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Biden Fee on Idle Containers Relieving Port Backlog

The Biden Administration’s (fruitful) efforts to unkink the supply chain included one small proposal to make freighters pay full freight for failing to freight their freight. In October, the largest container ports in the country, Los Angeles and Long Beach, announced a policy developed with the Biden Administration’s Supply Chain Disruptions Task Force to fine companies who didn’t move their arriving containers out of port fast enough:

Port officials say they’re running out of room for all the boxes that are now sitting at their terminals, forcing ships to wait even longer at anchor for an empty berth. Under a new policy announced this week, once a carrier drops off a container, the clock will start ticking.

If cargo is supposed to go on a truck, companies will have nine days to send it out before they’re slapped with a $100 fine for each container. It’s a much shorter turnaround for items bound for a train — they need to be out of the terminal within three days before those fees kick in [Lita Martinez, “With the Ports Running out of Room, Containers Left Behind Will Soon Cost $100 a Day,” LAist.com, 2021.10.26].

Note that this Biden-backed policy isn’t heavy-handed socialism; the “Container Excess Dwell Fee” is a fair free-market solution that makes companies pay for using the ports as ad hoc warehouses and hindering the ability of other companies to use the ports to move their goods. The fines go up $100 per day per container, recognizing that the longer a company delays picking up its containers, the more other companies it is inconveniencing. The policy still gives shippers more time to move their goods than the pre-pandemic average linger times of under four days for removal by truck and under two days for rail.

By one estimate of idling containers in November, on Day One, the two ports could have issued $4.8 million in Container Excess Dwell Fees. The fines were supposed to go in effect November 1, but the ports gave cargo companies grace until December 6. Shippers have called the “hyper-demurrage” fee “crazy” and “catastrophic”, but the mere threat of the fine appears to be helping move more cargo:

Since the Oct. 25 announcement, there has been a 26% improvement in the movement of old cargo in the Los Angeles ports. The Long Beach port has improved by 32%.

Despite improvements, “older cargo still isn’t moving as fast as it needs to,” Port of LA Harbor Commissioner Anthony Pirozzi said [staff, “Congested Ports of Long Beach Introduce Fines for Overstayed Cargo,” New University (University of California–Irvine official campus newspaper, 2021.12.03].

Before the fines were announced in October, the ports of Los Angeles and Long Beach were already moving 19% more containers than at the same point in 2018. The Biden Administration’s supply chain task force port envoy, John Porcari, attributes some improvements since then to the new container-linger fee:

INSKEEP: Well, what has changed because we had Danny Wan on the program last month – president of the California Association of Port Authorities, runs the Port of Oakland – November 11, and he said the current disruption is not going to resolve itself by Christmas? Has it somehow resolved itself?

PORCARI: Well, first, 40% of our container imports come in through one port complex, the combined Ports of Los Angeles and Long Beach, and they had experienced unprecedented congestion, which backed up the goods chain all the way to the Midwest – throughout the country as well. And we’ve been working as an honest broker with all of the parties in this private sector supply chain to get them talking to each other and working with each other. And the imposition of a $100 per container fee for containers that are sitting on docks for nine days or more has been one mechanism that’s really cleared out the backlog in containers. This is a proposed penalty for keeping containers on-site too long.

INSKEEP: The fact that a threat of a fee would be a factor here is interesting because it implies that there were companies that had a choice to leave their containers at the port site. Was that really happening, that it wasn’t a matter of desperate need or lack of trucks, that companies were making an active choice to leave containers there?

PORCARI: Well, the early days of the pandemic induced all kinds of dislocations in the system, and one of them was people ordering more and ordering earlier. And to some extent, our system nationally has gone from just in time to just in case, making sure that there’s extra goods available when needed. And many of them were stored at the ports, in some cases for 30, 45 days before they were moved out.

INSKEEP: So there were companies that were using the ports as a free warehouse.

PORCARI: Yes. That has now changed. They’re highly incentivized to keep those containers moving quickly, and you can see the on-the-ground difference at the Ports of Los Angeles and Long Beach right now [Steve Inskeep, “The U.S. Government’s Port Envoy Says Container Backlog Is Being Cleared,” NPR: Morning Edition, 2021.12.03].

There’s no such thing as a free lunch or a free warehouse. Conservatives should cheer the Biden Administration’s Container Excess Dwell Fee as a smart market-based stick to make shippers get goods to their customers or pay for the privilege of using our ports as warehouses.

8 Comments

  1. Richard Schriever 2021-12-04

    I’m willing to bet a big majority of the logistics managers – more than likely the CFOs who issued the “directive’ to use the ports as ad hic warehouses were/are “conservative” Republicans. Always looking for freebies.

  2. Porter Lansing 2021-12-04

    Conservatives don’t cheer anything.
    Exaggerating the supply disruption is their way of stealing Christmas.
    Biden accused the media of using old photos as he suggested his administration has gotten a handle the supply chain crisis.
    “The point is that the vast majority of the shelves are filled and the CEOs of not only the suppliers but the CEOs of UPS and FedEx … are saying the same thing.” – President Biden

  3. Jake 2021-12-04

    grudz is currently scratching his head trying to figure how he can make Biden look bad over this act of conservative ‘rightfulness’!

  4. Cory Allen Heidelberger Post author | 2021-12-04

    In the NPR interview linked above, Porcari makes the point that many participants in the national supply chain have shifted from “just in time” to “just in case”. That’s a really important point. We and the President have mentioned that shift before, and we’ve acknowledged that “just in case” will require businesses to spend more maintaining inventories. But that’s a cost of doing business that companies can’t expect to shift onto the ports, any more than South Dakota manufacturers could expect to avoid building a new warehouse by parking trucks and containers on our highways.

  5. Mark Anderson 2021-12-04

    Cory, conservatives no longer care about anything other than having power.

  6. Porter Lansing 2021-12-04

    “Just In Time” is a vital method in profitable restaurant operations.
    It’s a process of controlling inventory of raw food items, which are highly perishable.
    If you’ve ever been told, “Sorry but we’re out of that item.”, that’s “just in time”.
    It’s better to tell a guest “We’re out.” than to tell the owner, “Our food waste is killing us.”

  7. Porter Lansing 2021-12-04

    I’ll assert that “just in time” is a better business paradigm than “just in case”.
    – If a customer wants to buy a widget from you and you have to tell them, “I can have that widget for you in three weeks.” and no other widget seller can get it any quicker that business encounter builds the customer’s desire and thus increases demand for your widget.
    – If a customer wants to buy a widget from you and you tell them, “Right away. Should I wrap it up?”. That business encounter builds suspicion and the customer’s desire to “shop around” for possibly a better price.
    – I’ll assert that demand creates the ability to maintain a profitable price point, whereas immediate availability creates unprofitable competition among sellers.

  8. jerry 2021-12-04

    Let’s Go Biden!! Indeed, great job to get this moving.

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