Pandemic pain pummels ports.

UPDATE Jan 19, 2021: Included in the story of how the ports container congestion go so severe, Flexport has gone on record with Bloomberg discussing the number of 20 food shipping containers that are needed to alleviate the imbalance and meet the demands: 500,000. That is a gigantic imbalance. The number of total containers in service isn’t a new factor in the discussion of the current market. Back in October there were talks about how Chinese container manufacturers were running at full capacity to keep up with orders.

Current numbers are staggering as the flow of imports into the United States more resembles a broken fire hydrant than the typical faucet. Such a strong influx has caused equipment scarcity, chassis shortages, and astronomical rates and fees that have forwarders pushing back on what many see as a self-made shortage.

More than 30 vessels at anchor waiting for space in Los Angeles and Long Beach as more and more shipments race into the nation. As of Friday, 56 container ships were at the port with 24 at berth and 32 at anchor with numbers climbing as imports outpace exports at record levels. The container shortage has also caused issues with carriers refusing to accept loaded export containers so they can hurry and return empties to load with new imports bound for US ports. This practice has drawn ire and investigation in Europe and many U.S. shippers are asking for intermediation to get carriers to accept loaded boxes.

Options to keep cargo moving include proper planning and a lot of flexibility. As we’ve learned over the past few months, the hiccups are hitting everyone who transports cargo and the only options we have are to plan out your equipment needs to ensure you can get the right size and loading times and be flexible with your shipments in case of rerouted or blanked sailings that we expect to see for the Chinese New Year.

We’ve mentioned it before but this is the exact time in the market when you need an experienced forwarder in your corner. At Edward J. Zarach & Associates, you have the power of our carrier connections and contracted rates to work for your benefits when others are finding space dried up and equipment nonexistent. Lean on our industry experts to keep your cargo flowing despite the pandemic panics happing at ports.

301 Tariff Investigation to Intensify

Even with a new administration being inaugurated on January 20, 2021, there doesn’t appear to be much relief coming swiftly for 301 tariffs. In fact, the current USTR has perpetuated the Section 301 tariff investigations regarding Vietnam’s timber products (illegal harvesting) and currency valuation, or more specifically devaluation, an issue we’ve seen discussed more recently with Chinese imports. It isn’t an unprecedented act to declare a violation and levy tariffs so close to a presidential change, considering these have been in process since early October, as the Trump administration sought to apply pressure to trading partners that were skirting issues of currency manipulation and illegal goods. With the early Section 301 tariffs against China and later the disruption of the coronavirus pandemic, suppliers have been leaving China for more pleasant conditions in Vietnam, driving increased scrutiny on the nation.

The USTR launched the Section 301 investigations into Vietnam’s currency valuation and timber products in October and set a Nov. 12 deadline for public comments. Hearings will be held virtually on Dec. 28 for timber products and Dec. 29 to investigate currency devaluation. Requests to appear at either hearing are due by Dec. 10. Post-hearing rebuttal comments will then be due by Jan. 6 for timber products and Jan. 7 for currency devaluation issues.

“While these latter dates are just two weeks before the inauguration of President-elect Biden, it would not be unprecedented for the Trump administration to declare a Section 301 violation in one or both investigations and impose tariffs or other restrictions on imports from Vietnam within that timeframe.”

STR Trade

If you work with imports from Vietnam and have concerns about the Section 301 tariff investigation, Edward J. Zarach & Associates can help you formulate comments and statements to include in this process. We’re also on hand to help you find new suppliers in other regions that aren’t affected by Section 301s. Reach out to your Zarach representative to put together a statement and a logistics plan to suit your business with us!

Boatloads of delays continue at ports

Cargo has been piling up on the U.S. west coast as a surge of imports rocked the ports of LA and Long Beach struggle to keep up with the influx amid container, chassis, and warehouse scarcity continuing delays. The crunch has tightened up to stretch beyond the terminals, compounding issues with rail space and, now, water space as vessels wait for service. Almost a dozen vessels are floating in the water, awaiting berth space, further driving delays past anything we’ve seen since the Longshoreman strike in 2015. Overflow of cargo has seen ships moving to other west coast ports, spreading the cargo up to Vancouver as handlers try and rush inventory to retail spaces to meet the holiday demands.

The congestion has caused a massive increase in detention and demurrage fines as truckers sit waiting for cargo pickups, delayed by the ports themselves, leading the FMC to investigate whether the fees are driven by a desire to balance inefficiencies or the inefficiencies are driving the fees, the latter of which is exactly not how those fees are supposed to work. The FMC is concerned that the phone call is coming from inside the house. 

“Anywhere you go, there are just containers everywhere,” said Weston LaBar, CEO of the Harbor Trucking Association. “It’s maddening.”

It’s been a domino effect of delays that hit one after another since the factories in China shutdown for the 2020 Lunar New Year, which is around the time analysts expect the delays to finally subside. Currently, the equipment issues are compounding the troubles that shippers have as empties are being turned immediately back to Asia without loading with U.S. exports because the boxes are urgently needed for loading more imports to return to the U.S. to alleviate the piled up cargo in Asia that’s bound for U.S. holiday shopping. The dark horse in this drama could turn out to be the impending Brexit arrangement in Europe if an agreement can’t be reached. Delays between the EU and Great Britain could send delays skyrocketing overseas as well.

During times like this, shippers need to have a strong logistics partner to lean on and Edward J. Zarach and Associates can help you mitigate the delays and issues most are facing. We’re not magicians, so we’ll need your information and planning to help you find the equipment you need. Advance notice of equipment, coupled with the flexibility to route cargo through slower ports and accurate documentation are the tools Zarach needs to work with our partner carriers to ensure your freight is able to avoid the worst pain points currently struggling to keep up. We also strongly recommend our clients talk to us about the cargo insurance they need for their containers as 1,900 containers were recently lost in a collapse while in transit. 

 If you’re looking for relief, reach out to Zarach and let’s get you moving!

A Dance with Demurrage and Detention

Demurrage and detention fees arise while surging imports are causing never-before-seen delays and complications at the ports of Los Angeles and Long Beach as containers of PPE, e-Commerce, holiday, and restocked inventory bound for US businesses and consumers flood into the ports. The numbers don’t lie – Long Beach’s Q3 and September were the busiest ever and Los Angeles did the same – posting a year-on-year increase of 13.3% in September. October’s figures are due any day now and should continue to show an upward movement.

Because of the volume of import containers, export containers and backed up inland rail moves, containers are physically unable to be removed from the terminals. Once the free time expires, shippers must pay for the time on the terminal and the time the container is out of service by the line. These two penalties amount to hundreds of dollars per day per container in fees, not to mention the cascading costs to shippers unable to access their cargo to ship to customers.

The congestion and abysmal traffic jam of containers, trucks, and chassis imbalances between the United States and Asia has led truckers and carriers to seek relief for demurrage and detention penalties in Washington from the Federal Maritime Commission. Carriers and terminals are mostly foreign-owned, and shippers are concerned that these non-US companies are taking advantage of the situation. 

The FMC interpretative rule, further defined in the spring, speaks to the reasonableness of fees compared to port operations. Demurrage is the fee for leaving a container with the port for longer than allowed; detention is the fee for keeping the container away from the port for longer than allowed; both of these fees are compounding as truckers face port delays picking up containers and getting them turned and returned in time because of the traffic and congestion.

The agency determined these fees are meant to equalize the efficiency when one side of the system is operating inefficiently, but the side paying fees aren’t the issue at hand in the current situation.

Weston LaBar, CEO of the Harbor Trucking Association (HTA) referred to the situation as a “meltdown” and pointed out that, “people should be making money from cargo moving, not from cargo not moving.

During a press call on Monday, LaBar also hinted that carriers were looking at those fees the same way airlines look at charging for baggage and aisle seats – as a revenue stream that contributes to their bottom line. If that’s the case, it goes a long way to explaining Maesk’s record Q3 numbers

The shortage of containers is another issue because many carriers aren’t waiting for boxes to be emptied and refilled with cargo returning to Asia. They’re taking the empties straight back across the Pacific to more swiftly reload for transport back to the US because the export market in Asia is on fire for the United States. These record volumes are expected to rage through the Chinese Lunar New Year in February before abating.

American agricultural exporters are feeling the pain, unable to secure containers at inland depots to load cargo like grain or soybeans for shipping back to Asia. 

There’s no great relief on the horizon for importers waiting on cargo from Asia and the rest of the year looks just as difficult. This is the time when we need to ensure we have plans in place to mitigate the issues by rerouting, advance planning, and being flexible with equipment requirements.

As for what can be accomplished in the here and now, Zarach has several suggestions. First, we are working with our contracted carriers and overseas partners to seek mitigation or waiver of Demurrage & Detention fees that are out of our ability to control or resolve. Second, we are watching the incoming administration to identify opportunities for a sympathetic government ear to plead our case, but know that this will be months away at the earliest. Finally, we are encouraging customers to utilize trade associations they belong to as well as communicating with their Congressional representatives to underscore the financial and employment impact to the businesses in their districts.

Loathe as everyone is to have the FMC wade into the fray, government regulators may be the course of last resort to remediate this ongoing problem.

Congestion Loops Ports in Delays

A surge of imports at the ports of Los Angeles and Long Beach causes congestion and delays as record import volumes have the ports trying to operate at 105% capacity to keep up. Usually running at 80-85%, the port relies on buffer seasons between busy times to play catch up, but that relief has been absent since the summer.

Medical shipments, restocking, blanked sailings, and the coming holiday cargo have created a perfect storm of issues for import cargo bottlenecked as it tries to travel into the nation. This triple or quadruple peak season is that much more work with the same space, same crew, and same acreage yet reduced storage capacity as warehouses are still full from blanked sailing rolls early on in 2020. The delays cause a struggle down the entire supply chain as truck turn-times are up more than 21%, and containers are sitting upwards of 3.25 days, which is more than half a day longer than in July.

The high export demand in Asia causes cargo rollovers as transshipments aren’t finding space on incoming vessels as the surge of holiday exports soak up any extra space. With that much laid over cargo, any additional vessel spots are quickly taken, complicating the awaiting cargo at further ports. The higher the demand for more freight from Asian ports, the larger the overflow of containers waiting will grow.

The best way to deal with this level of import congestion is to keep reliable communications with your forwarder. We at Edward J. Zarach & Associates have built strong relationships with carriers over the years so we can weather these tumultuous situations with minimal disruption. Giving us advance notice of your equipment needs, loading availability, and being flexible with your routings are the best ways we can avoid delays and costly diversions for your cargo.

Agency & Regulatory Updates

A great deal of agency and regulatory news has been circulated since September as more deadlines appear and pass with new compliance standards attached. Most crucial, this year, as an even-numbered year, requires food facilities that are certified by the FDA to renew their registration at some point from October 1st through December 31st. If you’re stressed about your FDA registration, your Edward J. Zarach & Associates representative has you covered. We can advise and assist so that you can easily prepare to renew before the end of the year.    

Another important update comes to us via NOAA Fisheries who announced a new importers list, SIMP   (Seafood Import Monitoring Program) Compliant Importers List as a further tracing program for aquaculture regarding thirteen species that are most vulnerable to fraud, requiring importers to keep strict records and reports. The SIMP Compliant Importers list has no inclusion costs for importers and allows for less frequent audits for importers with a solid compliance record. If you’d like to be included on this list, your Zarach representative can assist you with the application. If your compliance record needs improvement, we can offer an audit and advisement on how to improve your processes to remain in compliance and achieve placement on this list.

Further seafood and compliance news come from the FDA’s final determination that the Netherlands and Spain have a system of food safety control methods for raw bivalve mollusks and shellfish that meets the U.S. standards of sanitation and will allow importation into the US from those locations if they’re listed on the Interstate Certified Shellfish Shippers List.

Customs has published a new regulatory rule in regards to steel licenses.  CSMS# 44205882 states that starting on October 13 the steel license platform now requires applicants to provide information about the country of melt and pour on all standard licenses from all countries.

Because compliance news comes out fast and furious, we think it’s critical that our audience is kept up to date on the most important issues that impact your business. Not every update is pertinent to each client, but if you have concerns about remaining compliance on a single issue or if you need guidance to update your business, Edward J. Zarach & Associates can work with you to customize a plan of solutions to fit your situation and budget.

Rates and congestion cloud peak season

Rates, capacity, and equipment are coming together in a perfect storm for shippers leading into the holiday season. Since the shutdown for Chinese Lunar New Year, it’s been an uphill struggle to get international logistics back running at the same speed. While equipment imbalances escalated due to blanked sailings, grounded passenger flights reduced belly capacity and forced more cargo to ship via ocean, taking up more containers, and so on until rates soared and transit times slogged. These issues have had a domino effect on the entire logistics network impacting trucking and rail alongside ocean and air shipments.

Current spot rates for ocean containers from Asia to the U.S. are running from $4,000 to the west coast and $5,000 to the east coast. Rail rates east from the west coast are up by $1500, with excess cargo rates looming at $3500 over the regular price. For the first time, truck rates are cheaper than rail on eastbound travel from the west coast. Cross-border trucking is also climbing in cost as the U.S. border with Mexico sees unprecedented delays and traffic re-routings through residential areas as the car manufacturer shipments fire back up after halting at the beginning of the pandemic.

When the pandemic hit, capacity was taken out of the market under the assumption that demand would drop but with nothing else to do, internet shopping became everyone’s favorite hobby. Once store shelves were stripped, the race to restock was on, and the reduction in capacity was felt around the planet. Rates are so out of control that the FMC and China have threatened to step in and investigate unless the graduated rate increases are removed, and sailings restored to normal. Maersk has already dropped its rate increases, and others should follow along soon.

It’s times like this that we learn the price of a volatile market. Preparation, communication, and anticipation are the only way to mitigate the current issues. During this, we depend on our relationships with carriers, contract rates and services, and broad knowledge of the best routes, alternative options, and alternatives to the alternates just in case. With a long-established industry expert in your corner to communicate changes and you can take advantage of your opportunities in times like these. Your representative at Edward J. Zarach & Associates is uniquely talented at helping you navigate the particulars of this market.   

Paid 301 China duties on Lists 3 or 4a?

File with the CIT by September 18th to protect your rights to a full refund.

A recent lawsuit brought against the Office of the US Trade Representative and Customs and Border Protection by a vinyl tile supplier seeks a refund of all Section 301 duties paid on Lists 3 and 4a.

The crux of the suit claims that the List 3 and 4a tariffs were retaliatory in nature and not remedies to unfair trade practices – a requirement of the Section 301 trade remedies. Though initially set to counter China’s intellectual property theft, further tariffs, including List 3 and 4 were not part of the USTR’s original finding and came about only after China applied tariffs against the US as trade tensions escalated.

If you are an importer and have paid duties on Section 301 goods from List 3 or 4a, you may be entitled to a complete refund, but the deadline to file with the Court of International Trade is only 72 hours away and must be done by Friday, September 18th.

Edward J. Zarach & Associates recommends you contact your Customs attorney immediately for advice and counsel. If you do not have designated counsel, we are happy to provide you with several recommendations.

Revised EU Section 301s

We’ve spent a lot of time during the last year discussing US trade remedies, especially where China is concerned. It’s a unique situation where people not impacted by logistics careers start to understand more about international trade because our industry has been in the news so frequently. Effective September 1, 2020, the USTR has released an updated list of goods subjected to Section 301 tariff remedies against the EU (15% for aircraft parts and 25% for everything else ), an action related to the WTO’s Airbus dispute resolution.

The list revises earlier dutied products, removing those from Greece and UK and replacing them with the same value of goods from France and Germany after a comment period was opened up in July to allow discussion on the trade remedies initially proposed. From that comment period, a few updates have happened.

From JDSupra the updates are as follows:

  • Removed from list:
    • 0406.90.99 – Cheeses & subst. for cheese (incl. mixt.), nesoi, w/o cows milk, w/butterfat over 0.5 percent by wt, not subject to GN15 – Products of Greece.
    • 1905.31.00 – Sweet biscuits – Products of United Kingdom
  • Added to the list:
    • 1905.31.00 – Sweet biscuits – Products of Germany
    • 2007.99.05 Lingonberry and raspberry jams – Products of France or Germany
    • 2007.99.10 Strawberry jam – Products of France or Germany
    • 2007.99.15 Currant and other berry jams, nesoi – Products of France or Germany
    • 2007.99.20 Apricot jam – Products of France or Germany
    • 2007.99.25 Cherry jam – Products of France or Germany
    • 2007.99.35 Peach jam – Products of France or Germany
    • 2007.99.60 Strawberry pastes and purees, being cooked preparations – Products of France or Germany

As we’ve discussed in the past, it’s important to remember that these are the only tariffs in this action against the EU, but may see a retaliatory tariff application from the EU on the US as a similar case of illegal subsidies with regard to Boeing is still pending at the WTO. Because these current duties are in response to the EU offering similar subsidies to Airbus, there’s no reason to think the WTO won’t be consistent in allowing the same retaliation against the US when the Boeing case is settled. It’s important to note, there will likely be retaliation because the US came out quick and strong once the Airbus decision was reached.

If you’re working to import goods marked for Section 301 tariffs from the EU or need to investigate your supply chain for alternative products or just want to see what options you have to import your cargo, you can trust the professionals at Edward J. Zarach & Associates. Reach out to your representative today to make a comprehensive cargo plan!

Hong Kong and COVID stall US China review

USTR clarifies Section 301 duties

Originally, the U.S. and China Phase One trade agreement was going to be reviewed at the six-month mark, which came and went on Saturday, August 15th, though President Trump has publicly commented that he’s satisfied with the movement of the deal. There is no detailed explanation for why the review didn’t happen. Some offer terms that this would give China more time to meet their purchase requirements of agricultural and energy products; issues with which were compounded as the world slowed down to stop the global pandemic of Coronavirus.

Should the review have happened as scheduled, the deal would not look as good as it might look given time for China to catch up on purchases they’re required to make under the agreement. More time allows them more spending and sets the negotiation in a more positive light, as currently, it doesn’t appear China is complying as they only completed 25% of the purchases to which they’d committed. Giving them extra time and reviewing later may set this in a better light and give both sides more confidence to go forward with continued agreements in the negotiation. It should also be said, that a more successful deal will be better received by the U.S. and could have more of an impact during the U.S. election.

The delay also allows the Chinese time to discuss unrelated trade measures being actioned against Chinese tech companies as U.S. executive orders have banned some transactions.

Last night, another executive order (Executive Order 13936) was recorded to confirm, “Special Administrative Region of Hong Kong (Hong Kong) is no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China (PRC or China) under the particular United States laws and provisions thereof set out in this order.” 

In addition to the EO, the U.S. Customs and Border Protection recently declared effective September 25, imported goods which were produced in Hong Kong must now be marked to indicate China is the country of origin. This also means that goods produced in Hong Kong will be subjected to Section 301 tariffs that impact Chinese exports. Information regarding the new country of origin rules is covered in 19 USC 1304 and can be found here.   

The relationship between the U.S. and China is the most critical in global trade at the moment when everyone is watching to see where we all go from here. Your representatives at Edward J. Zarach & Associates have a unique understanding regarding the fast-moving changes between our nations. We know it’s difficult to work in an environment in flux, but our expertise can help you plan and navigate the period between now and the review. If you have import cargo from China and want to make sure your supply chain is protected from a rapidly changing environment, reach out to us and let us help you stay competitive regardless of the political side.