President Biden signs the Ocean Shipping Reform Act of 2022

Types : Alerts

President Biden did not waste much time signing the Ocean Shipping Reform Act of 2022 (“OSRA 2022”) on June 16, 2022, after two days of being presented with the final bill. The final bill is seen as the version closer to what the Senate has passed which is considered a bit less aggressive than the one passed by the House. While some are calling this reform was overdue, the bill comes in a time where supply chain issues remain unresolved, inflation is causing havoc in the market, and ocean carriers (along with other shipping service providers – marine terminal, rail carriers, forwarders and NVOCCs, and other involved vendors) are enjoying record profits. What should be concerning to the shipping industry is that this bi-partisan legislation openly aims to reduce shipping costs through this revised rules (and even put a major dent on the inflation).

Some of the notable provisions from OSRA 2022 are as follow:

• Expansion of the meaning of (carrier’s) unfair or unreasonable practice – of refusing to provide cargo space or to act or use any other unfair or unjust discriminatory methods;
• Expansion of the meaning of (carrier’s) unreasonable refusal to deal or negotiate over vessel space accommodations;
• Introduction of prohibition against (carrier’s) unfair or unjust discriminatory practice particularly against any commodity group or type of shipments or in matter of rates or charges;
• Creation of new standard to carriers’ detention and demurrage invoices;
• Creation of Federal Maritime Commission’s (“FMC”) ability to impose civil penalty and to order refund in case of any violation of the new rule;
• Passage of the burden of proofs to ocean carrier to prove that its detention and demurrage were reasonable, in case of a complaint is filed (by shipper or trucker);
• Prohibition of carrier’s retaliation against the shipper or intermediaries (forwarders and NVOCCs) or motor carriers by refusing or threatening or refuse cargo space; and
• Creation of FMC’s duty to publish carriers’ import/export tonnages as well as loaded/empty containers volumes per vessel.

Much of the above-mentioned provisions will need to be clarified and fine-tuned via the FMC’s rulemaking. In fact, OSRA 2022 requires the FMC come up with these rules in rather ambitious 30 ~ 60 day timeline. And the FMC will need much funding and support to be able to carry out and implement all the roles and responsibilities that have been placed on the FMC’s shoulder.

While it is unclear – if not doubtful – if the ocean freights will indeed be reduced and the congestion will be eased, along with the inflation (as intended), just because this new rule is passed, it does seem clear that the lawmakers believe that that the ocean carriers’ are not entitled to heightened freight charges without sufficient justification. There has been ongoing criticism that carriers are enjoying record profits at the expense of the importers, exporters, and consumers. What is notable is that the new rule fails to duly address the marine terminals operators that also plays a critical role in congestion and the increased cost of shipping, (let alone the inland carriers and terminal that are outside of their jurisdiction who have also contributed to the current situation). And it is notable that the new rule does not address or restrict vessel sharing agreement or alliances.

Two notable advocacy groups from the shipper and the carrier industries also have responded to OSRA 2022 – one from The National Industrial Transportation League (“NITL”), an association that represents interests of a wide range of shippers and supporter of this Bill, and another one from the World Shipping Council (“WSC”), an association that represents most of  the international liner shipping industry.

The Chair of NITL’s Ocean Transportation Committee commented that “[o]ur members, like all US businesses for which the ocean transportation network is fundamental, continue to suffer under a system plagued by deteriorating service levels and unreasonable fees and charges. Reforming the Shipping Act through OSRA 2022 and further empowering the Federal Maritime Commission addresses these concerns and will greatly benefit US exporters and importers.”

A notable excerpt from WSC’s responsive statement states that “[t]here is no dispute that carriers, after two decades of low or no margins and cheap and abundant capacity for shippers, are actually making profits. These profits are invested in building capacity for the future on land and sea. In 2021, carriers ordered a record-breaking 561 vessels worth 43.4 Billion USD, and 208 vessels worth 18.4 Billion USD have been ordered year-to-date in 2022. But as long as America’s ports, railyards and warehouses remain overloaded and unable to cope with the increased trade levels, vessels will remain stuck outside ports to the detriment of importers as well as exporters.”

Like it or not, the carrier industry will have to respond.  And with the clear tone of placing much of the blame on the ocean carriers for the congestion, as well as the heightened costs of the shipping and logistics industry, and slowed US imports and exports, the carriers will remain as the focal point of the industry.  Regulators and legislators will be pressured to make immediate and meaningful changes to the way that everyone connected to the supply chain has been doing businesses for many years if they really hope to solve the congestion (as well as the inflation).