Prior to 2020, American exporters benefited from unreasonably low ocean rates on trans-Pacific westbound lanes. The notorious imbalance of low export and high import volumes between the U.S. and Asian Pacific countries meant that American export cargo was sought after by ocean carriers as a means of offsetting equipment repositioning costs to Asia.

The effects of the COVID-19 pandemic began with global production disruption and diminished ocean volumes in the first half of the year. As inventories ran low, traders witnessed soaring import demand, which led to elevated premium costs, and surcharges imposed by ocean carriers on import lanes. Ocean rate surcharges rose significantly, prompting shippers to accuse carriers of price gouging. Heavy import shipment volumes have also congested ports on the U.S. West Coast and in Asian Pacific nations, leading to equipment shortages.

The first half of the year was characterized by many cancelled or “blank” sailings due to weak demand, the second by low service reliability and a severe shortage of equipment. Carriers have often prioritized lucrative import bookings over less rewarding exports, although under normal circumstances, the latter contribute to greater cost efficiency and profitability of eastbound and westbound sailings. But in times of severe container shortages, time lost due to unavailable equipment becomes more costly than empty container sailings. So carriers prefer to take empties back to Asia instead of accepting export loads of soybeans, grains, or other commodities. The most impacted exporters are American agricultural shippers, but other industries (such as automotive) face similar difficulties.

The situation lasted for several months, with agricultural exporters seeking relief from regulators. California state officials presented a letter urging action to the U.S. Federal Maritime Commission. FMC began reviewing and monitoring ocean carrier practices such as blank sailings, cargo rejections and surcharges. Members of Congress are also calling on the industry to assist in obtaining equipment for agricultural shippers.

Further controversy has been generated by carriers’ policies on what shippers claim to be excessive detention and demurrage charges. 

Shippers aren’t the only ones paying the price. The reduction in loaded export containers to Asia negatively impacts the U.S. trade deficit as well. According to research by CNBC, ocean carriers denied the equivalent of 178,000 twenty-foot containers worth of export product in October and November alone, representing an estimated $630 million in lost trade.

While U.S. exporters seek support from FMC, the task of overcoming medium-term operational issues and defining their long-term role in the global supply chain isn’t finalized. Shippers will need to step up their efforts to acquire equipment, explore additional sources of shipper-owned containers, and use their leverage to get containers in transit promptly. The upcoming annual negotiations over service contracts will be essential in re-establishing shippers’ position with carriers. Exporters are advised to address the imbalance of current agreements and be strategic when defining service-level expectations, premium services, prevention of rejections, and rollovers. Carriers will likely attempt to increase base rates and surcharges, expand minimum quantity commitments, and lower free-time allocations.

American exporters play a valuable role in the U.S. economy. This year’s negotiations with ocean carriers represent a unique opportunity to negotiate terms and anchor the role of shippers in maintaining global supply chains. At the same time, however, higher ocean rate levels likely are here to stay for years to come.

Natalie Brandlova is sourcing and consulting manager at Allyn International.