U.S. Importers Seize on New Shipping Rules to Fight Late Fees

Date: Monday, March 6, 2023
Source: Wall Street Journal

U.S. importers are fighting millions of dollars in fees imposed by the world’s largest ocean carriers with the help of a new federal law and a newly emboldened regulator.

Shippers of furniture, electronics and clothing say they were blindsided during the Covid-19 pandemic when ocean carriers added large fees for delays picking up and returning containers, even when importers had no chance of moving the boxes because of circumstances beyond their control.

“I don’t like being a victim and I felt like I was victimized without recourse,” Ryan Frey, an importer of lithium batteries, said of the fees. He said his company, Lion Energy LLC, which imports about 800 containers a year, felt it had little power to dispute the charges.

Now, Mr. Frey and hundreds of shippers like him are turning to rules set out in the Ocean Shipping Reform Act, which passed Congress in June. They are also filing hundreds of complaints with the Federal Maritime Commission, a Washington, D.C.-based regulator that has spent several years clarifying and tightening rules related to the fees and other shipper frustrations.

Picking up and dropping off a container on time was often impossible during the pandemic-fueled freight surge because of challenges from shortages of trucking equipment to boxes becoming buried among stacks in congested container yards. Some port terminals were so full that operators prevented truckers from collecting or returning containers for days or weeks.

Freight forwarders, which move cargo on behalf of shippers, say carriers and the private companies that operate terminals often refused to release containers until the fees were paid, leaving the forwarders and their customers no choice other than to pay up and dispute the charges later.

Mr. Frey, chief operations officer for Lion Energy, said the American Fork, Utah-based company paid fees per box ranging from hundreds of dollars to more than $10,000 on top of sky-high shipping rates through 2021 and the first half of 2022, often for delays outside his company’s control.

The new shipping law endorsed an FMC rule published in 2020 that said late fees should only be used to encourage importers and exporters to keep freight moving and that if a shipper isn’t able to move a box due to situations like bottlenecks the charges shouldn’t apply.

Shippers have long been able to dispute the fees. But the law set up a new expedited claims process through the FMC that allows shippers to quickly challenge the charges and it shifted the burden of proof onto carriers to show that fees are valid.

John Butler, president and chief executive of the World Shipping Council, a Washington, D.C.-based trade group that represents carriers, said it is too early to tell if the rules interfere with the fees’ desired effect, which is to ensure containers don’t clog up ports.

Mr. Butler welcomed the expedited claims process. But he said his group is worried about proposed rule changes, which the FMC is weighing, that could further weaken carriers’ and terminal operators’ ability to collect fees.

"If there is not a realistic incentive, then the [charges] fail and we will go back, even without massive cargo increases, to the port congestion situation that we all decried during Covid,” Mr. Butler said.

Rich Roche, a senior vice president at Syracuse, N.Y.-based Mohawk Global Logistics Corp., who helps shippers dispute charges, said the shipping act changes simplified and strengthened the claims process for shippers and the FMC’s involvement added “teeth” that helped push carriers toward settlements.

The FMC says since the law was enacted it has received about 250 complaints under the new expedited process. More than 80 of the complaints qualified for review, leading to almost $800,000 being refunded or waived.

At the annual TPM23 shipping conference, organized by S&P Global Market Intelligence, in Long Beach, Calif., this past week, sessions on the tightened shipping rules attracted standing room only crowds to learn how to dispute charges and to file complaints with the FMC.

Some shippers have long been skeptical of the FMC’s willingness to intervene in disputes, leaving many U.S. companies to feel they are at the mercy of a small group of Asia- and Europe-based carriers that control most of the world’s ocean trade.

“To be blunt, I think they were in the pocket of carriers for many, many years,” Alison Leavitt, managing director of the Wine and Spirits Shippers Association, said of the FMC during one conference session. “That has vastly changed. They are now looking out for the interests of the U.S.A. shipper.”

FMC Chairman Daniel Maffei said in an interview the law authorized significant funding increases for the FMC that should allow it to expand its roughly 130-person workforce by about one-third and to boost its oversight, enforcement and investigative activity.

“In the last couple of years we have gone from being, for the most part, a very passive regulatory agency to a very active one,” Mr. Maffei said.

The expedited complaints process applies only to charges assessed after the shipping act was passed. But shippers are still able to challenge fees that predate the law under earlier FMC rules.

Lion Energy’s Mr. Frey says he intends to challenge as many of the charges as possible, both before and after the act passed. ”I am going to audit the hell out of it,” he said.


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