Banana Ships And The Hidden Fees Of Ship Cargo

Sun, 07/03/2022 - 14:04 — helmsman

Banana Ships And The Hidden Fees Of Ship Cargo
Editorial Michael Grabell (ProPublica) July 2, 2022 https://gcaptain.com/banana-ships-hidden-fees-of-shipping/

A cadre of ocean carriers are charging exorbitant, potentially illegal, fees on shipping containers stuck because of congestion at ports. Sellers of furniture, coconut water, even kids’ potties say the fees are inflating costs.

Here is the long story in full graphic detail.

The story you’re about to read is bananas, and it’s also about bananas.

Last fall, a company called One Banana loaded 600,000 pounds of the fruit from its plantations in Guatemala and Ecuador onto ships bound for the Port of Long Beach in California. Once they arrived, the bananas, packed in refrigerated containers, were offloaded by cranes for trucking to a nearby warehouse, where the fruit would be sent to supermarkets nationwide.

But in the midst of a global supply chain crisis, none of the trucking companies the importer normally worked with were willing to come and get the containers.

As the bananas sat at the marine terminal, a logistics specialist for One Banana scrambled, contacting more than a dozen trucking firms.

With each passing hour, the bananas grew closer to spoiling.

“We need to pull out 15 containers from Long Beach Port,” the logistics specialist wrote in an email to one firm. “Please let me know if you could help me with this.”

A trucking company finally said it could — but only if One Banana first paid $12,000 per container on top of already higher transportation costs.

This is where the plot ripens.

If One Banana were to accept that additional fee and pass the full cost along to consumers, the bananas could go from 60 cents a pound to 90 cents a pound. That alone might not break your budget, but rising prices of everyday items are adding up to the worst inflation in 40 years. Many of the causes may seem obvious. Massive consumer spending and pandemic shutdowns have strained supply chains. The war in Ukraine is driving up the price of gas. But the extra fees for transporting bananas — and countless other products — are a hidden and mind-boggling source of inflation controlled by ocean carriers.

Simply put, as ballooning costs hit the wallets of American families, the global ocean shipping industry is enjoying its most profitable period in recent history. In the first quarter of 2022, the biggest carriers’ operating margins hit 57%, according to one industry research firm, after hovering in the single digits before the pandemic.

The hauler that wanted $12,000 per container to move the bananas told the One Banana logistics specialist that it needed the money to cover a slew of fees the ocean carriers were tacking onto freight bills. Hapag-Lloyd, the German shipping giant that owned the containers the bananas were sitting in, had become particularly notorious in the freight industry, leading to multiple complaints to the Federal Maritime Commission.

In normal times, the fees, known as detention and demurrage, make a lot of sense. Importers who don’t pick up their stuff on time get charged demurrage for storage at the marine terminals. Truckers who don’t return an empty container on time pay late fees, or detention. The purpose of the penalties is to incentivize the various players in the supply chain to keep goods flowing.

But as supply chains snarled last year, the ports of Long Beach and Los Angeles ran out of room and became clogged with shipping containers that importers, often big-box retailers and brands, weren’t able to retrieve. Surrounding truckyards and streets were flooded with empty containers, temporarily dumped there by trucking companies that couldn’t get appointments to return them to the ports.

Hapag had made it “extremely difficult” to return empty containers, the trucking company said, and it was often left holding them for a month, all while Hapag continued to charge the firm $400 a day for each container that wasn’t returned on time. One trucking company that the importer contacted said it almost had to shut down temporarily because all the chassis — the steel frames with wheels that attach to trucks — that it needed to pull new loads from the ports were sitting under 70 empty containers that Hapag refused to take back.

Essentially, One Banana and several trucking companies said Hapag had created the situation it was now profiting from.

“It’s like renting a car at the airport, and when you try to return it, they’re saying, ‘No, you have to hang on to it for us, and we’re gonna continue to charge you,’” said Fred Johring, the CEO of one of the trucking firms, Golden State Logistics.

Hapag declined to comment, but in filings with the Maritime Commission, it denied One Banana’s allegations that the fees were unfair.

The case is ongoing, but on this late October day in the Port of Long Beach, hundreds of thousands of dollars’ worth of bananas hung in the balance.

For more than a year, retailers and brands have complained of crushing costs as the rate to ship a container from China to the West Coast skyrocketed from less than $2,000 before the pandemic to over $20,000 last year. Ninety percent of the stuff Americans buy from overseas arrives by ship, and nearly all of it is carried by a small number of ocean carriers that work together in three alliances that dominate the trade.

The Federal Maritime Commission, which regulates the ocean shipping industry, recently concluded that the spike in freight rates was driven by the surge in spending and record congestion, not monopoly power.

But the federal government said what’s happening with the additional detention and demurrage fees isn’t simple supply and demand. Instead, it said ocean carriers have taken advantage of the crisis and “contributed to the pain” by imposing billions of dollars in “purposeless” and illegal fees that violate the Shipping Act.

Now, the arcane matter of detention and demurrage has made its way into corporate earnings reports. Companies ranging from Bed Bath & Beyond and Havertys Furniture to Vita Coco beverages and Summer Infant, which makes baby strollers and potties, have blamed detention and demurrage fees for hurting their bottom lines or leading them to increase prices.

“Most people didn’t even know what those things were,” Trevor Lang, chief financial officer for Floor & Decor, said in an earnings call in February.

In comments to federal regulators in April, the Home Furnishings Association wrote, “These demurrage and detention fees have become a significant part of furniture retail costs in the last 2+ years.”

The trade association representing toymakers like Hasbro and Mattel called the charges “unethical,” while a group representing meatpackers like Tyson Foods and Cargill accused ocean carriers of “near-constant predatory and unreasonable behavior” and “a clear abuse of market power.”

One Banana called the fees “unjust and unreasonable” in a complaint to the Maritime Commission. But other fruit importers went further in agency comments.

“Demurrage charges are one way in which ocean carriers abuse their monopoly power over ocean transport,” the fruit importer William H. Kopke Jr. Inc. wrote to the commission. “Particularly when the cargo is perishable, it is as if the cargo is held hostage. If the receiver does not pay any charges demanded immediately, not only does the cargo rot while the charges are under dispute, but demurrage charges will continue to accrue.”

In an interview, John Butler, president of the World Shipping Council, said the ocean carriers that the trade group represents have been dealing with historic demand and congestion and, with the millions of boxes that they’re moving, disputes are bound to erupt.

“In the eyes of their customers, do they get it right all the time? Of course not,” he said. “Does that make it unreasonable? Sometimes it might be. Sometimes it might not be. It really is case by case. So you can’t generalize about practices because it really does come down to the situation.”

In particular, Butler said, many big-box retailers and other importers have been using the ports as storage because their warehouses are full or they can’t get truckers to move their cargo.

The fee controversy is pitting the Maritime Commission, with 128 employees and a $31 million annual budget, against a global shipping industry that raked in $214 billion in profits last year.

In recent months, the commission has been trying to crack down on the fees by inviting complaints like One Banana’s and proposing tougher rules on ocean carriers. And on Monday, Congress approved the Ocean Shipping Reform Act, giving the commission more teeth.

The Maritime Commission rebuked Hapag in one case involving Golden State Logistics, proposing the biggest fine in the agency’s history: $16.5 million.

The proposed fine was still less than the profit Hapag made in a single day last year, but the commission hoped it would send a message. In late April, an administrative law judge agreed that Hapag had violated the Shipping Act, and last week the company agreed to settle the case for $2 million — about what Hapag made in 98 minutes.

Hapag declined to comment on the commission’s case but told the judge that its practices were reasonable and that any fees were the trucking firm’s fault.

As U.S. regulators spar with the global behemoths who control the shipping trade, the inefficiencies of a supply chain that once seemed blazingly efficient are becoming clear.

Kim Cruz, an auditor for Golden State, steered a Toyota pickup through the dusty potholed storage yard in Wilmington, California, craning her neck to read the numbers stamped on the backs of shipping containers parked in row upon row. It was April, and she was looking for a container that the trucking company had been trying to return to the Chinese shipping titan COSCO since Jan. 26.

The light gray container had traveled the world, according to customs records, carrying suitcases from a Cambodian factory to a port in Vietnam, where it was loaded onto a ship called the Marco Polo that is as long as the Empire State Building is tall. The container arrived in mid-January at the Port of Los Angeles, where a trucker for Golden State picked it up and drove it to a warehouse for a major department store.

Now it sat empty, hidden somewhere amid hundreds of blue, green, yellow, pink and rust-colored containers lining the dirt lot squeezed between a rail line and a refinery.

“It’s insane — you have to search this whole yard,” said Cruz, who has brown curly hair and a tattoo of a sooty owl wrapped around her forearm.

Cruz knew the absurdities of the global supply chain intimately. She had helped Golden State and the Maritime Commission build the case against Hapag.

Overwhelmed by detention and demurrage bills in 2021, the midsize trucking firm based in Compton, California, had tasked Cruz with fighting back. She studied the law, along with a decades-old industry code with a tongue-twisting name: the Uniform Intermodal Interchange and Facilities Access Agreement. It spells out the relationship between ocean carriers, marine terminals, equipment leasing companies and trucking firms as containers and chassis change custody along the supply chain.

Many people might assume that returning a shipping container is easy: Truckers pick up a load at the port, take it to a warehouse and return with an empty container — back and forth throughout the day.

But the supply chain doesn’t work like that. Containers typically belong to the ocean carriers, and different types of containers can only be returned to certain marine terminals at specific times. To manage the flow, terminals usually require trucking companies to make appointments.

Cruz and Golden State’s dispatchers had been trying for months to schedule a time to return the COSCO container. But appointments to simply return a container are hard to come by as terminals try to free up space by requiring what’s known as a “dual transaction,” meaning that for every container brought back, a new load needs to be taken out of the port. If one of Golden State’s customers didn’t have a load at that terminal, it couldn’t return the container. To make matters more difficult, the container was sitting on a specialized chassis that couldn’t be reused and could only be returned to a specific terminal.

Each day that Golden State couldn’t return the container to COSCO, it accrued another $180 in fees that would ultimately be passed on to the department store and most likely its shoppers. So far, the container had racked up nearly $8,000 in fees, not including thousands more for the chassis and yard storage.

COSCO declined to comment.

As Cruz scanned the storage yard, she repeated the first few letters of the container number.

“What’s that one?” she asked, pointing to a gray container. “Oh no, I don’t think it’s that one.”

Before getting hired to keep track of equipment and audit invoices for trucking companies,

Cruz studied social work and psychology and worked as a customer service representative for Harley-Davidson.

“I didn’t even know what a chassis was back then,” she said. “But now I love it. It’s like trying to figure out lots of little puzzles.”

In the Hapag case, Cruz provided screenshots from the terminal booking websites showing that no appointments were available. But each time, a Hapag representative responded that the marine terminals manage the appointment systems, not them, and that Golden State still owed the fees. (The trade group for marine terminals said the availability of appointments is dictated by the ocean carriers.)

Frustrated by one of Hapag’s replies, Cruz shot back over email: “We are not paying this invoice. There were no appointments available and the terminal appointment system is out of our control.” She explained that Golden State had contacted Hapag daily to ask for help or alternate return locations and had gotten nowhere.

“How does any of this make sense?” she asked. “These are unfair business practices that must be stopped immediately.”

As Cruz drove deeper into the container yard, an early spring heat wave pushing temperatures past 90 degrees, she squinted through the glare of the afternoon sun on the windshield.

“It’s got to be in here somewhere,” she said.

If a container stays out too long and late fees aren’t paid, trucking companies can be slapped with a shut-out notice, barring them from picking up any of the ocean line’s containers. The notices are akin to a death sentence in the freight industry, as trucking firms that can’t fulfill their customers’ orders will quickly lose business.

In the last year, Cruz said, Golden State had been threatened frequently with shut-outs. It’s a powerful scare tactic, she said, that often pressures trucking companies to pay invalid bills.

“Truckers usually pay it and just say be done with it,” she said. “You know, we’re gonna lose more money if we end up getting shut out. So that’s what happens.” She shook her head: “Dirty business.”

After searching through rows of containers, Cruz finally approached the back of the yard.

“Maybe behind that container?” she said.

She got closer and read the letters.

“That’s it!” she shouted.

The light gray COSCO container was pocked with rust marks, sitting between a lime-green container and one that was taxi yellow. Cruz stepped out of the pickup to look at the box that had been a line at the top of a spreadsheet and the object of so much agita.

But she still needed a trucker — and an appointment to return the container.

The impact of the fees has hit freight haulers big and small. And the circumstances causing them to pony up are often out of their control.

The IMC Companies, one of the largest port trucking firms in the country, said it paid well over $100 million in demurrage fees alone last year on behalf of its customers, compared with a few million dollars before the pandemic. Jim Gillis, president of the IMC subsidiary Pacific Drayage Services, said at one point last fall one of his customers, a large household goods retailer selling small appliances and candles, had 350 containers that it couldn’t return.

“By the time you’re said and done, instead of paying $10,000 a container, with all the fees racked up, with storage fees at the port, chassis fees, per diem fees, these guys are paying $60,000 to $70,000 a box,” he said, estimating the total might have reached $20 million. “If I’m an importer,” he said, “I’m adding that to the price of my products.”

The issue became so bad for Leslie Luna, freight coordinator for Luna and Son’s Trucking, that her family moved its small trucking firm out of Southern California to the less-congested Port of Houston in Texas.

“It got to a point where we were stressed with having to house all these containers and not getting much help,” she said. “I was lucky if I got two to three hours of sleep, because I was literally on that computer all night trying to get appointments.”

Ocean carriers and marine terminals typically don’t let truckers leave with a container until all late pickup fees have been paid. Businesses say that’s forced them to shell out even when the charges are disputed.

Sometimes, containers are pulled aside for inspection by U.S. customs officials. J&K Fresh, a customs broker for the fruit industry, said Chilean grape importers are “facing a financial crisis” at the Port of Philadelphia as congestion delays are forcing them to pay thousands of dollars in fees per container while waiting for the grapes to be fumigated — a requirement of the U.S. Department of Agriculture.

Once containers are picked up, another clock starts. Importers have a few days to take them to a warehouse, unload them and return them empty.

Often, retailers will hire freight brokers to act as travel agents to handle the whole trip.

Under some contracts, the broker can be the ocean shipping line, which arranges transportation of the container across the sea, over rails and aboard trucks to its final destination. But sometimes the ocean carrier’s trucking company is backlogged for weeks. Both retailers and freight brokers said they’ve sometimes been stuck with late fees in these cases even when other trucking firms were available.

In addition to alerting importers that their goods have arrived, ocean carriers also tell U.S. companies waiting to export products when their ship is about to dock. Those companies, often farmers and manufacturers, will then load their products into containers and take them to the port. But because of the congestion, the companies complain, the ocean carriers’ ships have been delayed, forcing them to pay fees for port storage or extra container use.

Even when supply chains aren’t snarled, fees can add up fast.

In one particularly pungent anecdote, Brian Watt, a logistics manager based in Florida, described a container carrying plastic bins full of liquid yeast extract from Europe to New York. On its journey across the Atlantic, he said, one of the bins burst open, coating the inside of the container with a slurry-like goo. The mess was discovered only after his trucker had delivered the container to a food industry and brewery supplier in upstate New York.

Watt had to send a trucker to pick the load back up, hire a waste company to clean it out and wait for a permit to dump the yeast extract in a New Jersey landfill.

“You can imagine how it smelled. This is July. Do you know how hot it gets inside a container?” he said. “We had to send guys in suits to clean that thing up.”

The process took almost two months, and in the end, the ocean carrier sent Watt a late-return bill for $42,150.

The front window of Golden State’s office glowed like a beacon among the low-slung warehouses of Compton. It was a few minutes past 4 a.m., and Lisandro Figueroa was at his cubicle, scanning terminal websites for appointments to return empty containers — like the one his coworker Cruz was dealing with.

He stared at a blue-and-red grid on his computer screen, jotting down abbreviations for ocean carriers on a piece of a paper as country music hummed in the background.

“This is COSCO. This is Evergreen. This is OOCL. This is ONE line. CU lines. BAL lines. Wan Hai lines. Yang Ming lines. As you can see,” he said, “everything mostly says no.”

The global supply chain has often been heralded as a high-tech wonder. The movement of containers at ports and through warehouses is a heavily automated ballet of advanced robots. But keeping it all together are people like Figueroa and Cruz.

Figueroa’s work as a dispatcher is kind of like a cross between Wordle and SimCity. Golden State has to pick up about 150 containers loaded with auto parts, appliances and electronics from the port terminals every day. The stores and suppliers want their stuff as soon as possible, and each load has a deadline — typically a few days after arrival in the port — after which fees start to accrue. To get those goods, Figueroa has to match up drivers with empty containers that the terminals will accept. That way, the drivers can drop off the old containers and reuse the chassis to pick up the new ones. So he scans a spreadsheet for the oldest empties he can return to stop fees from accumulating.

Golden State’s yards, meanwhile, can only accept so many containers. That morning, one of its yards had 88 containers sitting in 90 spots. If Figueroa didn’t move empties out of the yard soon, Golden State would run out of space.

By 5 a.m., his phone was ringing every few minutes. Figueroa, who has a black beard with gray streaks, switched seamlessly between English and Spanish while also speaking fluent logistics jargon.

Port truck drivers are nearly all independent contractors seeking to line up the most profitable loads and avoid those that would cost them time and money while sitting in lines at the port or stuck in Los Angeles traffic.

“To keep a driver, you’ve gotta be on their level sometimes,” Figueroa said. “I’m a driver psychologist because I do a whole lot of listening.”

One driver called looking for work, only to call back a few minutes later saying his battery had died.

“Well, let me know when you get it fixed, not a problem,” Figueroa assured him. “Ándale pues.”

He sent one driver to take a shipment from the yard to an appliance warehouse and another driver to haul an empty container back to the port and pick up a new load: “Ándale, bye-bye.”

At 6:41 a.m., a driver wearing a reflective-striped shirt and orange polarized sunglasses stopped by the office and said he was ready for a load. Figueroa sent him to fetch a shipment of tires that would start accruing fees if not picked up by the end of the day.

A few minutes later, the phone rang.

“Uh-oh,” Figueroa said. “What happened? Don’t scare me. Don’t scare me.”

It was a driver who was supposed to pick up an empty container from the yard, return it to the port and pick up a new load between 7 and 8 a.m. But he had accidentally pulled from the yard a container full of auto parts destined for a customer.

Before Figueroa could worry, a colleague reported that another driver who was supposed to pick up a load of auto parts had broken down. The problem had essentially fixed itself. Figueroa reassigned the driver who’d taken out the wrong load to cover the delivery for the driver who’d broken down.

Yet Figueroa still had to cover the 7 to 8 a.m. appointment to pick up a new load at the port. So he called the driver with the orange sunglasses.

“Hey, that load I gave you? Cancel it,” Figueroa said. “I am going to send you another load instead.”

The tires would have to wait, getting closer to racking up fees.

As things quieted down, Figueroa started going through the COSCO containers that had been sitting on the specialized chassis for weeks, collecting thousands of dollars in fees. But as usual, there were no appointments at the terminal that would accept both the container and the chassis.

So he started to see if he could just return the container and then separately turn in the chassis later.

Amid the congestion, finding an appointment has been like trying to nab tickets for a K-pop concert or a COVID-19 vaccine in early 2021.

There was an appointment for 5:30 p.m. But before Figueroa could type in the container number to reserve it, the appointment was gone. The next one wasn’t until 10:30 p.m., and it was Friday night. The chances of getting a trucker to cover it were slim.

But Figueroa said he knew a trick.

“I’ve done this so much,” he said, “that I’ve figured out that they’ll open appointments every half hour on the two mark, and by the two mark, I mean they’ll open appointments at 8:02 and 8:32.”

It was almost 8:02 a.m. Figueroa placed his fingers on the keyboard and refreshed the terminal’s website. He refreshed again. And again. And again. And again. And again. And again. And again. And again.

“If I didn’t get one by now, I’m probably not going to get one,” he said.

At 8:32 a.m., Figueroa tried again. No luck.

It too would have to wait, and the meter kept running.