Importers and exporters alike are finding their operations both hobbled by and incurring additional costs for demurrage and detention at the ports of Los Angeles and Long Beach. The increased import volumes through LA/LGB as well as through New York and New Jersey have driven the Federal Maritime Commission to take action.
The start of the pandemic in China set off a chain reaction through supply chains that has reverberated the length of 2020 and will stretch into early 2021. Beginning with extended factory closures in China, carriers added more blanked sailings, or skipped voyages, through February and March. As COVID raged in Europe and then in North America, the grounding of passenger flights took away the majority of the air cargo space in airplane bellies on the transatlantic and other key trade lanes.
As unemployment spiked, freight rates plummeted. Then came the rush of PPE by air, driving up air freight rates. The US provided economic support and unemployment to get people through the stay-at-home periods and the shopping began. By June, vessels were filling with inventory goods needing replenishing, mail and other e-Commerce parcels that had no air freight capacity, and the usual flood of eastbound, seasonal cargo.
The damage, however, of the blanked sailings worldwide meant that containers were globally out of position. Empties were not getting back to Asia from US and European ports to be loaded with consumer goods and exports.
Where we stand today is that Los Angeles and Long Beach are seeing record volumes. Container manufacturers in Asia are booked through February of next year. Empty containers are worth their weight in gold.
Containers are arriving at the port faster than they can be picked up by local trucking companies or leave by intermodal rail for inland destinations. The longer containers dwell on the piers and at the terminals, the more shippers want to terminate the inland moves and retrieve them at the port, transload them and move them inland by road regardless of the additional cost.
Those containers remaining past their free time will incur demurrage charges – paid to the terminal for the space on the dock – and detention charges – paid to the steamship line for keeping the container past its allotted free time. Think of it as a fine for keeping out a library book, except an order of magnitude more expensive.
Shippers are seeking demurrage & detention relief given the extenuating circumstances, the increasingly rosy financial pictures for lines owing to the doubling or more of rates since their nadir in March, and the fees they are collecting for these stationary containers.
On Monday, November 16th, a coalition of local interests in Southern California issued a call for the FMC to get involved. On Friday the 20th, the Commission responded by publishing a notice of their intent to weigh in on the matter.
For shippers writing checks for increasingly larger dollar figures we are passing through for them, we encourage you to let the agency hear your voice as an affected party. Coppersmith will continue working through the NCBFAA, PCC, and LACBFFA – national, regional, and local associations, respectively – to seek a solution as well.
At a time when the pandemic appears to be worsening across the US and states are having to take drastic measures to avoid running out of hospital beds, businesses and consumers are watching expenses carefully. We are hopeful that with the FMC wading in, solutions that both deliver much-needed fluidity of cargo and financial relief can be found.