15 October 2014
Commissioner William P. Doyle Commissioner Richard A. Lidinsky Federal Maritime Commission 800 North Capitol Street, N.W. Washington, D.C. 20573
Re: Port Congestion and Demurrage Abuses
Dear Commissioners Doyle and Lidinsky:
I would like to thank both of you for hosting the Congestion Forum on October 1st in Baltimore. The format worked very well to get out all the issues and causes as identified by your guests who represented a great cross-section of our trade community. There were even a few solutions discussed, with many more to be identified and implemented before we can emerge from this crisis of congestion. I took the following points away from the meeting:
Defining the issues:
If you can’t measure it, you can’t manage it. We need to understand what we are dealing with to fix the problems. Bigger ships and more partners on these ships are causing concentrated deliveries on specific days at terminals Vessel bunching is also contributing to concentration of volume, and carriers are reluctant to spend the money on higher fuel bills to speed up the ships in order to get them back on schedule These spikes put a strain on terminals’ handling abilities, the chassis supply, and the truckers to move the containers More cargo at the terminals means more non-productive lifts of the same container when trying to get at other containers below it in the stack. Terminals are forced to shut out parts of their yards in order to accommodate the next vessel on the quay Trucks inside the terminals get trapped by the additional volume with no place to move and no way to exit Lines outside the terminals are not calculated as the gate to gate time within the terminal, but contribute to 2, 4, 6, 8 and even 9 hour turn times measured by truckers as port in to port out times Drivers are not paid for their time on line inside or outside of terminals Port drivers are leaving this sector of the trucking industry every day with no replacement pool on hand to offset the lost labor Insurance companies will not cover drivers under 25 years of age – so cannot draw on this age group. Driver attrition was labeled as the single most important part of the problem Waiting time wastes drivers’ available hours of service – sometimes they cannot make same day delivery of the container they pick up because they are out of hours One driver in attendance said he is no longer doing port work because he does not get pad for waiting on line so cannot earn a decent living Multiple daily turns are no longer possible due to the times referenced above for a single turn Terminal hopping by VSA / vessels from week to week adds to congestion problems Free time is not free. It has a cost. There is a large problem with carriers granting free time at the cy where containers and chassis get trapped. This adds to the chassis shortage Truckers hoard chassis by not returning them so the can reuse them on future loads Not all chassis at a given terminal can be used for all ocean carriers’ containers. Multiple lease fleets on site but not all can be used. Too many bad order chassis on terminal - estimate is 10% Not all bad order chassis may be bad – could be a labor issue Labor is not fluid at the terminals. Breaks shut the terminals down for extensive periods.
Possible solutions:
Longer gate hours are called for by truckers Gate hours must have better consistency Appointment system at terminals is one possible fix but not all agree that is the right way to go. Appointment system needs a Pilot Program. Incentivize ‘non-gate’ movements like barge or rail in lieu of truck Forecasting needs to be improved for better vessel planning and equipment staging Grey fleet needed to help solve chassis shortage. Improve dialogue with all participants RFID Tag data needs to be measured and published to indentify actual turn times outside and within terminals, and at additional drop yards if required. Ensure all chassis inside terminal are road ready. Taking red tag chassis to M+R adds to unpaid driver time inside. Measurement of terminal productivity and process times to automatically trigger extending free time when terminals cannot perform Gray fleet needed to help solve chassis shortage. Dept of Justice ruling will help open the door for that. Driver pay must be increased in order to retain this important group in servicing the ports. Smooth out bumps in labor availability / breaks Require skilled laborers to take skilled jobs first so unskilled can continue their training before being thrown into new jobs they have no experience with. Keep labor fluid. Continue to pump more chassis into the system
While there are no clear pathways to how any or all of these solutions can be implemented, there are a few that the Commission may be able to prevail upon the industry to adopt. This is particularly true about those solutions that can be implemented by the Marine Ocean Terminals (MOTs) as tariff filing entities under the jurisdiction of the FMC.
As all parties struggling to cope with the congestion problems and poor productivity through the gates, it is ironic that the MOTs can actually charge for everyone else’s inconvenience that is inflicted in part by them. We define demurrage as a tool used by the terminals to incentivize importers to rapidly remove their inbound containers so as not to bog down terminal operations. The ever-increasing cost of demurrage is structured to be punitive in nature so as to increase the incentive to remove the cargo over time. The abuse of this charge however lies in the fact that terminals can allow free time to pass even when they themselves are unable to make the containers available to the importers. Once demurrage charges kick in there is no arguing the charges which are due as cash payment up front to turn the demurrage off for that day of pick-up. You may recall my comments at the meeting in Baltimore where I cited a client of ours who incurred $500,000 in demurrage charges following Hurricane Sandy, $500,000 in demurrage charges as a result of the Maher Terminal meltdown, and then $ 2.5 Million in demurrage for the winter storms that crippled the Port of New York / New Jersey earlier this year. This is a company that moves 250 containers through the port every week and does not incur demurrage any other time. This cannot possibly be a fair assessment of demurrage charges when they only kick in during force majeure or other catastrophic events to the benefit of one of the players in the supply chain. This hurts the importer badly through no fault of their own, and ultimately hurts the U.S. economy and end users of the goods.
We are currently in the midst of yet another crisis in Southern California where demurrage charges are again out of hand. Importers are being charged demurrage for containers that are not available to be picked up inside the terminals at any time before their last free day primarily due to lack of chassis on terminal. Some terminals with appointment systems in place will not allow an appointment to be made until the container is mounted on a chassis, but will not extend free time against demurrage for those days that the container was on the ground.
Other terminals have locked off portions where containers are sitting in stacks that cannot be worked, are therefore unavailable, and all the while expending free time or accruing demurrage through no fault of the importers. Still others give the final demurrage amounts due and/or accept charges over the phone, but their phone lines are so jammed that truckers cannot get through for hours and sometimes an additional day thereby adding to the charges. These are just a few of many examples of how demurrage charges are unfairly assessed, too numerous to list. I have a client on the west coast who has paid more than $100,000 so far in demurrage in the last few weeks and still has dozens of containers each week that cannot be picked up at the terminals for a variety of reasons, and still accumulating more charges.
While some of the largest importers get preferential treatment for extended free time at some of the terminals (or through their ocean carrier contracts) based on volume per vessel, the small to mid-size importers rarely get any consideration on their requests for extended free time. Instead we hear the excuse that the terminals are spending more money too, so they are justified in collecting demurrage. When the cause is by the terminal themselves however, there is no way for truckers to collect payment for wasted trips, or importers to have free time extended in a proportionate amount.
In my position as NVOCC Sub-Committee Chair of the Transportation Committee of the National Customs Brokers and Forwarders Association of America (NCBFAA), I hope to speak for the small to mid-sized importers who are carrying these costs without true representation or appeal process. Demurrage is a one-way charge that has increased over the years disproportionate to ocean freight rates or other charges in the industry. Without further definition of what constitutes a lapse in free time, the clock continues to tick even when the terminal is not performing at its best, or performing at all, which leads to abuse of demurrage assessment. This needs to be addressed. I would strongly urge the FMC to look into a solution to monitor and resolve unfair assessment of demurrage charges. One possible solution I mentioned at the meeting would be to establish triggers that would automatically extend free time for any day the container is on terminal. They might include: :
1. Container is on terminal but not available for pick-up due to a listed cause 2. Container is on government hold (only being done in Long Beach) 3. Appointments to get container within free time are exhausted 4. Terminal has unscheduled closure 5. Terminal productivity falls below a specific percentage 6. Terminal’s chassis pool is running below accepted level or exhausted
By putting such triggers in place, free time would be extended and demurrage penalty reduced thereby providing risk/reward for both parties, not risk to one and reward to the other as exists the way free time is set up today. It is not the intention of this recommendation to do away with demurrage, but instead more fairly govern what constitutes free time, and extend that time automatically if warranted.
I am available at your convenience for further comment on this topic. Thanks in advance for your consideration.
Sincerely,
Richard J Roche V.P. International Transportation Mohawk Global Logistics
NVOCC Sub-Committee Chair Transportation Committee NCBFAA