The headline in a recent edition of American Shipper says what I’ve been saying for months: “Shipping Chaos Gives Top Importers ‘Massive Competitive Edge.’”
In a blog I wrote in May, I pointed out how larger shippers are seeing their rates go up but not at the levels of smaller shippers and larger shippers have a much better chance of getting their cargo on ships. Given that, the larger shippers aren’t making much noise about the situation and don’t seem very interested in trying to find solutions. Smaller businesses, however, are being crushed with these charges and lack the support of the larger players in trying to effect change.
Why should they want to effect change? Some lines from the American Shipper article sum it up nicely:
“We’re seeing a price differential of $15,000 [per forty-foot equivalent unit or FEU] between the lowest short-term price in the [trans-Pacific] market and the top price,” said Erik Devetak, chief product and data officer of Xeneta, a Norwegian company that analyzes freight rates, during a press conference on Thursday.
“That implies a huge competitive advantage for established players, which has consequences across the economy and for everyday life, and also, from a point of view of lowering competition and increasing barriers to entry for future competitors.”
Patrik Berglund, CEO of Xeneta, added, “Everybody’s seeing price increases but... being really big is really a massive competitive edge in this market.”
Mainstream media is finally catching on to the issue, warning consumers of product shortages and rising prices – some of this already happening and has been for months. Many consumers likely think this is a short-term, one-time situation. While we all hope it’s a one-time situation, hope is not enough. It’s also not a short-term situation – not when you consider it’s been spiraling out of control for more than a year and anyone offering a timetable for possible relief is pushing that time further back. Most now think the soonest any real relief will happen is the middle of 2022. By then, many businesses will cease to exist.
The big shippers – and this doesn’t include many firms that sell millions or even several billions of dollars’ worth of product – likely are licking their chops to see that very thing happen. Normally, when an issue comes up the big players lead the way in forming coalitions to address it, encouraging smaller entities to join in the effort to show widespread support. Not only didn’t that happen this time out but many large entities buying through third parties refused to absorb any of the added fees (leaving that burden solely to their business partners). Another reason the biggest shippers aren’t speaking up very loudly – their volumes practically guarantee their product will get on ships because the shipping lines want to keep them as happy as possible.
I’ve heard many say the rising rates – even at the unprecedented levels we’re seeing – are somewhat justified because rates had been “so low” for many years. Increases of 400+% are not a market correction...
This is a scenario in which size certainly does matter. Maybe the largest shippers will finally show some real concern when their customers push back when their price points hit the breaking point.
Rates continue to rise to a point where in some cases they almost match the value of the merchandise in the container. Importers are still getting hit with charges such as demurrage for not picking up their product when it’s physically impossible to do so. The Federal Maritime Commission and the Biden Administration have taken some initial steps to address the problem but it’s time to put the pedal to the metal.
Here’s an obvious statement for today’s world – shipping costs need to be reined in. To continue being blunt – Congress and government agencies with jurisdiction must take steps . . . yesterday!
Things are simply out of control. Sure, there’s the pandemic and all that goes with it. Then there are the many components that make up the logistics sector – shipping lines, ports, terminal operators, transportation firms to name a few. Many of those entities are reporting record volumes and record profits but that’s a tough pill for those paying so much more to move their goods.
Everyone understands supply and demand, etc., but some of this seems to be going unchecked. I’m hearing of shippers in other countries being told their contract rates are essentially useless and that if they want to get their containers on the ship, they must pay that amount plus and perhaps plus again.
Importers are facing the same issue. The shippers that are willing to pay a premium are receiving space for “prompt” shipments but if a shipper insists to apply contracted rates the space made available to them is limited. Importers are also being hit with general rate increases, added repositioning fees, increased wharfage, fuel increases, etc. – often without notice. And all of that is just on the loading side. Similar issues exist once the container arrives at a U.S. port – delays due to port congestion, more repositioning fees, limited free time among them.
Larger shippers are seeing their rates go up but smaller shippers get that and are much more likely to be faced with what’s mentioned above. Given that, the larger shippers aren’t making much noise about the situation and don’t seem very interested in trying to find solutions. Smaller businesses, however, are being crushed with these charges and lack the support of the larger players in trying to effect change.
Of course, consumers will lose out in all of this, too. These costs can’t simply be absorbed within the supply chain. Higher prices are already being seen. Those price increases will continue and be seen across the board – food, other consumer goods, essentially anything with imported components.
Build back better has a nice ring to it but the inflated prices on goods across the board because of these increased fees will certainly put a damper on any post-pandemic recovery.
I had someone say something like that to me when I bumped into him and someone from his company at a trade show a couple of years ago. Since FDA was actually coming to his office a few days later to conduct a Foreign Supplier Verification Program regulation inspection, his comment was more along the lines of “I’m not going to keep all those records. If I don’t have something, I’ll just tell them I need time to get it and they’ll just have to give me that time.” Based on the look his associate gave me, he wasn’t at all comfortable with that approach – and rightfully so!
I’ve heard both of these statements and both are troublesome. Is the first time you hear about or think about getting the documents importers are required to have to comply with FSVP going to be when FDA arrives at your office? As with every other social interaction, first impressions go a long way. You’ll get your FSVP inspection off to a rousing start if you take this approach.
FSMA was signed into law 10 years ago. The first compliance date for importers was in 2017. FDA rightfully expects importers will have taken steps by this point to comply with the regulation. The cavalier approach of acting as though you can make FDA wait until you have time to start taking things seriously will have serious ramifications on your business.
If, on the other hand, your firm has taken steps to do what’s necessary to comply, FDA is still using enforcement discretion. That means an FDA investigator is more likely grant some leeway and give some time to correct shortcomings to a firm that’s made a concerted attempt at compliance.
The Food Safety Preventive Controls Alliance, a public/private partnership funded by FDA, developed courses for some of the seven major FSMA regulations. I strongly recommend you take the course(s) associated with the rule(s) to which your firm is subject. It’s the best way to get the information you need to comply and it’s delivered in a way that facilitates understanding of the rules. I served on the task force that developed the FSVP course and lead AFI’s FSVP training. Click for detailed information.
Whether it’s through AFI or another provider, take the training and get your suppliers to take the course on the Human Food rule – the one for food producers.
“Wait and see.” It’s a frustrating phrase we’ve heard often over the past year, whether regarding the COVID-19 pandemic or the U.S. presidential election and its impact on trade. But while there are some aspects about those issues where we can only wait and see, falling into the trap of doing nothing but waiting can be costly.
We’ve all heard about “pivots” companies made once the pandemic hit, things such as expanding product lines to pandemic-demand items, reaching out to new types of customers, trimming product offerings to focus on the most-profitable or most-in-current-demand ones, etc. Most of these moves weren’t growth strategies; they were survival strategies – moves identified as possible for a particular company and then carried out.
USE YOUR VOICE
Trade issues should be handled in a similar manner. The food import industry directly and indirectly is responsible for or plays a part in millions of jobs throughout the country. It’s a huge mistake for those in the industry to assume their voices don’t matter. The industry needs individual voices as well as a collective voice.
For example, at this very moment, members of Congress and the Biden Administration need to hear about how Congress’ failure to renew GSP and to pass the Miscellaneous Tariff Bill are impacting importers, their customers and consumers. The same message needs to be heard regarding the impact of the punitive tariffs on products from the European Union and China.
CALL YOUR CONGRESS MEMBERS
We can’t “wait and see.” And we can be proactive without spending even one cent on lobbying. If any of the issues I listed impact you, a quick call or email to your members of Congress can go a long way. If they don’t hear from members of the food import trade, they may not realize a problem exists or they may think the industry doesn’t view an issue as a problem.
I’ve been told by a number of people over the years that many times the deciding factor in a member of Congress agreeing to support or oppose a particular issue is the size of the “piles of input." If more people have reached out in favor of an issue, it wins. If more oppose, the vote will be cast against.
AFI won’t wait and see. We’re continuing our outreach and I encourage you to do the same.
Here’s a belated happy birthday wish to the Food Safety Modernization Act. FSMA, the biggest change to U.S. food law in nearly a century, was signed into law Jan. 4, 2011. FSMA is huge – not only because of the changes it created but because of the sheer volume of paper it required and continues to require.
FSMA created a new regulatory paradigm – prevention of instead of reaction to food safety issues. The idea behind FSMA was to give FDA better tools to regulate food safety, in concert with requiring ongoing steps by everyone in the food supply chain to identify potential food safety hazards and then to put measures in place to mitigate or eliminate those hazards.
For imported foods, foreign suppliers are subject to what’s referred to as the “Human Food Rule” and must constantly be able to produce records to demonstrate compliance. FSMA’s Foreign Supplier Verification Programs rule makes the importer responsible for having records for each entry that demonstrate the food was produced safely. More importantly, the FSVP regulation makes the importer responsible for the safety of the food.
Many in the industry have taken steps to comply with FSMA. Though it required changes – on a varying scale based on what companies had in place pre-FSMA – it’s doable. Others have skated by, either doing nothing and hoping for the best or paying only some attention to FSMA. If your company fits into that category, you’re playing with fire!
FDA’s mantra as FSMA was rolled out was “Educate While We Regulate.” For the most part, those days are over. The regulations have been around for 10 years and the first compliance date for importers, for example, was nearly four years ago. The agency, rightfully so, says that’s long enough for those subject to the regulation to be in compliance. So, if you fall into the category of those who’ve done little or nothing to come into compliance, you should be nervous if FDA comes to look at your FSVP records.
AFI OFFERS FSVP TRAINING
The Food Safety Preventive Controls Alliance, a public/private partnership funded by FDA, developed courses for some of the seven major FSMA regulations. I strongly recommend you take the course(s) associated with the rule(s) to which your firm is subject. It’s the best way to get the information you need to comply and it’s delivered in a way that facilitates understanding of the rules.
I served on the task force that developed the FSVP course and lead AFI’s FSVP training. Information on AFI’s offerings is available at afius.org/fsvp. Information on FSVP sessions offered by others and FSPCA courses on other FSMA rules can be found on the FSPCA website. Once there, one can search by course, language, location, etc.
FSMA was needed and it’s the base on which future food safety regulations will be built. If I were a betting man, I’d only put my money on companies that are taking FSMA seriously.