Carries profit big for bad service, forced labor a no-go, trade a priority for Biden administration
Monday Morning Wake Up Call
March 1, 2021
Ocean carriers take heat for profiting ‘so handsomely’ while service plunged
(American Shipper) The Agriculture Transportation Coalition’s Peter Friedmann took exception to what Hapag-Lloyd’s CEO didn’t say during a recent videoconference with media from around the world.
“It is one thing for ship schedule reliability to be at all-time low levels, but quite another for carriers to profit so handsomely by such collapse in dependable service,” Friedmann, executive director of the Washington-based AgTC, told American Shipper after reading about Rolf Habben Jansen’s press conference.
Habben Jansen said that port congestion, particularly in Los Angeles and Long Beach, California, coupled with a container shortage and COVID-19 outbreaks among longshore workers had formed the perfect storm, and as a result, “schedule reliability is at a very low level.”
Friedmann argued that the “lack of schedule integrity” as well as ocean carriers’ failure to provide reliable updates “has directly led to the demurrage and detention charges imposed on their customers — the importers and exporters. That revenue — in the hundreds of millions of dollars — has contributed tremendously to the record-setting carrier profits, while pushing their customers into real financial trouble, some towards bankruptcy.
“In fact the current carrier, chassis and terminal dysfunction is so profitable for the carriers that there is little incentive for them to take the actions available to reduce the current service failures,” Friedmann said. “The carriers’ record profits also come while declining export bookings, hauling containers back to Asia empty to chase the import freight rates and preventing U.S. exporters from supplying our foreign customers. This will generate federal intervention that the carriers may regret.”
Demurrage and detention charges have been points of contention between shippers and carriers for years — long before COVID-19 spread around the globe — and have attracted government attention, most recently with the Federal Maritime Commission pushing for enforcement of a Shipping Act rule on “reasonable” demurrage and detention practices.
Demurrage pertains to the time an import container sits at a terminal, with the carrier responsible for collecting a penalty on behalf of the marine terminal. Detention relates to shippers holding containers for too long outside the marine terminals.
During the Feb. 18 press conference, Habben Jansen argued that Hapag-Lloyd wasn’t using detention charges to bolster its profits.
“We’ve also allowed people to get detention rates at a very much discounted rate because we do appreciate that people sometimes need longer to get stuff back,” he said.
Profits soar during pandemic
Undeniably, the COVID-19 pandemic has been good for business for the shipping lines. Hapag-Lloyd’s earnings before interest, taxes, depreciation and amortization (EBITDA) climbed $900 million in 2020 to $3.1 billion, up from $2.22 billion in 2019.
Maersk, the world’s largest container line, reported in February that its 2020 ocean EBITDA jumped 48% year-over-year to $6.5 billion. HMM announced it had made a billion-dollar turnaround in 2020 to record its highest operating profit ever. Ocean Network Express also reported incredible numbers, announcing its net quarterly profit had escalated by $939 million year-over-year.
Hapag-Lloyd won’t publish its final figures for the first quarter of 2021 until May 12, but gave an indication of what to expect in mid-February, when the German carrier said it expects EBITDA to be “significantly higher” than Q1 of 2020. The estimate is for EBITDA of “at least” $1.8 billion — more than double the profit of $517 million in the first quarter of 2020.
“We will see a very strong result in the first quarter, but we anticipate a normalization as the year progresses,” Habben Jansen said in a statement released with Hapag-Lloyd’s forecast. “We are still seeing slower container turn times, significant congestion in ports around the globe, capacity constraints in rail and truck, and the risks of the coronavirus pandemic remain.
“Nevertheless, we do also expect that the result for 2021 as a whole will be significantly higher than the prior-year level,” he said.
Spot rates also are significantly higher. FreightWaves Senior Editor Greg Miller reported that as of last Tuesday, the Asia-U.S. West Coast spot rate was at an all-time high of $4,922 per forty-foot equivalent unit.
“These rates become very, very high when capacity is tight. Typically only about 20% of the freight moves at spot rates and the rest is contracted,” Jansen said during the Feb. 18 press conference.
He agreed that during the import surge, space on container ships is difficult to come by and “you would have to pay a premium for that in this market.”
In response to a question regarding reports of contracted rates 50% to 75% higher than the prior year, Habben Jansen contended the contract rate in 2020 was up only about 4% until the fourth quarter, when it increased again.
“But we also saw that it was pretty flat and down at times early on” in the pandemic, he said. “I think that’s where you have to look at the long period of time.”
He granted that contracts Hapag-Lloyd has “closed for the upcoming year are generally up compared to the previous year. I wouldn’t comment exactly on the percentage, but they are up fairly significantly. … If you look at them in historical standards, you would look at a little more than just the last few years. They’re still at a reasonable level.”
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'Know Your Supply Chains'— As to Forced Labor Enforcement, the Biden Administration is Picking Up Where the Previous Administration Left Off
(JDSupra) In case there was any doubt as to where the Biden administration stands on forced labor enforcement, United States Customs and Border Protection (CBP) stated recently that its “message to the trade community is clear: Know your supply chains.” This renewed message comes amid the release of new CBP enforcement guidance and an ever-sharpening focus — both in Washington and the capitals of many of the United States’ top trade partners — on restricting imports from China’s Xinjiang Uighur Autonomous Region. Below is the latest.
New CBP Guidance
As explained in our previous client alert, Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labor — and since 2016, CBP has ramped up its enforcement. Most recently, on January 13, 2021, CBP issued a withhold/release order (WRO) directing all personnel at all U.S. ports of entry to detain cotton and tomato products grown or produced by any entities operating in Xinjiang. In conjunction with the announcement, CBP cited examples of “downstream products” that are covered by the order including apparel, textiles, tomato seeds, canned tomatoes, tomato sauce and other goods made with cotton and tomatoes that are produced in whole or in part in Xinjiang.
In response to uncertainty within the trade community surrounding the application of the January 13 WRO, CBP recently issued a series of FAQs to clarify the agency’s enforcement approach. Highlights include:
Detainment vs. Seizure: The FAQs clarify that shipments subject to the January 13 WRO will be detained by CBP — not seized. According to CBP, upon detention of the merchandise, importers have the option to export the goods or provide proof of admissibility to the port of entry where the shipment is being detained in accordance with 19 CFR § 12.43 (see below).
Proof of Admissibility: Perhaps the most revealing (and impactful) guidance contained within the FAQs relates to an affected importer’s burden of proof. Per the January 13 WRO, to obtain the release of detained goods, the importer must submit evidence demonstrating that the imported merchandise was not produced in whole or in part in Xinjiang using forced labor. According to CBP’s new guidance, supporting documentation should “trace the supply chain from point of origin of the cotton or tomatoes, to the production and processing of downstream products, to the merchandise imported into the United States.” Such tracing may be provided, for example, by submitting affidavits from the producer and source of the raw cotton or tomatoes, along with purchase orders, invoices, proof of payment, and other documents (e.g., employee time cards, wage payment receipts) to establish the source of the cotton and/or tomatoes and the lack of forced labor use. If the importer fails to submit sufficient evidence within three months of entry, the merchandise will be excluded from the U.S.
Partial Detention: CBP also clarified that in circumstances where goods subject to the January 13 WRO account for only a portion of a shipment, the importer may file a request for a manipulation permit with the port of entry. Upon issuance of a manipulation permit, the importer may then choose to amend the entry to secure the release of the non-subject goods. Moreover, if the importer intends to contest that certain goods are subject to the WRO, those goods may be entered into a bonded warehouse.
In the backdrop of these regulatory developments, Congress is continuing its push to tighten forced labor enforcement measures even further. On February 18, 2021, a bipartisan group of lawmakers — led by Representatives Jim McGovern (D-MA) and Chris Smith (R-NJ) — reintroduced the Uyghur Forced Labor Prevention Act (UFLPA), a bill that passed the House of Representatives in the last Congress by a vote of 406 to 3, but ultimately stalled in the Senate. Like the previous legislation, the newly introduced UFLPA would:
Prohibit the import of goods manufactured and/or produced in Xinjiang unless CBP (1) determines by “clear and convincing evidence” that the goods were not produced wholly or in part by convict labor, forced labor or indentured labor under penal sanctions; and (2) reports such a determination to Congress.
Establish new disclosure requirements for publicly traded U.S. companies knowingly engaging with entities involved in certain activities in Xinjiang.
Require the Forced Labor Enforcement Task Force — which was established by the United States-Mexico-Canada Agreement Implementation Act — to issue a strategy report and provide regular updates to Congress on the steps taken to enforce the import prohibitions from Xinjiang.
Senator Marco Rubio (R-FL) introduced companion legislation that is co-sponsored by nearly 1/3 of the Senate, including 16 Republicans and 15 Democrats. Given the broad and bipartisan support for stiffer forced labor enforcement measures, it is anticipated that this legislation will move quickly.
The recent actions in Washington are not in isolation. As explained in our January 15, 2021, client alert, some of the United States’ top trading partners — including Canada and the United Kingdom — have recently announced their own measures targeting goods in Xinjiang.
More recently, on February 23, 2021, Josep Borrell, the European Union’s High Representative for Foreign Affairs and Security Policy, called on China to allow “meaningful access to Xinjiang for independent observers” for purposes of facilitating “an independent, impartial and transparent assessment” as to the reported use of forced labor. This statement comes as the European Parliament debates whether it will approve the Comprehensive Agreement on Investment (CAI), a bilateral investment accord agreed to in principle by the European Commission and China on December 30, 2020. As a pre-condition for ratification, a group of European Parliament members (including some allied with French President Emmanuel Macron) are calling on China to sign on to two conventions on forced labor under the International Labour Organization (ILO).
For More Information
The increasing U.S. (and global) focus on forced labor practices continues to underscore the need for both U.S. importers and exporters to carefully review and potentially reassess their supply chains.
To read more of this article: https://www.jdsupra.com/legalnews/know-your-supply-chains-as-to-forced-4355471/
Trade won’t be on 'back burner' for Biden, USTR pick Tai tells Senate
(Politico) U.S. Trade Representative nominee Katherine Tai pushed back on concerns the Biden White House will “stand still” on trade policy during her confirmation hearing Thursday, telling senators she does not expect to be sidelined in policymaking.
Senators from both parties pressed Tai on the Biden administration’s pledge to not negotiate any major new trade deals until it secures domestic economic stimulus from Congress. “You must make the president understand that trade is a domestic priority,” Ranking Member Mike Crapo (R-Idaho) told the nominee.
Tai used the hearing to respond to those concerned of a trade policy pause, as well as worries that the former House lawyer could be sidelined in a Cabinet full of White House veterans and longtime Biden advisers.
“To the extent I have been privy to conversations or have been made aware of the Biden administration outlook, I don't expect, if confirmed, to be put on the back burner at all,” she said.
No rush for U.K. deal: While Tai pledged to stay busy on trade policy, she did not stake out concrete positions on major questions facing her agency, such as ongoing talks with the United Kingdom on a new trade deal.
The deal must be signed by July 1 to qualify for fast-track treatment under the trade promotion authority. And to meet that deadline, USTR would have to formally notify Congress by April 1 of its intent to sign the pact. But Tai seemed in no rush to finish the negotiations, saying she needed to dig into the details of the Trump administration’s talks.
"If confirmed, it will be important to me to review the progress and the conversations so far,” Tai said, noting the economic situation has changed since the Trump administration laid out its negotiating objectives for the agreement in 2018, due to the pandemic and the U.K. leaving the European Union.
TPP a ‘solid formula’: Tai was similarly noncommittal about restarting negotiations on a new trade deal in the Asia-Pacific after the Trump administration abandoned the Trans-Pacific Partnership that President Barack Obama’s team negotiated.
Tai called the model of engaging friendly nations in Asia a “solid formula,” especially to answer the rise of China. But she also warned the world is "is very different in important ways" than 2015 and 2016, when Obama's team hammered out TPP. And she said the U.S. must “revisit” its approach to Beijing as part of a “holistic” review of China policy. “What the most recent years have taught us is that we need to revisit how we conduct our economic activity, our cooperation and our trade policies,” Tai said, “not to become China, but how to be true to ourselves and our traditions, and be more strategic, knowing the quantity and the strategy and ambition that we are up against.”
To read more of this article: https://www.politico.com/news/2021/02/25/katherine-tai-senate-hearing-471651
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