Transportation Roundup: Breaking down the Refusal to Deal rule

By Gary Williams, SSGA Director of Transportation and Regulatory Affairs

In the news and on our minds today is the announcement by the Federal Maritime Commission (FMC) on their regulations and definitions revolving around “Refusal to Deal” within the Ocean Shipping Reform Act of 2022 (OSRA-22).

The purpose of this regulation is to better assure that carriers do not continually sweep away equipment quickly at the port of discharge (or even inland intermodal ramp) and collect empty containers by using blank sailings or other tactics to better assure the containers are not delayed.  When these containers are loaded with ag products, carriers wait for the export cargo to unload until that container can be used again for a much higher paying import cargo. In the current environment, not only has the Suez Canal disruption utilized more than the “over built capacity” of the past three years, it also has meant smaller vessels have been thrown into service because of need and a rate structure that allows for it to take place. Velocity of containers is a very strong desire for carriers today.

Journal of Commerce reported yesterday that ocean carriers will have to file a “documented export policy” annually outlining pricing strategies, services, routes and equipment available for U.S. exports.

This brings into question what rate guarantees export capacity being granted? Will the total sum of import revenue (rate) + export revenue (rate) holistically determine that a carrier is fairly pricing the export container/route? Today, spot market export rates are historically low for ag products, as the import rate is paying many times over for the total move (one carrier gave a real example of the overall revenue being 98% on the import move, and 2% on the export move for the same commonly used west coast U.S.-Asia origin/destination pairing). If, instead, the carrier calculates the cost of a move to be only the export leg today, its almost certain that export rates are below capital return + operation cost for the export move – meaning containers would be available only for a much higher rate than shippers see today.

With this regulation, which is a major step in a positive direction towards assisting ag shippers being provided an avenue to export their products, comes many questions on how data will be used, interpreted, and applied to achieve a fair balance of capacity and rate structure for export containers (for the shipper AND the carrier).

We know with new rules come “loopholes” or ways around them, and the risk of what implementation looks like.  From here, SSGA’s Competitive Shipping action team will need to watch and learn diligently how this is executed and provide overwatch that a rule that should benefit our members does not get twisted into a disadvantage.