Remarks by FMC Commissioner Rebecca Dye American Cotton Shippers Association – Laguna Beach, California

Thank you.  It’s a pleasure to be here today.

I appreciate the invitation to speak and the great venue!

Yesterday, I spoke to your Transportation, Documentation and Insurance Committee about chassis provisioning and the FMC Memphis Supply Chain Innovation Team.

This morning, I’ll discuss the status of the Commission’s investigation into ocean carrier and marine terminal demurrage and detention charges, established in response to a petition by a coalition of 26 trade associations.

I’ll also explain how I believe a focused approach to these charges can resolve many of the customer headaches resulting from current demurrage and detention practices.

I’ll bring you up-to-date on the work of the Memphis FMC Supply Chain Innovation Team concerning congestion in the Memphis railyards and how chassis provisioning is at the heart of the problem.

Finally, I’ll discuss the latest information on the upcoming implementation of the IMO’s Low Sulfur Fuel Regulations.

Fact Finding 28

Recently, I was at a meeting at the Port of Baltimore with a group of port, terminal, trucking, and logistics company officials to talk about port operations and detention and demurrage charges.

When the discussion started, one of the group leaned over the conference table and said to me, “Commissioner, you need to understand, it’s an ecosystem.”

I was delighted to hear him say that, because I have emphasized, beginning with the FMC Supply Chain Innovation Teams project, that our international ocean transportation supply chain is actually a COMPLEX SYSTEM, like an ecosystem, with continual interactions that are GLOBAL in nature.

The systemic nature of our international supply chain led our FMC Supply Chain Innovation Teams to agree that end-to-end supply chain visibility would be the most effective way to improve supply chain reliability and resilience.

The Port of Los Angeles GE information system was conceptualized in our Innovation Teams project, based on what critical pieces of information supply chain actors need to know.

In the case of supply chain performance, “What you DON’T know, WILL DEFINITELY hurt you.”

Much of what we learned in the Supply Chain Innovation Teams project is relevant to the FMC Demurrage and Detention investigation.

For example, we learned in our Innovation Teams initiative that THE most important thing that American shippers and truckers want to know is when their container is ready—actually accessible—for pickup from a seaport.

Getting notice of availability or “accessibility” to shippers in a timely and accurate way is one of the crucial keys to improving throughput velocity and freight fluidity in our international freight delivery system.

Phase One of the Investigation

So, how do you eat an elephant?  What if there are two elephants, named Demurrage and Detention?  I explain how we’ve developed this investigation, one bite at a time!

Phase One of the Investigation

To build the investigatory record, we began by demanding information and data from a selection of 23 liner companies and 44 U.S. ports and terminals.

You can imagine that increased my popularity with my stakeholders immensely!

This information allowed us to move beyond just anecdotes and opinions.

It allowed us to create a solid record based on facts and figures.

Along with personal interviews from shippers, intermediaries, and truckers, it allowed us to identify and quantify the challenges involved.

What we learned was summarized in the Demurrage and Detention Interim Report published last September.  It remains available on the FMC’s website.

The Interim Report described five potential benefits to the U.S. international freight delivery system that I would pursue.  Those included:

1. Transparent, standardized language for demurrage and detention practices;
2. Clarity, simplification and accessibility regarding billing practices and dispute resolution processes;
3. Guidance on types of evidence relevant to resolving disputes;
4. Consistent notice to shippers of actual container availability; and
5. A Federal Maritime Commission Shipper Advisory Board.

Phase Two of the Investigation

So, from early September through mid-November 2018, I conducted a series of field interviews to “test-market” the five potential benefits at ports in Southern California, New York and New Jersey and Miami, Florida.

Based on the information we obtained in the field interviews, additional discussions with interested parties who were unable to participate in the port interviews, and the information already in the Record, I issued a second report in early December, 2018.

That report contains critical findings that may serve as suitable “guidance,” and is also available on the Commission’s website.

Detention and Demurrage Findings

The three main findings of the December report are:

1. Demurrage and detention are valuable charges when applied in ways that incentivize cargo interests to move cargo promptly from ports and marine terminals;
2. All international supply chain actors could benefit from transparent, consistent and reasonable demurrage and detention practices, which would improve throughput velocity at U.S. ports, allow for more efficient use of business assets, and result in administrative savings; and
3. Focusing port and marine terminal operations on notice of actual cargo availability would achieve the goals of demurrage and detention practices and improve the performance of the international commercial supply chain.

From the perspective of American importers, notice of actual container availability is most important.

The December report also recommended that that the Commission organize and host teams of industry leaders to discuss whether today’s demurrage and detention practices are working as intended, as incentives for shippers to pick up cargo and return equipment.

We hosted two teams last month– each that included beneficial cargo owners, drayage trucking companies, shipping lines and terminal operators.

Before the participants arrived, I sent each one a letter that quoted a paragraph from the December report explaining the broader context for the discussions.  It said:

The respondents in both phases of the investigation generally indicated that the primary purpose of demurrage and detention is to establish a financial incentive to encourage the productive use of assets (containers and terminal space) and promote optimal velocity of cargo flow across the terminal and out of the port.  For demurrage and detention to be effective, and for demurrage and detention practices to be reasonable, they must be tailored (and limited) to those situations in which the container is actually available.

The insights exchanged at our team sessions were helpful to us in further clarifying when charges were creating the desired incentives – and when not.

As particular situations arise, specific facts and the behavior of involved parties will still be relevant to any determination of the reasonableness of charges imposed.  Emphasizing the incentive purpose of demurrage and detention is not a magic wand that would eliminate all legitimate points of disagreement.  But it will provide important guidance that all parties agree is legitimate.

And, to the extent that liner operators and their shipper customers are able to incorporate such a standard into their service contract terms, it could help prevent many disputes from ever arising.

The team discussions and clarifications, in addition to all the other information and discussions we’ve had involving free time, demurrage and detention in phases one and two, will contribute to my final recommendations to the Commission.

Memphis Supply Chain Innovation Team and Chassis Availability

I’d like to offer some comments about one of the best outcomes of my Fact Finding 28 investigation involving marine terminal and ocean carrier demurrage and detention charges.

It concerns an issue that affects demurrage and detention and the orderly and efficient operation of our freight delivery system:   Chassis availability.

How chassis are made available at America’s container ports and railyards is a pivotal aspect of supply chain productivity, and ocean carriers’ customer service quality.

We heard complaints about railyard congestion and related charges during the first Demurrage and Detention interviews I conducted last year.

So I was not surprised when I received a call from a trucking executive in Memphis about railyard congestion problems there.

A group of impressive industry leaders including shippers, truckers, intermediaries, ocean carriers, and railroads, had organized themselves in Memphis, and they wanted me to come to Memphis and lead a Memphis Supply Chain Innovation Team.

I said, “I’ll talk to my lawyers, thinking, that’ll kill it for sure!”

But, as we talked among ourselves and to STB officials, I realized that on ocean carrier moves, we do have certain jurisdiction at the rail ramp in Memphis.

At the first meeting in Memphis, everyone on the Team agreed that chassis provisioning is the major problem leading to congestion in the railyards there.

The Team agreed on a recommendation for chassis “gray” pools for the rail ramps in Memphis and the Mid-south, with the following critical elements to improve fluidity and velocity in moving international containers in Memphis and the Mid-south:

1. Adequate supply;
2. Quality and safe chassis;
3. Reasonable access to chassis: Choice;
4. A single manager, with accountability for chassis supply

On this point, the railroads and the ocean carriers (OCEMA) agree.

I plan to testify on behalf of the Memphis Supply Chain Innovation Team before the Surface Transportation Board on May 22^nd at their Oversight Hearing on Railroad Demurrage and Accessorial Charges.

On the subject of chassis provisioning, I offer these two comments:

First: Open choice.

I favor freedom for motor carriers or their customers to select the chassis provider of their choice for merchant haulage.

Second:  Real Gray Pools.

I support the creation of chassis pools run by managers who have the authority and the accountability for chassis supply. Chassis must be interchangeable assets that can be provided in ways that make the most sense for meeting customer needs and optimizing overall asset utilization.

Conclusion

Recently, the Ocean Carrier Equipment Management Association (OCEMA) established a best practices regime for dispute resolution processes, so we are already seeing the first practical steps being taken to produce improvements in demurrage and detention practices we had identified.

I am confident that we can develop practical guidance that will address customer frustration and improve the operation of our freight delivery system to MOVE MORE CARGO!

That’s in everybody’s interest!

IMO’s Low Sulfur Fuel Regulations

Finally, a brief observation about the International Maritime Organization’s 2020 sulfur cap and the role of the Federal Maritime Commission.

The new IMO rules will ban the use of ships using fuel with a sulfur content higher than 0.5 percent, compared to 3.5 percent now (0.1 percent in the North America Emissions Control Area) unless the vessel uses special equipment to clean up its sulfur emissions.

There are three widely discussed ways to meet the IMO’s new standard:

• By using low-sulfur distillates in place of traditional higher-sulfur bunker fuel.
• By refitting vessels with scrubber technology that captures sulfur exhaust gas, and
• By building more vessels that operate using Liquid Natural Gas.

LNG is a longer-term option because of the need to develop additional infrastructure to support LNG distribution and storage.

For the immediate future, the choice is using low-sulfur fuel or installing scrubbers.  Each alternative carries different costs to ocean carriers, although they provide the same air quality improvements.

The main concerns of container lines and their shipper customers – and consumers—are about (1) possible service disruptions and (2) the potential commercial impact of higher fuel costs and fuel surcharges.

The results of a survey of ocean carrier intentions for meeting the 2020 sulfur requirements indicated that 74 percent intend to purchase low-sulfur fuel, 19 percent intend to purchase a scrubber, 5 percent intend to switch to LNG, and 2 percent had other plans.  Of course, the actual relative costs of these alternatives may change these intentions.

According to the Congressional Research Service, although global marine fuel demand is only about 4 percent of total world demand, it is expected that important effects may result from the 2020 requirements for many sectors of the oil and petroleum products industries, and other industries as well.

Some observers believe the IMO regulations will affect the oil market in 2020, when combined with other matters, in as much as $200 a barrel for crude oil and $6 to $10 per gallon for gasoline.

A wide variety of non-oil industries might also be affected by the shifting production  incentives for refiners. On-road transportation costs are likely to rise, with diesel fuel prices increasing.  If refineries respond to the new regulations by changing the gasoline and diesel fuel mi by producing more diesel, gasoline prices may escalate sharply.

Will sufficient low-sulfur fuel be available in areas where and when it’s needed?

If so, at what cost?  And how – and by whom — will any cost increases be absorbed?

Will the move to low-sulfur fuel result in higher costs for other low-sulfur distillates such as home heating oil?

The FMC is, primarily, a competition enforcement agency.  We have no direct role in how the implementation of the IMO’s rule unfolds.

Nevertheless, if the implementation of the IMO rules seriously affects freight rates and service levels, I would not be surprised if the Commission were to receive complaints about, for example, ocean carrier fuel surcharges.

Should that turn out to be the case, the Commission staff is prepared to appropriately evaluate the situation.

Thank you again for the opportunity to speak to you today.