The trucking and agriculture industries are seeking relief from port fees when exporters have no control over shipping delays. A bill quickly progressing through the Legislature aims to prohibit demurrage and detention fees under such conditions—adding to a growing list of state and federal actions to ease shipping bottlenecks in Southern California and revive agricultural exports out of the Bay Area.
Assembly Bill 2406 pits farmers and truckers against ocean carriers, who fear the measure would expand California’s authority to regulate a global industry and potentially disrupt federal efforts underway to resolve the issues.
Mike Jacob, vice president and general counsel for the Pacific Merchant Shipping Association, said the fines “are not a surprise to anyone,” since exporters agreed to them when signing contracts to use the containers. Speaking at a recent policy committee hearing, Jacob told lawmakers the California industries are simply seeking to boost their bargaining power and that the dispute should be addressed through contract negotiations. He noted that a complaint process already exists for any exporters who feel their fees are unfair.
Under the contracts, importers agree to pay a demurrage fee when they fail to move a full container out of the terminal in time, while importers as well as exporters are subject to a detention fee if they fail to return a container on time.
In 2005, California passed Senate Bill 45 to prohibit charges on truck drivers for returning containers late when the delay is beyond the control of the California companies. The bill drew concern that the state was interceding into contractual matters between two parties. According to a committee analysis of AB 2406, however, the Legislature never took actions to resolve the fee disputes after passing SB 45.
Assemblymember Cecilia Aguiar-Curry of Winters advocated for clarifying and modernizing the protections established in SB 45 through her bill, noting that truckers now need an appointment to access marine terminals. She charged that shipping lines are imposing new restrictions on those appointments by limiting both the number of available empty containers for exporters and the number of containers an importer can pick up, and by failing to arrange for alternative locations for returning containers when terminals are congested.
“This practice has greatly impacted agricultural exporters,” said Aguiar-Curry, describing how exporters are stuck with late fees when ships bypass the Port of Oakland and skip scheduled pick ups for outgoing cargo. “Agricultural exporters are losing customers around the globe.”
She asserted that such “abusive practices” worsen the supply chain crisis and that ocean carriers are profiting at the cost of California businesses and consumers.
Roger Isom, president and CEO of the Western Agricultural Processors Association, said port congestion has already led to millions of dollars in lost sales and reduced income and the fees “add insult to injury.” UC economists have found the congestion resulted in a $2.1 billion decline in sales for agricultural exports during a five-month period last year, amounting to a 17% decline from the prior year.
According to industry estimates, three out of four containers are returning to Asia empty, while detention and demurrage fees are up to 10 times higher than those at other ports worldwide.
Chris Shimoda, senior vice president of government affairs at the California Trucking Association, a cosponsor on the bill, equated the issue to renting a car.
“The rental agency says, ‘Sorry, the lot is full right now. Bring the car back on Friday,’ then proceeded to charge you rental fees for those five days,” explained Shimoda.
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Dozens of agricultural trade groups and other export interests have pledged support for the bill, while the Pacific Merchant Shipping Association is the only party registering opposition.
The association’s Mike Jacob acknowledged the deep frustration over the supply chain crisis but warned the lawmakers of layering state policies on an already complex issue, with ramifications for millions of transactions between millions of parties worldwide. That frustration, he added, has already led to congressional legislation to reform federal regulations governing the detention and demurrage fees.
“That legislation is being worked out in conference committee right now,” said Jacob, adding that it will “fundamentally change the nature of these relationships.”
He argued that AB 2406 is premature, since it is too early to know what the new contracts would look like after federal actions and how many of the issues would continue.
The Federal Maritime Commission has been investigating the sharp increase in carrier revenues from the fees, and in January commission staff agreed with Jacob’s argument that this is not an unexpected development given the record volumes of trade and congestion. Other factors have further exacerbated the rising charges, including a shortage in truck chassis for containers and inadequate warehouse space. Some shippers also are abandoning cargo.
FMC Chair Daniel Maffei has noted that equipment providers have been waiving a much higher percentage of the charges, indicating commission enforcement efforts begun in 2020 have been changing practices and reducing fees.
Yet Maffei admitted the commission has a long way to go for additional enforcement and rulemaking. He told Agri-Pulse in April the federal Ocean Shipping Reform Act is the key to unlocking new regulatory authority over the powerful carrier alliances.
Separate versions of OSRA that have passed the House and Senate would give broad discretion to FMC to impose new regulations on ocean carriers. The legislation would allow more short-term changes to policies on detention and demurrage fees.
The Senate-passed bill is awaiting approval or additional changes in the House. The Senate approved its version by unanimous consent in March.
Aguiar-Curry assured her colleagues that amendments to AB 2406 would address any potential federal laws and regulations and that the bill would conform to any federal standards that are more stringent.
Her measure passed committee and last week gained sweeping approval on the Assembly floor, with a single opposing vote from Assemblymember Patrick O’Donnell of Long Beach. Several Republicans abstained from the floor vote alongside a handful of progressive lawmakers who have been reluctant to endorse measures they viewed as potentially increasing air pollution near ports.
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