Commissioner Khouri’s Prepared Remarks to IANA Intermoda Expo and NCBFAA

November 18, 2015

As standard preamble, my comments today reflect my personal observations, views and opinions. I do not speak on behalf of the Federal Maritime Commission or the U.S. federal government administration.

To begin to set the table for discussion, the four public forums that the Commission conducted around the country last year revealed that port congestion has many root causes. Some come into play at various times and some may be seen as more consistent and underlying causes. Demurrage and detention charges that then result from one or more of these congestion root causes – on the import side or the export side – can have quite different possible remedies. So, to begin with causes in no particular order:

Longshore labor slowdowns and disruptions on the west coast in the fall of 2014 and into 2015 were clearly contributing factors.

The other side of that same coin were port management decisions to not call out labor crews for evening and weekend shifts during that same time period – further contributing to congestion.

Labor shortages at Port of Oakland have most recently resulted in port congestion; however, that has abated in the last few weeks.

Labor shortages in the drayage industry have been a persistent issue that do not appear to be improving.

Chassis shortages or sometimes more properly characterized as chassis misallocation, misdeployment and imbalances in major port areas contribute to congestion. The primary underlying cause here is the shift in business model from carrier owned and provided chassis to the new and still evolving chassis business models which differ from one region to another. Lack of notice and communication in vessel and terminal operation changes also contribute here.

Larger vessels that are beginning to call on U.S. ports. Many of these vessels are cascading from Asia / Europe trade lanes to the U.S. trades as the truly mega container ships of 19,000 plus TEU capacity are introduced into Asia / Europe services.

Some carrier alliances have, in certain port locations, contributed to port congestion by failing to effectively coordinate their internal operations. This root cause is reported to be improving to the point of currently becoming a non-issue.

Terminal infrastructure issues have several dimensions including, not enough:

•  Gates;

•  Terminal space for the volume;

•  Cranes to service the larger ships; and

•  Yard cranes of various descriptions to handle, move, stack and retrieve containers in a timely and efficient manner

These capacity limitations were exposed in the container diversions from the West Coast to the East Coast during the 2014-15 labor disruptions. There were no labor problems or other issues in play on the East coast, yet that 10 percent plus cargo surge – granted with little notice or time for planning – gave evidence to how close we are to a tipping point.

Last is lack of communication and technology equipment and software applications that could connect all of the stakeholders and enable them to more efficiently coordinate their respective operations.

One additional congestion cause that the FMC forums did not really address was weather related events, such as Super Storm Sandy and later, the large snow events in the Northeast that shut down terminals in those ports for several days to weeks.

These various causes of port congestion do not necessarily impact demurrage and detention in equal and generalized ways. On the import side, demurrage at the terminal will flow from a congested yard operation or from a lack of available chassis. Then, that cargo owner, via their harbor drayage company, may next have problems redelivering the empty container to the designated terminal. On the export side, a domestic cargo owner may have problems with getting an empty container out of the yard and then problems getting back into the yard within the designated window for outbound shipment.

The Commission staff’s analysis of vessel operators’ tariff provisions on demurrage, detention and free time revealed a narrow range on free days – either 4 or 5 days – but then a wider range of provisions regarding force majeure and provisions for extension of free time or relief from demurrage/detention. Some carriers provide no relief from demurrage / detention by reason of force majeure while others provide that demurrage/ detention may be suspended for reasons beyond the control of the shipper such as strike or lockouts.

Starting from the top of the above list, you can see that the possible fact scenarios that contributed to a congestion problem – either temporary or longer term systemic – could vary quite widely. Without trying to provide an exhaustive list, consider just a few examples:

•  Labor engages in a slowdown where yard congestion increases, containers are being stacked higher and the nominated drayage truck company cannot get access to the subject container for 8 days following discharge from the ship.

•  Same labor slowdown, the yard is increasingly congested, and the terminal is focusing on getting laden containers out of the yard. The terminal begins to restrict inbound empty return containers to specific limited time and gates. The drayage company makes 5 attempts over 7 calendar days to return the empty but a detention charge accrues.

•  Next, assume that 5 large ships – say 14,000 TEU ships are out of schedule and arrive back-to-back; overwhelming the terminals storage capacity and yard demurrage accrues.

•  Next, assume that ship arrival schedules have changed and the chassis supply is now allocated to the wrong terminals and the cargo owner cannot find a drayage driver with a chassis for several days.

•  Same scenario on the empty container leg for redelivery to the yard.

•  Then, consider a snow storm where main roads are cleared after two days but secondary and side roads take 3 to 7 more days to be cleared. Consider the delays in picking up inbound loaded containers in this scenario. Conversely is the problem with finding a drayage driver with a truck and a chassis to find his way into a close-in distribution center versus a facility that is 10 miles outside the port area and each has an empty container that is accruing detention charges.

One could go on, but the point is that each situation that you can come up with is very specific to the sequence and totality of the surrounding contributing factors.

The Commission staff issued a report in April that listed the various tools that the Commission has to address maritime issues under the Shipping Act. They run the gamut from:

•  An advisory committee;

•  Fact Finding initiative;

•  Section 15 request for information – essentially issuing subpoenas for relevant information;

•  Initiation of a formal Commission Investigation to examine a charge of violation of a specific section of the Shipping Act

•  Initiation of a formal rulemaking proceeding.

Another path is for any aggrieved party to file a formal complaint at the Commission that sets forth facts and allegations that a marine terminal operator or vessel operator has violated a provision of the Shipping Act by reason of assessment of demurrage/detention during these episodes of port congestion. I must point out that no such formal complaint has been filed at the Commission to date.

An area of active Commission involvement in the detention/demurrage issues that arose during the West coast labor unrest was the Commission’s Office of Consumer Affairs and Dispute Resolution Services. They received literally hundreds of calls and emails asking for assistance in resolving disputes and they were often successful in facilitating compromises in many, many cases.

In July, The Commission issued a follow-on report that gave a more granular discussion and analysis of the many causes, consequences, challenges and suggested solutions that were presented at the four FMC forums held around the country. The summary I just laid out comes from the July report that runs one hundred and thirty pages of text and appendices.

To say that container port congestion is a complicated issue is to state the obvious. But to try to quantify the complexity, consider this statistic. At the combined ports of Los Angeles and Long Beach, it was reported that 1,000 registered motor carriers and their 11,000 registered drayage trucks transact 35,000 gate moves – every day.

A number of those gate moves will be for containers that have dwelled in the yard beyond their free time for various reasons. A number of those gate moves will be for returning empty containers that have been delayed for a host of other reasons and thereby accrued detention charges.

By reason of the complex business relationships between the vessel operators, the terminal operators, shore side labor, truck labor, harbor drayage companies, chassis equipment providers, NVOCCs, freight forwarders, Customs and Border Protection – and the party that ultimately pays all of the bills, the beneficial cargo owner – the Commission has encouraged the port communities to join together, to collaborate, and to reach mutually agreeable business solutions to these complex business issues.

The New York New Jersey ports formed a Port Performance Task Force and that group is working through a list of twenty-three recommendations broken down into three tiers of actionable importance. The Virginia Port is engaged in a similar exercise. The LA / Long Beach port community is likewise using an operating committee to address port congestion. On a broader scale, the entire West Coast port community has established a group – Pacific Ports Operational Improvement Agreement – to explore a wide range of potential solutions to increase port efficiency and reduce congestion.

Until these groups have worked through their business issues and had their opportunity to develop workable solutions, I do not see the Commission looking at any unilateral regulatory actions.

Thank you and I look forward to our question and answer session.