By Wayne R. Rohd1
The global COVID-19 pandemic that has affected all of our lives since March of 2020 has had significant operational impacts on the international ocean supply chain, including the inland components of that supply chain. Those operational impacts have potential legal implications for supply chain participants, particularly those subject to regulation by the U.S. Federal Maritime Commission ("FMC" or "Commission.") This article briefly examines the operational impacts of the pandemic, and then discusses some of the potential legal implications arising from same.
I. OPERATIONAL IMPACT OF THE PANDEM
The initial operational impact of the pandemic was a decline in cargo volumes being imported into the United States from other countries, particularly major trading partners in Asia. For example, in May of 2020, cargo volumes at the Port of Los Angeles were down 29.8% over May of 2019, and the cargo volume handled by Los Angeles over the first five months of 2020 was down 18.6% over the same period in 2019.2 Other ports experienced similar declines in cargo volume, and as of May 2020, some forecasters were predicting an overall decline of 20 to 30% in cargo volumes handled by U.S. ports in the first half of 2020.3 Ocean carriers responded to the initial drop in cargo volumes by reducing vessel capacity.4
Cargo volumes surged later in 2020, as U.S. consumers began spending money that would have gone to travel, dining, and other entertainment outside of the home on consumer goods designed to make the most of the "new normal" of socially distant living and working at home. Carriers were able to quickly reactivate idled vessel capacity to meet the new demand.5
However, increased vessel capacity alone was not enough to meet cargo demand. The surge in cargo volume that began in mid-2020 has continued unabated since that time and has combined with a number of factors to create what I will call "supply chain congestion." These other factors include:
- Vessels delayed while waiting for a berth at crowded ports;
- Congestion on marine terminals due to high cargo volumes;6
- Decreased labor productivity at marine terminals and inland cargo handling and storage facilities due to a combination of COVID-19 illness among workers, working conditions modified to provide a safer working environment, and the same labor shortages that are affecting many sectors of the economy;7
- Congestion at inland rail facilities due to higher cargo volumes;8
- A shortage of trucking capacity;
- An increase in the period of time a chassis is used to deliver a loaded container to its destination and then return the empty container to the designated location ("dwell time"), resulting in a shortage of chassis and further cargo delays;9
- A shortage of containers resulting from some or all of the above factors.
The primary legal issues raised by supply chain congestion under the U.S. Shipping Act of 1984, as amended, 46 U.S.C. §§ 40101, et seq. (the "Shipping Act") are discussed below.
II. THE POTENTIAL LEGAL IMPLICATIONS OF SUPPLY CHAIN CONGESTION.
The supply chain congestion with which the international ocean transportation industry has been plagued since mid- to late-2020 presents three primary categories of legal issues under the Shipping Act: (a) the reasonableness of demurrage and detention charges; (b) the sufficiency of carrier service levels (especially with respect to U.S. exporters); and (c) carrier adherence to contractual service commitments.
Footnotes
1 Mr. Rohde is a member of the law firm Cozen O'Connor, with offices at 1200 19th Street NW, Washington, DC 20036. He can be reached at 202-463-2507 or WRohde@cozen.com.
2 June 10, 2020 News Briefing by Executive Director Gene Seroka: https://www.portoflosangeles.org/references/news_061020_may_cargo_volumes_drop.
3 NY-NJ port seeks aid amid COVID-19 volume decline," Journal of Commerce, May 22, 2020.
4 NY-NJ expects Q1 cargo drop after dozen blank sailings," Journal of Commerce, Mar. 2,2020
5 Container Volumes Shipped to the U.S. Surge After Coronavirus Downturn," Wall Street Journal, Sept. 4, 2020.
6 Import surge, labor shortages worsen LA-LB congestion," Journal of Commerce, Jan. 12, 2021.
7 Id.
8 BNSF, UP battling growing congestion pressures in Chicago," Journal of Commerce, June 3, 2021.
9 Import surge at Southeast ports tightens chassis availability," Journal of Commerce, Dec. 10, 2020.container or chassis is in the possession of the cargo interest or its agent/contractor
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Originally Published by Journal of Transportation Law, Logistics and Policy
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