President's Desk Newsletter - August 2023

INDUSTRY NEWS

AIR NEWS - Cargo downturn hurts Asian carriers more than global competitors

The air cargo industry is currently facing challenges, with a decline in demand of about 7% to 10% since March 2022. This drop can be attributed to the recovery of ocean supply chains and a slowdown in the global economy following the pandemic. While there have been some recent improvements, airfreight demand remains approximately 3% lower, and shipping rates are considerably cheaper, around 40% to 50% lower, compared to last year. However, excluding fuel surcharges, rates are slowly approaching pre-pandemic levels in various trade corridors.

Notably, major Asian carriers like Korean Air have experienced a significant 56% decline in cargo revenue during the second quarter, while?Singapore Airlines' cargo revenue fell 50.6%. This downturn is mainly due to a weak freight market and increased capacity from passenger planes returning to service after the pandemic. Despite some progress, airfreight demand still remains lower, and shipping rates continue to be substantially cheaper compared to the previous year.

Korean Air, along with other airlines like All Nippon Airways, is grappling with challenges attributed to the decrease in shipping demand for semiconductors, electronics, and automotive goods. This trend is not limited to Asian carriers, as European and U.S. airlines are also witnessing drops in their cargo revenues.

Nevertheless, carriers are proactively responding to these challenges by adopting strategies to attract more business, optimizing routes, and enhancing profit margins. Despite the difficulties, Korean Air achieved a moderate operating profit. However, the slow recovery in Asia, caused by prolonged COVID travel restrictions, has contributed to the overall situation.

Amidst these hurdles, the air cargo industry remains steadfast, adapting to changes, and diligently working towards a resilient recovery from the pandemic's impact. Learn More

OCEAN NEWS -Federal Maritime Commissioner Rebecca Dye proposes solutions to improve the movement of containers through US ports.

Federal Maritime Commissioner Rebecca Dye has presented proposals to address long-standing cargo bottlenecks at US ports, particularly during the import surge caused by the pandemic in 2021 and 2022. These bottlenecks have led to what many shippers consider unreasonable detention and demurrage costs. The proposals focus on three key pain points for shippers: empty container return appointments, earliest return dates (ERDs), and container availability.

Under Dye's suggestions, empty containers would need to be returned to the original terminal of pickup. If the delivery location changes, truckers must be informed of the new receiving terminal before noon the previous day, and appointment requirements should be waived. Additionally, ERDs for loaded exports should be determined at the time the empty container is picked up and should remain unchanged thereafter.

Dye is seeking industry feedback on how these proposals would work, specifically at the ports of Los Angeles, Long Beach, and New York and New Jersey, with comments due by September 15.

Shippers have been struggling with ERDs, which create uncertainty and disrupt their operations. There have been various attempts at solutions, but the absence of uniform systems has been a challenge. Dye's proposals have been well-received by some in the industry as a step in the right direction.

Overall, the aim of these proposals is to improve container flow through ports and provide better visibility for shippers on the status of their cargo, ultimately reducing delays, costs, and frustrations. Learn More

OCEAN NEWS - Analyst predicts that the EU carbon tax will have far-reaching effects on global rates and vessel deployments.

In just five months, the European Union (EU) will include shipping in its emissions trading system (ETS), meaning that shipping will be subject to a carbon tax in the EU. This will have significant implications not only for shipping costs to and from the EU but also for shipping costs globally.

The EU carbon tax applies not only to shipments to and from the EU but also to journeys between EU ports. Ocean carriers will be required to pay a carbon tax for 50% of emissions on journeys from the last port of call before arriving in the EU and the first port of call in the EU, as well as vice versa. Shippers moving goods exclusively between non-EU ports may still be impacted if their liner services pass through EU ports, leading to penalties under the EU ETS.

For example, the CMA CGM’s Turkey US Express (TUX) service, which links ports in Turkey with the US East Coast, incurs significant carbon taxes because it calls at several Mediterranean ports in the EU. This will result in higher costs for shippers using this service, as they will have to pay a share of the EU carbon tax. To avoid this, carriers may choose to remove EU port calls from their rotations, but this will limit cargo capacity and increase costs.

The inclusion of shipping in the EU ETS may also cause carriers to shift their most fuel-efficient vessels to EU services to reduce emissions, leading to less efficient vessels being deployed elsewhere. This could result in slightly higher fuel costs and increased freight rates for non-EU trades.

The global effect of the EU ETS will be gradual due to the phased implementation of the tax and the time and resources required to reconfigure carrier networks and redeploy vessels. Nonetheless, the impact on shipping costs and operations will be significant both within and beyond the EU.

Learn More

OCEAN NEWS - FMC Issues Supplemental Notice of Proposed Rulemaking on Unreasonable Refusal to Deal

The Federal Maritime Commission (FMC) has issued a supplemental notice of proposed rulemaking (SNPRM) to address a statutory requirement from the Ocean Shipping Reform Act of 2022. The requirement prohibits ocean common carriers from unreasonably refusing to deal or negotiate with respect to vessel space accommodations and cargo space accommodations. The SNPRM proposes changes to the initial proposal issued in September 2022, including the definition of "unreasonable" conduct and the elements for a refusal of cargo space accommodations. It also revises the definition of transportation factors and introduces a mandatory documented export policy requirement, among other modifications. The Commission seeks comments on these changes until July 31, 2023.

The SNPRM expands the scope of the rulemaking to address unreasonable refusals that occur at the execution stage, after parties have reached a deal or mutually agreed on service terms. This clarification aims to help shippers and exporters facing reliability issues with their overseas shipments. By defining key terms and elements, the Commission seeks to lessen disputes and streamline the adjudication process for claims against ocean common carriers. The proposed rule aims to ensure fair and transparent practices in the ocean shipping industry while addressing the challenges faced by shippers in securing vessel space accommodations.

To view the proposed rule, visit the Federal Register

LAND NEWS - BNSF and CSX?reach deals with unions on sick leave and?conductor training

BNSF and CSX, two major Class I railroads, have made agreements with key labor groups to improve working conditions and training programs. BNSF reached a systemwide agreement for sick leave with the Brotherhood of Locomotive Engineers and Trainmen (BLET), providing up to eight days of paid sick leave and introducing work-rest options for locomotive engineers. The agreement is expected to bring positive changes to the professional and personal lives of BLET members and improve service consistency for customers.

On the other hand, CSX and the International Association of Sheet Metal, Air, Rail, and Transportation Workers - Transportation Division (SMART-TD) are enhancing the conductor trainee program. They are adding an extra week of hands-on training to the program, focusing on field tasks and fundamentals of the conductor's role. The extended training at CSX's Atlanta center aims to strengthen the skills of conductor trainees and ensure a safe and successful career on the railroad.

These agreements demonstrate the railroads' commitment to supporting the well-being and satisfaction of their employees while prioritizing safety and efficient operations.

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LAND NEWS - Yellow’s bankruptcy would mark significant shift for transportation industry

Troubled trucking company Yellow Corp., formerly known as YRC Worldwide, Inc., is shutting down and filing for bankruptcy after years of financial struggles and growing debt. The bankruptcy filing is expected to occur soon, marking a significant shift for the U.S. transportation industry and affecting shippers nationwide. Yellow, one of the nation's largest less-than-truckload carriers, had 30,000 employees as of earlier this year.

The company's financial troubles have been ongoing, and despite receiving $700 million in pandemic-era loans from the federal government three years ago, it has been unable to manage its finances effectively. Industry analysts attribute Yellow's collapse to poor management and strategic decisions dating back decades.

As a result of Yellow's closure, former customers and shippers will have to turn to competitors like FedEx or ABF Freight, but experts warn that they may face higher prices as Yellow historically offered the cheapest rates in the industry.

The company faced averted strikes from the Teamsters amid heated contract negotiations, but its financial situation remained precarious. Yellow has accrued substantial debts, including $729.2 million owed to the federal government out of a total outstanding debt of about $1.5 billion.

Yellow's financial struggles have been years in the making, and the current situation has led to significant reductions in shipments and mounting daily losses. The company's bankruptcy filing and closure highlight the challenges and uncertainties in the trucking industry and underscore the importance of effective financial management for long-term success.

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CUSTOMS BROKERAGE NEWS - Digital Services Tax -?Will its?potential implementation affect your business?

As recently as the November 3, 2022 Fall Economic Statement, Canada’s federal government confirmed its intention to proceed with draft legislative proposals to introduce the?Digital Services Tax Act.?If the government proceeds with its implementation, the Digital Services Tax (DST) would be imposed on certain domestic and foreign corporations retroactive to January 1, 2022, but would not be payable before June 2025.

The government has also communicated that it has a strong preference for a multilateral approach and that the proposed DST is an interim measure that would only be imposed if a multilateral convention implementing the Organization for Economic Co-operation and Development’s (OECD’s) Pillar One?solution has not come into force by December 31, 2023; in that event, Canada would start imposing the DST on January 1, 2024, in respect of in?scope revenues earned since January 1, 2022. Pillar One and the DST share a common goal of ensuring companies pay tax where they are earning revenues. However, the two measures apply to very different groups of taxpayers, because of their applicable revenue thresholds.

The Canadian government has indicated that it intends to complete the multilateral negotiations so that the treaty to implement Pillar One can be signed in the first half of 2023, with a view to it entering into force in 2024. Although significant progress continues to be made in establishing the new technical rules for the multilateral approach and public consultations on these new rules are ongoing, the timeline to implement the multilateral convention by January 1, 2024, is tight. Considering this ambitious timeline, along with the fact that Canada’s proposed DST would apply to in-scope revenues earned in 2022, affected businesses should begin to prepare for the DST’s potential implementation.

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CUSTOMS BROKERAGE NEWS - China Tariff Case Advances at Appeals Court

Importers seeking to overturn Section 301 tariffs on imports from China have filed their first brief with the Court of Appeals for the Federal Circuit. The case, initiated in 2020 and joined by thousands of importers, argues that the Section 301 tariffs on List 3 and List 4A goods from China were wrongly imposed. The plaintiffs raise two main arguments in their appeal to the CAFC: first, that the Office of the U.S. Trade Representative lacked statutory authority to impose the tariffs, and second, that USTR violated the Administrative Procedures Act by failing to consider and respond to thousands of objections to the tariffs.

If successful, this litigation could lead to refunds of Section 301 tariffs paid on List 3 and List 4A goods. The CAFC is expected to hear further arguments over the coming months, and a decision is anticipated in 2024.

Importers can still join the litigation to preserve their rights to potential refunds. Meanwhile, efforts are underway to ameliorate the impact of the tariffs, including advocating for the renewal of previously approved exclusions and creating a process for new exclusion requests. There are also legitimate ways to avoid or limit the tariffs' impact, and hundreds of tariff exclusions have been extended through September 30. Additionally, an ongoing USTR review may result in changes to the tariffs.

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CUSTOMS BROKERAGE NEWS - COBRA Fees to be Adjusted for Inflation in Fiscal Year 2024

U.S. Customs and Border Protection (CBP) is adjusting certain customs user fees and corresponding limitations for Fiscal Year 2024 in accordance with the Fixing America's Surface Transportation Act (FAST Act). The adjustments are required to reflect certain increases in inflation. CBP determined that the increase in the Consumer Price Index (CPI) between the most recent June to May twelve-month period and the comparison year is 6.79 percent, which exceeds the threshold for adjustment. As a result, the customs COBRA user fees and corresponding limitations will be adjusted by 26.670 percent for Fiscal Year 2024. The adjusted fees and limitations will be effective from October 1, 2023.?View the CBP Notice on the?Federal Register.

CUSTOMS BROKERAGE NEWS - Protecting Consumers and Eradicating Forced Labor from Supply Chains through the?Uyghur Forced Labor Prevention Act

CBP is leading efforts to remove goods made with forced labor from China's Xinjiang Uyghur Autonomous Region from the U.S. supply chain. Since implementing the Uyghur Forced Labor Prevention Act in June 2022, CBP has examined almost 4,300 shipments worth nearly $1.4 billion. In June 2023, CBP halted 405 shipments valued at over $239 million due to suspected forced labor use.

Additionally, CBP is addressing intellectual property rights violations that threaten America's innovation economy. They seized 1,709 shipments containing counterfeit goods worth more than $120 million in June. These actions aim to protect U.S. businesses, workers, and consumers from the risks posed by counterfeit and pirated goods.

View more?UFLPA enforcement statistics, and?intellectual property rights?enforcement statistics.

EASTERN NEWS

Eastern Swings Into Action: Tee-rific Support at Ronald McDonald House Charity Golf Classic

Eastern, known for its brands Eastern Shipping Worldwide and Eastern Racing, volunteered at the Annual Golf Classic of Ronald McDonald House Charities? of Chicagoland & Northwest Indiana. Held at Cog Hill Golf & Country Club, the event aimed to raise funds for families with hospitalized children, and Eastern's representatives, Dave Cooper and Kate Burt, enthusiastically served as "Food and Drink Runners." Their active participation contributed to the event's success, raising over $600,000 for the charity. Eastern's involvement showcased their deep admiration for the impactful work of Ronald McDonald House Charities? in supporting families in need and children receiving medical care in the Chicago area.

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