Feature Article: Update on Container Shipping: Current Issues, Shipper Perspectives, and Looming Challenges
View SourceContainerized agricultural shippers continue to face many transportation challenges, including unpredictable vessel schedules, cargo theft, continued vessel diversions from the Red Sea region, and congestion at overseas ports. This article summarizes recent events leading to ocean container shipping’s current issues; shipper perspectives on these issues; and the Federal Maritime Commission’s (FMC) new final rule on detention and demurrage charges (effective since May 28). The piece also discusses potential new challenges that may arise over the next several months.
The shipper perspectives portrayed are largely informed by the concerns and questions of containerized agricultural exporters presented at the Agriculture Transportation Coalition’s (AgTC) 36th Annual Meeting held May 20-24 in Tacoma, WA.
Global Fleet’s “Overcapacity” Vanishes
In late November 2023, Loadstar.com reported that not only did shipping lines have too many ships, they also had more containers than were needed to fill the vessels that were deployed at the time. Experts predicted overcapacity would continue to be an issue in 2024 and that new vessel deliveries would lead to lower freight rates, blank sailings and idled vessels.1 However, in late 2023, the problem of overcapacity quickly evaporated.
Conflict in Red Sea Region.
In November 2023, Houthi-militant attacks throughout the Red Sea region forced carriers to reroute their voyages around the southern tip of Africa to avoid the new conflict region (Grain Transportation Report, January 18, 2024). Since then, as the attacks have continued, so too have the vessel diversions, which increase voyage time, as well as raise operational costs for carriers and shippers. Because of these major hurdles to shipping, ocean carriers’ overcapacity was quickly absorbed, as carriers added vessels to the fleet to manage the longer transits and to keep service levels steady. Responding to these rapid changes, ocean freight rates soared in December 2023 and peaked in January 2024. Rates softened in the first quarter as carriers adjusted to the new routes, and containerized imports to the United States continued to rise as they had since fall 2023.
Spiking Import Volumes.
The first quarter is typically the slowest period for containerized imports. Yet, in January, February, and March 2024, containerized imports to the United States rose substantially from the corresponding months of the previous year (up 10 percent, 21 percent, and 23 percent, respectively). Between January and April, containerized imports through the Ports of Los Angeles and Long Beach (the busiest U.S. port complex) rose 28 percent over the same period last year and 15 percent over the period in 2019. As these strong imports continued in May, ocean freight rates began to increase.
Over the last month, anticipating more potential disruptions on the horizon, importers have focused on replenishing retail inventories and preparing peak season stocks, which has further raised demand—and freight rates. From April to May, rates rose 41 percent for routes from Shanghai to Los Angeles. Since the Red Sea disruptions began, shipments traveling between Asia and Europe and between Asia and the Middle East have been the most affected. However, according to Mediterranean Shipping Company (the largest ocean container line in the world), rising imports from Asia, combined with tight vessel Feature Article GTR 06-13-24 Page 5 capacity, have produced congestion at Asian and Mediterranean ports—conditions that have impacted service levels to U.S. shippers as well.
AgTC Shippers Weigh In on Current Challenges
At the recent AgTC meeting, four agricultural exporters and one importer summarized the top issues they face in moving their products. Below summarizes the challenges they highlighted.
Inaccurate and Shifting Container Receiving Windows.
Shippers continue to report that carriers give them inaccurate container receiving windows—i.e., dates and times in which a container can be picked up and delivered to a terminal or container yard— or else, that carriers change these windows with little to no notice. Not only do the receiving windows shift, but also, exporters are often given conflicting dates and times depending on which transportation
providers they talk to—i.e., carrier, terminal, or trucker.
For shippers, these last-minute changes raise costs in the form of staff time, container storage time, increased chassis costs, detention and demurrage fees, and interruption to the warehouse’s schedules and processes. Ultimately, the shifting receiving windows result in delayed shipments to the final customers, marking U.S. products as unreliable.
Unreliable Vessel Schedules.
Shifting receiving windows are a direct result of unreliable vessel schedules. (Recently, the on-time rate for schedules has hovered around 55 percent, whereas carriers generally aim for at least 80 percent.) At the AgTC meeting, a couple of agricultural exporters reported that shifting receiving windows affect 30 percent of their companies’ bookings. The previously noted rising congestion at Asian and Mediterranean ports complicates carriers’ ability to maintain schedules and, therefore, receiving windows.
Blank Sailings.
Carriers often employ blank sailings during times of overcapacity to balance supply with demand and during times of significant congestion to make up time for vessels caught at a port. Exporters are often given little to no notice when a carrier implements a blank sailing. This loss of service increases costs significantly. One hay exporter reported blank sailings can cost their company up to $5,000 per week.
Cargo Theft.
Container break-ins during transit—particularly when using rail—are another source of rising costs for shippers. In some cases, terminal operators simply replace missing container seals without notifying exporters of the breach. As a result, shippers report some containers have arrived overseas with either spoiled, tampered with, or missing cargo. In the case of refrigerated exports, an opened container door can compromise product integrity even if the cargo is left intact. To deter theft and tampering, shippers have employed multiple tactics, including adding extra seals and devices to remotely monitor a container’s temperature. Some Midwest exporters have chosen to absorb the additional cost of trucking containers to the West Coast in order to avoid the risk of shipments being stolen as they travel by rail to West Coast ports.
FMC Issues Detention and Demurrage Final Rule
In accord with the Ocean Shipping Reform Act of 2022, the Federal Maritime Commission (FMC) has issued a final rule on its detention and demurrage (D&D) requirements, which took effect on May 28. The final rule requires common carriers and marine terminal operators to include specific minimum information on D&D invoices and outlines certain D&D billing practices, such as determining which parties may be appropriately billed for D&D charges. The rule also sets time frames for issuing invoices, disputing charges with the billing party, and resolving such disputes.
The rule has prompted many questions from shippers about how carriers should implement the new requirements. For example, the final rule requires a new billing process for carriers, terminals, and shippers, but it is unclear whether the new process will resolve a longstanding issue of improper D&D charges: it remains to be seen how shippers will verify the information the ocean carrier provides on the D&D invoice.
Until now, many shippers have relied on trucking companies to provide evidence to dispute a D&D invoice, because only truckers can verify such critical information as whether Feature Article GTR 06-13-24 Page 6 the terminal gates were open or whether any gate appointments were available. Shippers reported that, in some cases, the terminals prevent truckers from sharing this information, thereby disabling shippers from verifying the correctness of the invoice or disputing it.
Additionally, some ocean carriers have divided detention and demurrage charges, such that carriers charge detention fees and terminals charge separate demurrage fees. (Historically, before the FMC-mandated reforms, shippers had been charged one inclusive D&D fee by ocean carriers.) To accommodate these additional transactions, terminals will have to build a new billing mechanism between themselves and shippers.
Clouds on the Horizon
As noted earlier, the longer route diversions caused by the Red Sea conflict and the recent rise in import volumes have elevated vessel demand, which in turn, has tightened vessel capacity and container availability. The container shipping industry—already strained by vessel and container supply issues—is bracing for more possible disruptions. Experts are concerned as well, about possible industrydestabilizing events.
USMX/ILA Labor Contract.
One issue concerns the impending expiration (on September 30) of the labor contract between the U.S. Maritime Alliance (USMX) and the International Longshoreman's Association (ILA), which represents dockworkers at East and Gulf Coast ports. Informed observers are hopeful that the parties will be able to negotiate a new master contract by the expiration date, but importers are reacting cautiously.
Adding to reasons for concern, the ILA President has commented to the media that ILA members will walk off the job if a new contract is not signed by September 30. September is typically the peak of container shipping season, so shippers are importing peak-season cargo early, to avoid possible disruptions.
U.S. Tariffs on Chinese Imports.
Analysts also reported that the recently announced U.S. tariffs on select Chinese imports have many importers working to bring in as much product as possible before tariffs are fully implemented. Exporters, too—concerned about possible retaliatory tariffs—are pushing to move as much cargo as possible.2 Other concerns include a possible Canadian rail strike, an above average forecast for this year’s hurricane season, shifting carrier alliance structures, and potential geopolitical changes.
“Battening Down the Hatches.”
In his AgTC presentation, the Vespucci Maritime CEO warned that current market conditions are volatile as global ocean container vessel capacity is already strained and many possible disruptions loom. He encouraged exporters to employ lessons learned from the COVID-19 pandemic to be prepared in case of another major market disruption.
