Capital Beat

By Nate Herman

A little over a year ago, in the face of declarations of victory over the shipping crisis, I took to these pages to declare that, in the immortal words of Monty Python, the shipping crisis is instead telling everyone “I’m not dead yet!”

On a call with the White House last week, President Biden’s Port Envoy, Stephen Lyons, declared the shipping crisis dead yet again. Yes, shipping rates have plummeted back to earth, and the weeks long delays to get your containers out of the ports are no more.

But the real question we must ask is why. Have the underlying problems at the ports that led to the shipping crisis been fixed? No. Have ocean carriers turned over a new leaf after securing record profits? No. Just the opposite, service from ocean carriers is at its lowest level ever. And the lower rates have been partially offset by dozens of new arbitrary fees created by the carriers. Have the railroads changed the broken system that led to massive congestion, cargo stacking, and suspension of routes? No.

So, why is the situation better? As you all know, a combination of companies holding too much inventory, in many cases the wrong inventory, and demand sliding to below pre-pandemic levels in the face of inflation and consumers moving away from goods to services.

So, what happens if demand picks up again, or negotiations towards a new West Coast port labor contract (the old contract expired in July) falls apart, or railroad workers threaten another strike, this time over railroad safety and sick leave?

The corpse that is the shipping crisis will come out of the shadows and haunt us once again. And no one is doing anything about it.

That is not quite true: the TGA-supported Oceans Shipping Reform Act (OSRA) that Congress approved last year has finally emboldened the shipping industry’s oversight agency, the Federal Maritime Commission (FMC), to do what it is supposed to do, aka oversight.

The FMC has imposed new rules governing unreasonable detention and demurrage, and has made it easier for shippers to bring cases against carriers. And shippers have responded, bringing more FMC cases against carriers in the last year than shippers did in the previous 10 years combined.

If another crisis looms, hopefully the FMC will step up and reign in the ocean carriers. And, of course, TGA will continue to push the FMC, Congress, and the White House to act now to prevent another shipping crisis.

In the meantime, to paraphrase an old adage, “the shipping crisis is dead, long live the shipping crisis.”

By Nate Herman

Like a friendly cow telling you to “EAT MORE CHICKEN,” Congress seems to be saying “BUY MORE FROM CHINA!”

Why? Because over two years after the U.S. Generalized System of Preferences (GSP) expired, Congress has failed to renew it.

GSP, when it isn’t expired, provides duty-free access for most U.S. imports, including travel goods, from developing countries. Thanks to TGA successfully lobbying Congress to add travel goods to the GSP program in late 2015, U.S. travel goods imports from GSP countries, like Cambodia, Indonesia, the Philippines, Thailand, Myanmar, Sri Lanka, and Pakistan, surged from a mere 3.1% of total U.S. travel goods imports in 2016 to 17.8% of total U.S. travel goods imports today. During the same period, U.S. travel goods imports from China fell by almost half, from 84.7% in 2016 to 48.4% today.

Why? Under GSP, when it isn’t expired, instead of paying the normal 17.6%-20% tariffs on their imports, U.S. travel goods companies pay NO TARIFFS (aka duty-free) when they import travel goods from GSP countries. For comparison, when U.S. travel goods companies import from China, they pay a whopping 42.6%-45% tariff, because U.S. travel goods imports from China must also pay a punitive 25% Section 301 tariff on top off the normal 17.6%-20% tariffs. As a result, GSP, when not expired, provides a powerful incentive for U.S. travel goods companies to leave China.

With everything happening with China, isn’t that a good thing? Apparently, Congress doesn’t think so. Don’t get me wrong. With the rhetoric coming out of both Congress and the Biden administration, the message to American companies is clear, “Get out of China.” But, as with everything, actions speak louder than words.

Since its inception in 1974, Congress has repeatedly renewed the GSP program with overwhelming bi-partisan support. When Congress added travel goods to the program in 2015, virtually every member of Congress approved the change.

When travel goods were formally added to GSP, which coincided with the U.S. trade war with China, the message from Congress was clear – “We will help you get out of China by incentivizing you to go to GSP countries.”

But Congress allowed GSP to expire on January 1, 2020. Despite claims from all sides that they want to renew GSP, Congress has spent over two years failing to do so. And people are getting tired of waiting. After 5 years of steep declines in U.S. travel goods imports from China and 5 years of steep growth in U.S. travel goods imports from GSP countries, the tide is starting to turn.

Despite all of the rhetoric from Congress about getting out of China and about renewing GSP, the real message from Congress seems to be to “Eat more chicken, aka go back to China.”

TGA will continue to push Congress to renew GSP as soon as possible so Congress’ actions support their words.

By Nate Herman

We had an interesting summer as an industry. Despite many headaches for our customers, travel this summer returned with a vengeance. And everyone went back-to-school in person this fall, leading to brisk sales of backpacks and related gear. This great news remains tempered, however, by ongoing congestion issues, high tariffs caused by Congress’ failure to renew GSP and the ongoing trade war, and more recently, the threat of growing inflation.

So, where do we stand as we enter fall and the critical holiday shopping season?

With 99% of all travel goods sold in the U.S. today being imported, our industry’s 100,000 American workers depend on a smooth supply chain. However, over the last two years, we have paid 3-5X more to experience a severe deterioration of service and an explosion of unjust and exorbitant fees.

While spot rates have fallen recently, they are still 2-3X what they were only two years ago. And many importers have not benefitted from the decline because they had contracts negotiated last spring locking in rates before this summer’s decline. Further, the decline in rates has been made up for by the imposition of multiple new fees and the continued excessive use of detention and demurrage fees, charged even when the importer is physically unable to remove the loaded container or return the empty container because of congestion.

Further, while the backlog of ships at the Ports of LA/Long Beach had declined, the backlog of ships at alternate ports on the East, Gulf, and West Coasts had surged. Meanwhile, importers’ continued inability to access their loaded containers or return their empty containers means congestion still reigns at the Ports of LA/Long Beach, along with the daily detention and demurrage fees that go with them.

And now, as if the deterioration of service the last two years wasn’t enough, because of declining spot rates, carriers have announced a series of blank sailings on key routes for September and October, worsening congestion and delays at a time when we can least afford it as we head into the all-important holiday season.

But Congressional passage of the TGA-supported Ocean Shipping Reform Act (OSRA) this summer has strengthened the FMC and put the spotlight on carriers, giving hope that the situation will slowly improve.

On the trade side, our industry still faces the 25% Section 301 tariffs on our imports from China. Regrettably, those tariffs show no signs of going away. And 20 months after it expired, Congress has still taken no action to renew the Generalized System of Preferences (GSP) program, which provides duty-free access for U.S. travel goods imports from developing countries like Cambodia, Myanmar, Thailand, Pakistan, Indonesia, and Sri Lanka. Over 17% of all U.S. travel goods imports now come from GSP-eligible countries.

While the opportunity for GSP renewal this year remains dim, there is a new push in Congress to provide a refund of duties paid on U.S. travel goods imports from GSP countries. The purpose is to keep small and medium companies, like those in our industry, whole as Congress continues to debate GSP renewal. Congressional passage of the GSP refund bill would give our industry a huge infusion of cash at a time when we need it most. TGA will push hard for Congressional passage of this bill before the end of the year.

As always, stay tuned.

By Nate Herman

When travel started to recover last summer, we began to see a light at the end of tunnel. But our ability to reach that light was crippled by the shipping crisis, which imposed immense costs on the small, family-owned companies that comprise our industry at a time when we could least afford it and left us in many cases even unable to provide any product to meet that demand, leaving store shelves empty.

Every day, our industry faces a shipping crisis that has delivered us contract breaches, stubbornly high shipping rates, excessive and unjust fees, constant delays, and ongoing uncertainty on whether our product will ever arrive or even be moved. We are an industry of small companies who have no bargaining power with the big foreign-owned ocean carriers we rely on to move our product. This reality has translated into empty store shelves and much higher prices at the cash register, spurring inflation to historic levels.

And that shipping crisis is now driving rampant inflation, which further threatens travel, and our industry.

But there is hope.

On June 13, 2022, the U.S. House of Representatives approved the Ocean Shipping Reform Act of 2022 (S. 3580). This bipartisan bill will bolster the Federal Maritime Commission (FTC), strengthen the overseas supply chain, and ensure fairness in the global ocean shipping industry. TGA expects President Biden to sign the legislation into law quickly.

While the Ocean Shipping Reform Act of 2022 (OSRA) will not end the shipping crisis, and the resulting inflation that is gripping our industry, OSRA will strengthen the FMC and put in place commonsense reforms that will be instrumental in combatting the current shipping crisis and preventing the next shipping crisis.

Meanwhile, rampant inflation has put the Biden administration under increasing pressure, from both inside and outside the administration, to address the China Section 301 tariffs, which has imposed 25% punitive tariffs on U.S. travel goods imports from China, on top of the 17.6% tariffs we already pay on these products. The single fastest way for President Biden to address inflation is to end the China 301 tariffs. President Biden could end those tariffs today literally with the stroke of a pen.

And, finally, Congress is still considering larger competitiveness legislation that would include a provision to renew the Generalized System of Preferences (GSP) program, which provides duty-free access for U.S. imports of travel goods from certain developing countries. Congress hopes to vote on the larger bill later this summer. With all of these things in play that could help our industry, this could be our summer of hope. Now we just need to translate this hope into real action that provides our industry, and our customers, real relief.

By Nate Herman

We are well into a new year, yet we are still talking about the same old things.

The shipping crisis is still bad. Dozens of ships are still sitting off the Ports of Los Angeles and Long Beach. Ridiculously high shipping rates are now getting baked into shipping contracts. And carriers are still charging companies unfair and exorbitant detention and demurrage fees for situations that are completely out of your control. Then you add new COVID lockdowns in Shenzhen and other parts of China, a war in Europe, and the looming July 1 expiration of the West Coast Port labor contract, and things don’t look like they are going to get better anytime soon.

On the trade side, our industry still faces the 25% Section 301 tariffs on our imports from China. And, 15 months after it expired, Congress still has taken no action to renew the Generalized System of Preferences (GSP) program, which provides duty-free access for U.S. travel goods imports from developing countries like Cambodia, Myanmar, Thailand, Pakistan, Indonesia, and Sri Lanka.

But, as the world begins to bloom as we enter spring, so does our hope that things will get better.

Most importantly, with the end of COVID restrictions, consumer demand has blossomed, with travel returning to levels not seen in years.

And the shipping crisis is being taken seriously at the highest levels. For the first time ever, a President referenced the shipping crisis in a State of the Union (SOTU) address to the nation, with President Biden saying, “I’m a capitalist, but capitalism without competition isn’t capitalism. It’s exploitation – and it drives up prices. When corporations don’t have to compete, their profits go up, your prices go up, and small businesses and family farmers and ranchers go under. We see it happening with ocean carriers moving goods in and out of America. During the pandemic, these foreign-owned companies raised prices by as much as 1,000% and made record profits. Tonight, I’m announcing a crackdown on these companies overcharging American businesses and consumers.”

While those sentiments have yet to translate into actions that have made a difference, it has provided extra momentum to the TGA-supported Ocean Shipping Reform Act, legislation that would begin to reign in ocean carriers that Congress is poised to approve and send to President Biden for his signature.

And Congress is right now debating larger competitiveness legislation that would renew the GSP program and re-establish a process that would allow certain products to be exempted from the China Section 301 tariffs.

So, while we are not there yet, there are two things that we can count on in our industry — our resilience and, like the awakening of nature in spring, our hope springs eternal.  And with light starting to come through the cracks, we have a good reason to hope.

By Nate Herman

Everyone from President Biden to port directors and pundits have claimed that we are now seeing the other side of the shipping crisis, the very same shipping crisis that has led to exorbitant and unjust costs, empty shelves, and higher prices at the cash register for the travel goods industry this holiday season. But, in the immortal words of Monty Python, the shipping crisis is instead telling everyone “I’m not dead yet!”

The White House and pundits point to the lower number of ships waiting outside the Ports of Los Angeles and Long Beach, only 16 on December 15, the clearing of some cargo off docks, and slightly slower shipping rates as their evidence that the shipping crisis’ days are numbered.

Regrettably, the reality is anything but that.

First, the ship numbers. In November, the terminal operators, the ports, and the southern California air quality regulators agreed that dozens of ships sitting out in San Pedro Bay was not really good for the environment, or for optics either. So, they reached an agreement to stage ships waiting at anchor, waiting to enter the ports, as far as 150 or 300 miles out. The 16 ships at anchor only counts the ships within 25 miles of the ports. The reality is there are over 100 ships waiting at sea to enter the ports. Further, the average wait for those ships before they can berth at the ports has grown astronomically to record levels, with the Port of LA now reporting average wait times of 19.7 days and the Port of Long Beach reporting a whopping average 28.6 day wait time, a whole month.

Second, the clearing of cargo off docks. After the Ports of LA/Long Beach announced on October 25 that they would impose a so-called “super demurrage fee” on longstanding containers on docks, a fee that every ocean carrier said they would pass on to you, the shipper, there was an effort to move cargo off docks. Instead of that cargo going to you, a lot of that cargo was, in many cases, instead moved to off dock facilities. The ports, citing progress in reducing cargo on the docks, has repeatedly delayed the implementation of the fee. However, that progress has appeared to stall as the ports have cited the same 37% reduction in containers for three weeks, finally increasing to 47% on December 13.

Third, the decline in shipping rates has stalled and, on some routes, has started to increase again. The reality, however, is that even if rates continue to stay flat, or even decline slightly, those rates are still almost 4-8 times the rates you were paying last year.

And those pundits are ignoring the other “truths” you, the shippers, are now facing. On the U.S. side, terminal operators have started to charge shippers fees for missed appointments, and terminals around the country are now adopting the “temporary storage” fees for cargo stuck on the docks, all fees paid by us, the shippers, for situations that are completely out of our control.

Add to that China’s new data restrictions making it more difficult to track ships in China and new COVID lockdowns affecting Chinese product and ports – all leading to more delays and more confusion.

And, finally, the current labor contract for longshoremen at U.S. West Coast ports expires on July 1, 2022. The longshoremen have already rejected an extension of the current contract. And, if past is prologue, contract negotiations can lead to strikes, work slowdowns, or lockouts.

To paraphrase Monty Python, the shipping crisis looks to be very much alive and “feeling much better”.

But there are small signs of good news on the horizon. Thanks to the efforts of the Travel Goods Association (TGA), and many others, we now have the full attention of the White House and the press. We keep pushing the need to bring all of the stakeholders to the table and lock them in a room until they come up with real solutions to bring this crisis to an end. We keep calling for immediate relief for the travel goods industry by eliminating the China Section 301 tariffs and immediately renewing the Generalized System of Preferences (GSP) program.

And Congress is listening. In fact, on December 8, the House approved key TGA-supported legislation that will give the Federal Maritime Commission (FMC) real teeth over the ocean carrier industry to stop price gouging, contract violations, and unfair late (detention and demurrage) fees.

In the end, if we all work together, we can finally bring the shipping crisis to a quick and timely death.

By Nate Herman

It was a good summer. Travel surged and kids returned to in-person school. But, by the end of summer, serious cracks were ruining our industry’s pretty summer sunsets. Parents struggled to find backpacks for back to school and the luggage sections of stores looked like they were hit by the hurricanes that have devastated much of the country.

As we enter fall and creep towards the critical holiday season, one thing is clear. The #ShippingCrisis is only getting worse. And if no one acts soon, we are all going to be singing the holiday blues.

As I write this column:

• Shipping container rates continue to explode, achieving record highs week after week. Our members are reporting rates eight times what they paid this time last year and are now witnessing rates that exceed the value of product being shipped within the container.
• Shipping contracts are routinely ignored with many containers being knocked off ships despite payment of exorbitant fees. Our members have little recourse due to the concentration of power among carriers.
• Containers that are successfully shipped face significant and growing delays in getting into U.S. ports. For example, there have been over 40 ships at anchor for over a week waiting to get into the Ports of Los Angeles and Long Beach alone.
• After each of those seemingly impossible and costly challenges, our members face the final hurdle of significant (and spiraling out of control) delays to get containers out of ports or rail yards.

This #ShippingCrisis is doing serious, long-term damage to not just our industry but to the U.S. economy and all American businesses.

That is why the Travel Goods Association (TGA) is pushing President Biden to step up and take action now to end the #ShippingCrisis. President Biden must bring all stakeholders to the table immediately, and keep them there, to develop and implement short-term solutions to the #ShippingCrisis. Only when all stakeholders are forced to work together and lay everything on the table can we find a way out of the current crisis. Several creative ideas are already on the table, from increasing port hours and using the National Guard to unload cargo to using Naval ports to alleviate port congestion.

Aggressive enforcement of existing rules and regulations is essential. The Federal Maritime Commission (FMC) has conducted numerous inquiries on excessive and unjust fees. Those inquiries must now turn into enforcement actions to bring the scourge of excessive fees and contract breaches to an end.

The bottom line is that our industry, and our economy, cannot afford to wait any longer for President Biden to take action. And TGA will keep pushing for that action.

If you want to help, please tell President Biden, and your members of Congress, to act now to end the #ShippingCrisis at https://www.congressweb.com/aafa/takeaction#. It only takes a minute to do.

For more information, please contact TGA’s Nate Herman, nate@travel-goods.org, 301-775-7633.

By Nate Herman

The last year confronted the industry with unprecedented challenges. Not only did the economy drop off a cliff but travel came to a dead stop.

However, the past few months have given us some hope. The high vaccination rates and the subsequent reopening of the U.S. economy are looking to usher in a summer of travel, resulting in a positive change in sales for the first time in over a year.

But just as we are seeing light at the end of this very long tunnel, the tunnel seems to have suddenly become a lot longer.

Why? Because now that demand has returned, we have another, possibly even bigger problem. Getting the supply.

The shipping crisis that has brought our nation’s ports to a standstill threatens our industry’s recovery. Every month, the shipping crisis has only gotten worse, leaving critical industries without key inputs, creating significant delays that threaten to leave store shelves empty, and imposing significant new costs on our industry at a time when we can least afford it. Without action, the crisis will not abate until 2022, or beyond, calling into question whether we can provide the product consumers want, at the price consumers want, during our peak selling seasons – summer, back-to-school, Labor Day, and the all-important holiday shopping season.

How did we get here? The factors are many: lack of access to empty containers; labor shortages at ports caused by surges in COVID cases; carriers charging shippers 4-5 times contract rates and then still “rolling” them off ships; lack of available chassis to move containers; restrictions on truckers on when they can access containers at ports; limits on truckers’ ability to bring in empty containers and take out full containers (so called “dual transactions”); lack of capacity at ports to handle ever larger ships; lack of air cargo capacity; unreasonable and arbitrary fees on shippers at all points in the shipping process; and more.

Today, ocean carriers are announcing record profits and ports are announcing record shipments while you, the industry, are paying record prices and being charged excessive and unreasonable fees. Even if you pay these high prices, you are faced with immense uncertainty – delays of days or weeks to receive your cargo, if you are event able get the product on a ship in the first place. But this problem is much bigger than just our industry, negatively impacting every facet of the U.S. economy.

Yet, we have seen no action from the Biden administration or Congress to address any part of this crisis, much less working towards a solution to bring this looming disaster to an end.

We need action now. First, we need the U.S. government to enforce carrier contracts and stop unreasonable and arbitrary fees. Second, we need Congress and the Biden administration help us deal with these spiraling costs by removing the biggest cost on our industry – tariffs. We need President Biden to end the 25% punitive tariffs on China and we need Congress to renew the Generalized System of Preferences (GSP) program. And, finally, the U.S. government must bring all stakeholders together ASAP – carriers, port authorities, terminal operators, truckers, shippers, rail operators, etc. – to force them to sit down at the table and hash out solutions to bring this mess to an end.

The Travel Goods Association (TGA) will lead the industry’s advocacy by raising awareness of the impact of this crisis on our industry and driving policymakers to take action to end it.

For more information, please contact TGA’s Nate Herman at nate@travel-goods.org or 301-775-7633.

By Nate Herman

The atmosphere is finally changing. We can see signs of hope all around us. Families are booking summer trips, businesses are talking about in-person conferences and trade shows starting this fall, and President Biden has declared that, if we all work together, we can come together with family and friends to celebrate July 4^th at barbeques and parties. As President Biden put it, we will not only be celebrating our country’s independence but also our country’s independence from the coronavirus.

We believe summer will also bring good news for the industry on the trade front. With strong advocacy from TGA, we believe Congress will renew the Generalized System of Preferences (GSP) program before Congress goes on its August recess, if not earlier. We know GSP’s duty-free access for U.S. travel goods imports from Cambodia, Myanmar, Thailand, Indonesia, the Philippines, and other developing countries has been critical to help the industry move away from China, and the crippling tariffs on our industry caused by the U.S./China trade war. The January 1 expiration of GSP has hit the industry hard, at a time when we could least afford it. Any GSP renewal will be retroactive, which will enable the industry to get refunds of all of the import duties paid during GSP expiration.

As always, however, there are clouds on the horizon. And these clouds take the form of the shipping crisis facing the country. We need to be getting product into stores now so that product is there when families start shopping for their summer vacations and business people start shopping for their first business trip in over a year. Yet the delays at the ports could deny us our product just when we need it most.

That is why TGA is part of a growing coalition of businesses, shippers, truckers, and others urging Congress and the Biden administration to take action now. We need you and your colleagues to write your members of Congress to tell them to make sure the current crisis at the ports doesn’t stymie our long-sought economic recovery.

We have made it easy for you. Just go to https://truckeraction.com/campaign/detention-and-demurrage-is-breaking-our-supply-chain/. It only takes a couple of minutes.

Together, we will remove any barriers to the recovery of our industry and for the American economy.

For more information, please contact TGA’s Nate Herman at nate@travel-goods.org or 301-775-7633.

By Nate Herman

As we begin 2021, we say goodbye to a year that will likely go down in history as one of the worst for the industry – worse than 9/11 and worse than the 2008-2009 financial crisis.

Yet, we begin this year with a new hope. Two vaccines, and counting, are helping us see the light at the end of the tunnel. And, after eight long months of inaction, Congress finally approved a COVID relief package to help us get to the end of that tunnel, with an extension of the Paycheck Protection Program (PPP) and critical support for our customers, hardworking American families.

Obviously, we are not out of the woods yet. We begin this year facing some of the same challenges as last year, in the form of new lockdowns and new travel restrictions.

And we start the year facing new challenges. While Congress gives with one hand, they take with another, failing to renew the Generalized System of Preferences (GSP) program before they left for the holidays. Under GSP, U.S. travel goods imports from developing countries such as Thailand, Cambodia, Burma (Myanmar), Indonesia, Sri Lanka, the Philippines, and Pakistan enter the U.S. duty-free. U.S. travel goods imports from GSP countries now account for 15.3% of all U.S. travel goods imports. As a result of Congress’ inaction, GSP expires December 31, 2020, amounting to a huge tax increase on the industry at a time when we can least afford it. TGA is working hard to get the new Congress to retroactively renew GSP as soon as possible.

Meanwhile, the industry still faces 25% punitive tariffs on U.S. travel goods imports from China and the threat of 25% punitive tariffs on U.S. travel goods imports from Vietnam. But, while it may take time, the new Biden administration will likely take a different approach to trade, one that recognizes the importance of trade to the U.S. travel goods industry and our almost 100,000 American workers.

I know today appears bleak but, if we stay on target, we can have a new hope for a better tomorrow. And TGA will be here to help you every step of the way.

For more information, please contact TGA’s Nate Herman at nate@travel-goods.org or 202-853-9351.