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West Coast Ocean Container Aftermath and the 2015-2016 Service Contract Negotiations

By Carlos Rodriguez, Esq.

Husch Blackwell LLP

rodriguez_carlos

Introduction. Needless to say, the recent marine container log jams at terminals, and for that matter, containership backups on the West Coast, give all stakeholders in the supply chain cause for concern, even now after the tentative agreements reached between the International Longshore and Warehouse Union (IWLU) and the Pacific Maritime Association  (PMA) (representing 29 major West Coast Ports) which resumed “normal” operations at West Coast Ports. Concerns are focused on the following areas.

Is it now over? We don’t think so. The recent port chaos has seriously impacted the bottom line of various major and smaller importers/exporters due to the recent dysfunction at West Coast ports and is continuing to impact that bottom line.  While a tentative agreement was reached between the IWLU and the PMA, the so-called Transport Workers Solidarity Committee rallied on March 31, to urge the IWLU membership to reject the agreement. Whether or not this happens, there is still enough disarray with regard to equipment (chassis) dis-allocation, shortages of truck drivers, and a continuing problem with the interfacing of marine containers with rail services for inland deliveries. The trend at the moment is that if a container is going to be delivered in the Los Angeles area, there has been significant improvement, but if there is a rail component, there may be a two to three week aggravating factor. In some other ports such as Tacoma WA and Vancouver BC, improvement has been even slower. To some degree the chassis pooling or the so-called gray or neutral chassis pool by DCLI, Flexi-Van and TRAC Intermodal has helped the Los Angeles ports in that regard. Additionally, there is a trend that is starting to take shape. Traditional West Coast shippers, even though the costs are higher, are hedging their bets by continuing to use East Coast ports for part of their routings rather than risk problems with rail intermodal services from the West Coast.

While it is clear the Union issues were central to the container log jams, there were and still are serious operating problems relating to the means of delivery — i.e., chassis and truck driver shortages. The other point to make is that not all ocean carriers have dealt with these problems in the same manner. There are still a handful of ocean carriers that have managed to remain loyal to their shipper base. At least one ocean carrier, Evergreen, for example, has maintained its own chassis fleet which may give it an advantage in servicing its customer base. Others have been less inclined. These may be important experience factors at this crucial time since the new service contract period commences May 1, and most shippers are in the middle of negotiations. There are a lot of lessons to have been learned during the recent past in attempting to structure new service contract terms—this, of course, applies to both the ocean carrier and the shipper interests.

 The Obvious Contractual Issues. In the midst of the financial crunch, some ocean carriers blatantly breached their service contracts with some shippers by unilaterally imposing additional charges for trucking services, unilaterally raised base rates for shippers, and enacted other one-sided acts contrary to terms in service contracts. While service contracts are a regulatory device over which the Federal Maritime Commission (FMC) has oversight, these have not necessarily been a stabilizing mechanism, nor has the FMC been an enforcement force as of yet. We believe that service contracts should still be the arena in which the issues are addressed and risk should be allocated accordingly, and the parties, especially the shipper interests, should be assertive in seeking to address the problem areas which surfaced during the port congestion period.  

The Perceived Abuses. The following are not intended to be exhaustive but do give a good idea of the type of issues which should be addressed during this contracting period:

  1. On bills of lading with door delivery terms where the carrier has obligated itself to deliver the cargo by truck, but refusing to do so unless paid additional sums beyond those contracted;
  2. To insure that service contract language trumps tariff language to the contrary, when the above occurred on door delivery moves, and delays occurred due to the carrier’s difficulty in obtaining chassis/truckers, subjecting the cargo to demurrage charges, in effect, caused by the ocean carrier’s delay in delivery, which is its obligation under service contract terms;
  3. Outright unilateral increases in base freight rates by ocean carriers without any negotiations; in one example, the ocean carrier increased the rates by $1,500 per container;
  4. Refusing to book cargo at negotiated service contract rates, and charges; and
  5. Adding charges for delivery of cargo at inland points moving by rail.

The above are listed, again, not as an exhaustive list of issues which have arisen in the current disarray, but constitute the most blatant acts. The more egregious circumstance is where the carriers refuse to book cargo unless the changes increasing rates and charges are accepted. This, in itself, is a violation of the Shipping Act of 1998, as amended. We suggest that at the very least the above type of abuses be directly addressed during the current negotiating period.

Conclusion. Lastly, but just as important, is the fact that the new contracting shipping season is upon us, and this time around, renewed and more intense focus should be placed on the contracting process to avoid the pitfalls which painfully arose in the last contract season as a result of port congestion. We do not expect port congestion to disappear altogether soon.

This information is intended only to provide general information in summary form on legal and business topics of the day. The contents hereof do not constitute legal advice and should not be relied on as such. Specific legal advice should be sought in particular matters.

Carlos Rodriguez is a partner at Husch Blackwell LLP in Washington, D.C. He concentrates his practice on international and domestic transportation law, admiralty, regulatory maritime law, international commercial transactional law, transportation litigation and export licensing and compliance matters. He is also involved with transport and security issues involving the U.S. Customs and Border Protection and the Transportation Security Administration. He is transportation counsel to the New York/ New Jersey Foreign Freight Forwarders and Brokers Association. Mr Rodriguez can be reached at (202) 378-2365 or via email at