By Arthur Chen      Photo：Tom Fisk

Uncertainty in the ocean shipping market raised again by the labor contracts of the LA/LB ports expired on July 1st. U.S. importers have begun to recalibrate supply chain operations.

Two cargo owners took legal action against CMA CGM and Evergreen because they failed to provide space according to the long-term contracts signed with the cargo owners because these two liners have to earn higher profits. On March 18th, the U.S. Federal Maritime Commission (FMC) received complaints from two U.S. companies against Evergreen and CMA CGM, alleging that the two companies refused to provide service and failed to fulfill their 12-month service contracts. Both cargo owners have accused the carriers of violating the Shipping Act and hope to seek relief through hearings held by the FMC. The New Jersey-based cargo owner Foreign Tire Service (FTS) said in the complaint that since the outbreak of the pandemic, global ocean carriers, including Evergreen, have substantially increased their own profits by taking advantage from cargo owners, unfairly and unjustly. They exploit customers. The FTS also accused the carriers are forcing them get into the real-time market for the shipments to move. Although FTS and its suppliers kept requesting space for Evergreen, Evergreen refused and failed to provide enough space. FTS has contracted with Evergreen to ship 100 x 40HQ containers from Asia (including Thailand and China) to the United States. But in nearly 11 months past, Evergreen had only released 19 confirmed spaces under the contract agreed rate. The company said it was forced to buy space on the real-time market and as a result incurs more than $1 million extra freight charge.  Shipping costs are still rising as Evergreen still refuses to offer space under their contract.

The FTS complained that Evergreen and other global shipping companies began taking steps to "manipulate the market by artificially creating scarcity of space so as to increase carriers’ profit margin". The company pointed out that Evergreen repeatedly told FTS and its suppliers that there was no space on the ships going to the United States, but provided space that should have been given to FTS to other cargo owners because freight charged was much higher than that promised in the contract between Evergreen and FTS.  Evergreen is offering less than 20 percent of the space agreed in long-term contract, forcing it to enter the real-time market at higher prices. FTS filed a complaint seeking to recover the $1 million in shipping cost paid on the real-time market as well as Evergreen's damages and legal fees. Evergreen has yet to respond to the allegations. 

Another Houston, Texas-based shipper, Royal White Cement (RWC), made similar allegations against CMA CGM for not providing space under the freight contract. RWC has a long-term contract with CMA CGM to transport containers containing large bags of cement from Egypt to the West Coast of the United States. The freight for long-term contract is more than 2,000 US dollars per container, and the contract quantity reaches 2,000 containers. This long-term contract rate will cover shipments through April 30, 2022. RWC attempted to book space for more shipments, however, after moved 10 containers, CMA CGM refused to accept any of its bookings. This came across in the real-time market freight rates rose sharply, far exceeding contract freight rates. Although RWC has repeatedly sought booking space, these requests have been denied. 

RWC said they were told they had to pay spot prices, couldn't book under service contracts and couldn't change destinations elsewhere. Shippers said they were rejected not because of lack of space, but because of price. CMA CGM sought to more than triple the contracted freight rate from $4.35 million to more than $13.6 million. RWC is alleging that CMA refused to perform the service contract and tried to force RWC to pay three times more than the agreed price. RWC chose not to compromise into this way and chose to transport the goods other measures. They report that the alternative shipping option have cost their company more than $9 million so far. Both companies have complained to the FMC for relief, and the FTS has also asked the FMC to take steps to prevent shipping companies from refusing to provide space at the freight rates stipulated in the service contracts. We wait for the solid actions from the FMC to see if it can change the rules of the game in the ocean shipping market and treat cargo owners more fairly.

Another potential supply chain crisis is coming. The U.S. West Coast port operator's contract with dockworkers expires on July 1st. In response to possible delays in labor negotiations and supply chain disruptions, U.S. importers have begun to readjust supply chain operations includes advanced holiday season orders, get cargo into the U.S. early, or transfer containers to eastern U.S. and Gulf Coast ports. The disputed items include West Coast facility work rules, automation, wages and welfares. As the negotiation of labor contracts at U.S. ports usually takes several months to finalize, there will be no results in the short term. Judging from the negotiations from 2014 to 2015, the delay in those years caused port operations to stagnate. The Pacific Maritime Association (PMA), which represents port operators, seeking for immediate negotiations, but the ILMU union, which represents 22,400 dockworkers at 29 ports from Washington state to Southern California, said in May this year ready for negotiation. Currently, the ports of Los Angeles and Long Beach handle about 40% of the imported containers to & from the United States. The major ports in the western United States have a complete supply chain, and there are less alternative ports to choose. To utilize western coast of United States is still the major. It seems that even if the port authorities want to negotiate a new labor contract early, the union is not in a hurry to negotiate quickly. Only in this way can they strive for the greatest bargaining chip in the interests of labor. Uncertainty in the ocean shipping market has plagued everyone this year.

Appreciate if you could share TGL Blog among your friends who are interested in first-hand market information of supply chain and updated economic incidents.