The Dynamic Of The Chassis Quandary Today In Ocean Shipping In The United States

Husch Blackwell LLP
Contact

Don’t Forget the Chassis in the Chase for the Cure.

A new level of frustration has arisen from the ocean shipper ranks during this “post-COVID” period. Shipments from Asia to the U.S. are experiencing extreme difficulties in getting their cargo delivered, mainly due to the acute shortage of chassis to effect delivery of their containers on the U.S. side. The painful example of this is the BNSF current experience with Lot W. Aside from the impact to the importer in not being able to access its cargo and experiencing serious damage to its business, it is also likely to face serious demurrage charges from the ocean carrier. This is on top of having just experienced a quadrupling (or more) of the base FAK per container rates, and the ocean carrier choices to leave agricultural commodities sitting at West Coast U.S. ports, favoring the shipment of empty containers opting to position equipment for the lucrative Asia to U.S. trade.

The Journal of Commerce, July 18, 2021 newsletter release reports that a Congressional draft is in the making which would be considered in August, and which appears to have bipartisan support. It is claimed by some to be export focused. We have no ability to weigh this since the draft is not yet publicly available. From all appearances it appears to be a significant departure from the current Shipping Act of 1984, as amended. We have not seen any language yet in one area that seems to be at the root of issues on the import side—i.e., the unreliable delivery mechanisms in place for ocean carriers due to the paucity of chassis at key locations at pertinent times. From a legal perspective, it appears to us that ocean carriers cannot complete the shipping transaction until it offers a reliable system for delivery of the goods to the importer. Shippers, which are the purchasers of transportation which keep the industry’s wheels going, are now the main industry segment to which the penalties resulting from the scarcity of chassis is allocated. Demurrage charges have become a major revenue stream for ocean carriers. Without going into great detail on this point, it seems like a grossly misplaced burden to an importer who has just paid four or five times the usual freight rates, to also expect to pay for the inefficiencies of the delivery system of the ocean carriers.

Suffice it to say that in the early Sea-land/Malcolm McLean days[1], the chassis as the accepted norm was controlled by ocean carriers for delivery of goods; the placement of empties to be loaded; or to place containers at rail ramps. However, notwithstanding the obvious role of the chassis for ocean carriers to complete its transportation contract, in 2009, ocean carriers began their divestment of chassis. This resulted in in three major international chassis leasing companies linked to foreign carriers. These three companies were reduced to two in 2018 by the purchase by Direct Chassis Leasing International (DCLI) of TRAC Intermodal. Since then, DCLI has also been investing in data analytics to improve chassis repositioning to meet demand. See (the Report), an excellent review of the current chassis crisis which has resulted in high prices for motor carriers and congestion at marine terminals.

Of its many points of focus, the most pertinent one is that of the Ocean Carriers Equipment Managers Association (OCEMA), a U.S. association of 15 main ocean carriers. OCEMA is a product of the current Shipping Act, in that it provided anti-trust immunity to these ocean carriers for the following purposes as noted by the Report:

  • Individual ocean carriers can coordinate the formation of chassis pools and the upkeep of the chassis (although this is now the purview of separate chassis leasing companies).
  • Chassis can be exchanged among individual ocean carriers (although technically they chose to divest themselves of them) and among marine terminal operators and all other parties involved in the shipping process, i.e., “…rail terminal operators, container yard operators, rental companies, shippers, inland carriers, and logistics providers…”
  • Individual ocean carriers can form, own, and operate chassis pools or pool-owning companies (although no ocean carriers technically own any of the pool companies anymore). The pools can be managed by carrier-formed chassis leasing companies or neutral parties (gray pools).
  • The ocean carriers collectively delegate inspection and maintenance and repair (M&R) of chassis and compliance with state and federal chassis-related law (Ocean Carrier Equipment Management Association 2017:9, 10).

It is clear that the ocean carriers have divested themselves of the means for delivery of its containers, and, if that has not been sufficient motivation for inquiry by Congress and the Federal Maritime Commission, surely, turning this chassis divestment into a separate lucrative revenue stream should now get the legislative and regulatory spotlight during this period of change. Ocean carriers must have imposed on them the responsibility to make proper and timely delivery of the goods for which they are handsomely paid to transport. It is ludicrous to allocate the chassis dilemma on the purchaser of transport services.

[1] The author worked at Seatrain Lines in Edgewater, N.J. between 1967 and 1971, during this period in equipment management, when chassis were viewed as critical in the new containerization world for purposes of completion of the delivery functions of transport to its customers.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Husch Blackwell LLP | Attorney Advertising

Written by:

Husch Blackwell LLP
Contact
more
less

Husch Blackwell LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.