did not comment.

In addition to concerns about cargo detention penalties, the AgTC has been closely monitoring the Port of Houston Authority, which announced earlier this week it was closing two terminals after a worker tested positive for COVID-19. Although operations temporarily ceased at Bayport and Barbours Cut Shipping Terminals, the port authority said it planned to reopen late on March 19 for both container terminals, according to a news release. The worker who tested positive for COVID-19 was placed in quarantine and had “limited” exposure to other workers, the port said. “Following CDC guidelines, all those that he has been in direct contact with during the 2 days worked at Port Houston facilities are in self-quarantine,” the port authority said. “Additionally, those who maintained social distancing from the worker, and have low risk, have been advised.” CBP was working closely with the port authority to “ensure orderly business resumption once a decision is made to reopen the terminals,” CBP said in a CSMS message.

Friedmann called the port’s original announcement “devastating,” adding that he is unsure what ripple effect it could have on ports throughout the country. “If at every port, one of the thousands of dock workers tests positive, and that means the port is shut down, our whole country is going to be cut off,” Friedmann said. “No exports. No imports. Period.” The AgTC is reaching out to port directors country-wide to determine their policies for dealing with an infected worker. “That's topic No. 1 on everybody's mind right now,” Friedmann said. “That brings it from policy to actual direct impact.”

As penalties continue to be levied and as the future of U.S. ports remains uncertain, China is increasing scrutiny of incoming cargo vessels as it tries to control the coronavirus outbreak, leading to unloading delays and backlogs of hundreds of thousands of containers, according to a March 19 Bloomberg report. One Chinese port in Fuzhou is quarantining all incoming ships from certain countries, including the U.S., for two weeks, the report said. The delays are leading to the lowest levels ever recorded of cargo container availability at Los Angeles and several European ports, including Hamburg, Rotterdam and Antwerp.

While Friedmann said he has not yet heard from members about China’s increased scrutiny of U.S. vessels, he said the measure falls in line with AgTC’s experience doing business in the country, adding that he has doubts about whether China is delaying incoming vessels for virus-related reasons. “We’re a little bit skeptical about whether China is primarily concerned about health and safety,” he said, “or if this is some retaliation, some manipulation in order to press the United States on other agenda items that the Chinese might have.”