NACD applauds OSRA passage

CHEMICALS CAN’T WAIT

USA • NACD PRESIDENT ERIC R BYER APPLAUDS THE PASSAGE OF THE OCEAN SHIPPING REFORM ACT BUT WARNS THAT THERE IS PLENTY MORE TO BE DONE TO FIX THE US’S TRANSPORT SYSTEM

IN FEBRUARY 2021, the cracks in the US supply chain became an issue of concern for more than just the American importers and exporters who were already struggling with ocean cargo delays and rising costs. A polar wave that swept through North America hit Texas particularly hard, resulting in immense strain on the power grid, frozen pipelines and deaths, and forcing many businesses to shut down.

Businesses did what they could to face the disruption, with many preparing for a challenging quarter. But by March, chemical distributors realised that what began as a shortage of shipping containers and labour at certain West Coast ports, exacerbated by weather, was quickly morphing into a dangerous and long-term breakdown of the nation’s supply chain infrastructure. Still reeling from the Covid-19 pandemic and shutdowns, this new threat meant inventories of chemicals began falling for the first time since the great recession and that shipping delays could soon lead to shortages.

Chemical distributors process, formulate, blend, re-package, warehouse, transport and market chemical products for over 750,000 customers and were among the industries considered essential during the Covid-19 crisis. Any shipping delays distributors experience have broad implications for the entire supply chain. It immediately became apparent that continued lengthy delays in glycerine, a common ingredient in pharmaceutical drugs, including Covid-19 vaccines and other medications, as well as chemicals needed for soaps, detergents, household and industrial cleaners, could not only slow economic recovery but also jeopardise public health.

The National Association of Chemical Distributors (NACD) and other shippers in the US called on the Biden administration and lawmakers on Capitol Hill to immediately take action to clear the intermodal freight bottlenecks that were slowing the import and export of goods, straining American businesses, and threatening serious shortages for consumers.

More than a year later, on 16 June 2022, President Biden signed S.3580, the Ocean Shipping Reform Act of 2022, into law, empowering the Federal Maritime Commission (FMC) to hold ocean carriers accountable for high shipping rates, anti-competitive practices and arbitrary decision-making.

A PERFECT STORM Before the shipping crisis emerged, long port delays were not common in the US. But labour shortages and increased demand for goods resulting from coronavirus shutdowns and government spending, severe weather, antiquated port infrastructure, and rail and

trucking issues left too long unaddressed, created the perfect storm in the US and across the oceans.

Government stimulus increased consumer spending on goods at a time when fewer services were available, resulting in a surge of imports. International shipping became much less reliable, with delays for some shipments reported to be as much as 150 days. By October 2021, freight prices had skyrocketed by more than 400 per cent along the most critical routes and many shelves were left empty across the country. Ocean carriers were levying exorbitant detention and demurrage fees on customers for containers even though shippers were physically unable to retrieve freight from the ports due to congestion, labour shortages and limited port hours. Carriers – who cemented historic, recordbreaking profits during the pandemic – began refusing transport of hazardous substances essential to everyday health and safety.

Antiquated port infrastructure, railroad and ocean shipping mergers and consolidations, a lack of competition in the freight rail industry, and the ongoing truck driver shortage only worsened the situation.

PATH TO PASSAGE In March 2022, President Biden announced a “crackdown on those companies overcharging American businesses and consumers” in his State of the Union address. This set a marker of oversight and reform of the global ocean shipping industry as a key administration priority.

On the path to passage of the Ocean Shipping Reform Act (OSRA), the US Congress showed a level of bipartisan consensusbuilding not regularly seen today when the House passed the version of the bill that the Senate had unanimously passed earlier.

With President Biden’s signature in June, OSRA addresses many of the elements of the perfect storm that helped to spur and exacerbate this crisis, including, among other improvements: • Stop international ocean carriers from unreasonably declining American cargo • Direct FMC to investigate ocean carrier business practices and apply enforcement measures • Shift the burden of proof for demurrage and detention charges to the international ocean carriers • Require international ocean carriers to report to FMC regarding how many empty containers are being transported • Stop retaliation by international shipping companies against exporters and importers • Improve management of chassis, the specialised trailers used to transport ocean containers over the road.

NO SINGLE SOLUTION In the first months of 2022, nearly 85 per cent of NACD members who responded to to the Association’s latest ocean cargo survey were still reporting problems with importing or exporting freight by water (down from 100 per cent in the fall of 2021). Far too many respondents are still experiencing price increases far in excess of the inflation rate, long delays to receive their freight and resulting lost revenues. It is still difficult to ship hazardous material products and delays for imports of materials defined as hazardous have increased by almost 10 per cent.

As we begin to navigate the second half of 2022, new challenges are arising that threaten to impede any forward momentum. On the west coast of the US, negotiations between dockworkers and our country’s largest ports were not locked down before the contract expired on 1 July. Both sides are committed to reaching an agreement, but if talks do break down the disruptions could be calamitous to an already-stressed supply chain. At the same time, import volumes at east and Gulf coast ports continue to surge, leading to record numbers of ships anchoring outside of many of those ports.

Once cargo is moved off ships, timely, safe and reliable freight rail and truck transportation is essential in ensuring products reach their final destination on time. Many US Class I railroads operate as near-monopolies and can charge whatever rates they want to transport cargo. NACD has long advocated for a strong and engaged Surface Transportation Board (STB), the federal agency overseeing our nation’s railroads. Recently STB has begun to make progress in addressing freight rail issues, although the agency still has its work cut out for it to reform the rail system and increase competition.

Over-the-road transportation by truck is also in a precarious situation in the US. Our nation’s long-acknowledged truck driver shortage is directly impacting chemical distributors’ ability to provide on-time product delivery now more than ever. The slow replacement of retiring drivers contributes to the shortage because commercial drivers are not permitted to move goods between states until they have reached 21 years of age. Compounding the issue, state-level rules went into effect in California that could force two-thirds of the truck drivers serving our largest ports in Los Angeles, Long Beach and Oakland off the road, at least temporarily. The truck driving industry has traditionally relied on independent contractors. California AB 5 sets up a three-part test truckers must pass to be considered contractors; if those conditions are not met, they must be categorised as employees.

OSRA passage is a welcome first step to address the supply chain crisis. Shippers across the country are eagerly anticipating swift implementation of the law. However, it’s clear that there is no single solution to solve our ongoing supply chain crisis.

While the US government worked quickly to pass OSRA, the US chemical distribution industry has been trying for too many presidential administrations and sessions of Congress to get a comprehensive infrastructure package passed that could modernise port infrastructure. There has been some initial relief on the shipping prices and delays, but we aren’t out of the woods yet. NACD continues to urge for greater freight rail competition and a strong and engaged STB to improve the efficiency and effectiveness of our nation’s freight rail system. We’ve known for years that the truck driver shortage was hitting critical mass, and year after year have worked to get the DRIVE-Safe Act passed to increase the pool of eligible drivers. These issues must be addressed to truly fix America’s broken supply chain and keep critical goods moving across the US and throughout the world. www.nacd.com