[Senate Hearing 117-774]
[From the U.S. Government Publishing Office]
S. Hrg. 117-774
UNCHARTED WATERS: CHALLENGES POSED BY OCEAN SHIPPING SUPPLY CHAINS
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HEARING
BEFORE THE
SUBCOMMITTEE ON SURFACE TRANSPORTATION, MARITIME, FREIGHT, AND PORTS
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 7, 2021
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available online: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
54-133 PDF WASHINGTON : 2023
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
MARIA CANTWELL, Washington, Chair
AMY KLOBUCHAR, Minnesota ROGER WICKER, Mississippi, Ranking
RICHARD BLUMENTHAL, Connecticut JOHN THUNE, South Dakota
BRIAN SCHATZ, Hawaii ROY BLUNT, Missouri
EDWARD MARKEY, Massachusetts TED CRUZ, Texas
GARY PETERS, Michigan DEB FISCHER, Nebraska
TAMMY BALDWIN, Wisconsin JERRY MORAN, Kansas
TAMMY DUCKWORTH, Illinois DAN SULLIVAN, Alaska
JON TESTER, Montana MARSHA BLACKBURN, Tennessee
KYRSTEN SINEMA, Arizona TODD YOUNG, Indiana
JACKY ROSEN, Nevada MIKE LEE, Utah
BEN RAY LUJAN, New Mexico RON JOHNSON, Wisconsin
JOHN HICKENLOOPER, Colorado SHELLEY MOORE CAPITO, West
RAPHAEL WARNOCK, Georgia Virginia
RICK SCOTT, Florida
CYNTHIA LUMMIS, Wyoming
Melissa Porter, Deputy Staff Director
George Greenwell, Policy Coordinator and Security Manager
John Keast, Republican Staff Director
Crystal Tully, Republican Deputy Staff Director
Steven Wall, General Counsel
------
SUBCOMMITTEE ON SURFACE TRANSPORTATION, MARITIME, FREIGHT, AND PORTS
GARY PETERS, Michigan, Chair DEB FISCHER, Nebraska, Ranking
AMY KLOBUCHAR, Minnesota JOHN THUNE, South Dakota
RICHARD BLUMENTHAL, Connecticut ROY BLUNT, Missouri
BRIAN SCHATZ, Hawaii DAN SULLIVAN, Alaska
EDWARD MARKEY, Massachusetts TODD YOUNG, Indiana
TAMMY BALDWIN, Wisconsin RON JOHNSON, Wisconsin
TAMMY DUCKWORTH, Illinois SHELLEY MOORE CAPITO, West
JON TESTER, Montana Virginia
RAPHAEL WARNOCK, Georgia RICK SCOTT, Florida
CYNTHIA LUMMIS, Wyoming
C O N T E N T S
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Page
Hearing held on December 7, 2021................................. 1
Statement of Senator Peters...................................... 1
Statement of Senator Fischer..................................... 3
Statement of Senator Wicker...................................... 4
Letter dated December 3, 2021 to Hon. Joseph R. Biden,
President of the United States from Senators Wicker, Blunt,
Fischer, Moran, Sullivan, Blackburn, Capito, Lee, Young and
Lummis..................................................... 5
Article dated November 26, 2021 from the Washington Post
entitled, ``Biden sees gains in the supply chain battle,
but the fight isn't over'' by David J. Lynch............... 7
Article dated December 4, 2021 from Bloomberg entitled,
``U.S. Ship Logjam Stretching Into Pacific Is Longer Than
Before'' by Brendan Murray................................. 11
Statement of Senator Blumenthal.................................. 41
Statement of Senator Baldwin..................................... 44
Statement of Senator Tester...................................... 46
Statement of Senator Scott....................................... 48
Statement of Senator Warnock..................................... 50
Statement of Senator Thune....................................... 52
Statement of Senator Klobuchar................................... 54
Statement of Senator Lummis...................................... 56
Statement of Senator Cantwell.................................... 58
Article dated November 18, 2021 entitled, Spending on
infrastructure might not be sexy.
But it's even more important than you think.'' by Fareed
Zakaria.................................................... 58
Statement of Senator Lee......................................... 61
Witnesses
John W. Butler, President and CEO, World Shipping Council........ 14
Prepared statement........................................... 16
Greg Regan, President, Transportation Trades Department, AFL-CIO. 21
Prepared statement........................................... 23
Paul Doyle, Chief Executive Officer, Coastal Automotive.......... 27
Prepared statement........................................... 29
Norman Krug, CEO, Preferred Popcorn.............................. 33
Prepared statement........................................... 34
Appendix
Letter dated December 7, 2021 to Hon. Gary Peters and Hon. Deb
Fischer from Jessica Durrum, Ports Project Director, LAANE..... 65
Response to written questions submitted by Hon. Shelley Moore
Capito to John W. Butler....................................... 71
UNCHARTED WATERS: CHALLENGES POSED BY OCEAN SHIPPING SUPPLY CHAINS
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TUESDAY, DECEMBER 7, 2021
U.S. Senate,
Subcommittee on Surface Transportation, Maritime,
Freight, and Ports,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
room SR-253, Russell Senate Office Building, Hon. Gary Peters,
Chairman of the Subcommittee, presiding.
Present: Senators Peters [presiding], Cantwell, Klobuchar,
Blumenthal, Baldwin, Tester, Warnock, Fischer, Wicker, Thune,
Sullivan, Lee, Scott, and Lummis.
OPENING STATEMENT OF HON. GARY PETERS,
U.S. SENATOR FROM MICHIGAN
Senator Peters. The Committee will come to order. First
off, I would just like to thank our witnesses for joining us
today for what is indeed a very important conversation.
Throughout the past year, I have heard many times from my small
businesses across all multiple industries about significant
delays and problems that they are having with supply chains,
specifically as how that relates to ocean shipping. And the
bottom line is this, small businesses and families throughout
Michigan, as well as all across the country, are experiencing
higher prices and major delays associated with importing and
exporting their products and their supplies.
The ocean shipping network, which is responsible for 90
percent of the global trade, has gone from being a system that
was both fast and cost effective, to one plagued by delays and
exorbitant pricing practices. Certainly many factors have
contributed to this shift, but one major cause has been the
global economies uneven recovery from the COVID-19 pandemic and
the resulting supply chain collapses that have resulted from
that. In short, our supply chains can be very efficient, but
they are not resilient. This is an issue that I am committed to
improving and addressing.
And back in 2019, through my role as Senate Homeland
Security and Governmental Affairs Committee, as Ranking Member
at that time, I released a report on the rising cost of
prescription drugs and one of the takeaways from that report
was that in a major event such as the pandemic, our supply
chains were not going to be prepared to deal with it. And sure
enough, when the pandemic hit, we had major shortages of
personal protection equipment and other kinds of medical
supplies because of our overreliance on foreign suppliers. And
right now, we are having an ongoing semiconductor chip shortage
that is hurting our auto workers and our auto manufacturers.
These shortages and disruptions pose not only a threat to
our National Security, but also have devastating impacts on
Michiganders, their families, businesses, and workers all
across the country. For instance, automakers and their
suppliers have consistently encountered skyrocketing penalties
and fees charged by ocean shippers.
Combined with heightened volatility around ocean shipping
logistics, these conditions have actually diminished auto
production. There are examples of ocean carriers not fulfilling
their commitment to move the product of small and medium sized
businesses. Retailers have had to pay 6 to 10 times the
standard amount of shipping costs in order to get products to
their stores and on their shelves, and even then, they have
seen contract brokers decline to honor those agreed upon
amounts. Members of the agriculture industry have seen their
orders routinely get rolled, oftentimes only after learning
they have already incurred substantial demurrage fees.
And these are just a few of the many, many examples that I
could talk about. I certainly applaud the Biden
Administration's swift efforts to counter some of these
challenges, whether it has been multiple Executive Orders
empowering the Federal Maritime Commission working with major
ports. President Biden has taken important and necessary steps
to better secure our ocean shipping supply chains against
vulnerabilities.
We have already begun to see some positive results of these
efforts. Just last week, the CEOs of major retailers told
President Biden that supply chain conditions have begun to show
some signs of improvement. Additionally, the bipartisan
Infrastructure Investment and Jobs Act will help ease
inflationary pressures and strengthen supply chains by making
long overdue investments in our Nation's ports, airports,
rails, and roads.
And the Build Back Better Act will take many steps to lower
costs for families. The Senate Commerce committee has also
addressed this issue from multiple angles in recent months,
from a freight mobility supply chain hearing that I chaired
through this subcommittee in May, to a full committee hearing
held in July that focused on implementing supply chain
resiliency. The multifaceted challenges facing our supply
chains are going to require, however, a holistic response from
all sectors, including from ports, where I believe the Great
Lakes ports can play a significant part in reducing backlogs.
Ports in Michigan and across the Great Lakes St. Lawrence
Seaway system are ready-made relief valves that are currently
underutilized.
And as we explore solutions to strengthen our shipping and
supply chains, we must be sure to look to the Great Lakes, our
Nation's--I would say our Nation's best coast, to help fill in
the gaps when possible. Additionally, there are roles for both
the Federal Government and private industry to play in
alleviating our supply chain pressures and challenges.
I look forward to hearing from our witnesses here today
about the practices they have found to be successful in
addressing supply chains challenges associated with ocean
shipping and where gaps continue to plague logistics. I would
now like to invite Ranking Member Fischer to share her opening
remarks.
STATEMENT OF HON. DEB FISCHER,
U.S. SENATOR FROM NEBRASKA
Senator Fischer. Thank you, Chairman Peters, and thank you
for holding this hearing on ocean shipping bottlenecks as we
are in the midst of the holiday season. It would be an
understatement to say that the past year and a half has been
rough for many Americans. In addition to the public health
crisis, our supply chain and transportation networks have
experienced immense strains throughout this pandemic.
Grocery stores are struggling to keep shelves stocked again
with the current freight bottlenecks across the country. While
we hoped these disruptions would be a temporary problem, it is
clear that we will have to deal with this crisis for the
foreseeable future. Industry experts believe the supply chain
disruptions could persist into late 2022 or even into 2023.
Today's hearing will highlight the impacts the port backlog
is having on American businesses, including Preferred Popcorn
of Chapman, Nebraska. I am pleased to introduce my friend
Norman Krug, who founded Preferred Popcorn in 1997. 50 percent
of Preferred Popcorn's business is overseas, exporting to 70
countries around the world. While he was able to export 1,500
containers of popcorn last year, it should have been much more.
Mr. Krug informed my office that over 900 of his containers
were unable to be picked up for delivery. In other words, over
one-third of Norm's export business was not shipped due to
disruptions, and that is unacceptable. Norm will be able to
provide this committee with more insight on how the supply
chain disruptions are affecting the agriculture export
industry, and I look forward to hearing his testimony.
Unfortunately, Norm is not the only Nebraska business
leader who has reached out to my office about the supply chain
disruptions. I have heard from individuals who have had to send
employees home because their supply was stuck in a warehouse on
the West Coast, and they didn't have work for them. Another
business informed me that they were having to start producing
more products outside the United States facilities because the
cost of exporting their products is becoming too expensive.
Additionally, many Americans are concerned about being able
to purchase goods ahead of this holiday season. Grocery stores
across the country are struggling to maintain consistent
inventory, and retail sector and analysts are already warning
that Christmas orders will likely be delayed.
I was joined by many of my Senate colleagues, including
Chairman Peters, in supporting the Infrastructure Investment
and Jobs Act, which was recently signed into law. While this
legislation will provide historic investments into our Nation's
freight system, this will not be a short term fix. I hope this
hearing will provide Congress with a better understanding of
how these disruptions impact American businesses.
Additionally, I hope we can have a productive conversation
with the witnesses to discuss how shippers and carriers can
work to alleviate bottlenecks across this supply chain.
Finally, I believe this committee should have additional
hearings on this topic to understand how transportation
operators and the Administration are addressing the supply
chain challenges that we are discussing today. Thank you, Mr.
Chairman.
Senator Peters. Well, thank you. Ranking Member Fischer. We
will now introduce our witnesses. Our first witness today----
Senator Wicker. Mr. Chairman.
Senator Peters. Oh, yes. Ranking Member Wicker.
Senator Wicker. I have a brief opening statement.
Senator Peters. Oh, sorry. Absolutely.
STATEMENT OF HON. ROGER WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. Thank you, sir. Thank you very much. U.S.
manufacturers, retailers, consumers, and workers face enormous
challenges stemming from freight and supply chain congestion.
The effect will become even more pronounced as Christmas is
upon us, and families are trying to purchase gifts for their
loved ones amid soaring prices.
These transportation bottlenecks show no signs of letting
up. High levels of freight congestion are expected well into
next year. I have heard from many supply chain stakeholders
about the complexity of moving such a vast amount of goods. And
indeed, the situation is complex. We have all seen the images
of ships waiting for miles offshore to unload their cargo. The
lack of port terminal and warehouse space continues, as well as
limitations on intermodal equipment and workforce disruptions.
All of this makes it harder for truckers and railroads as
they move--as they work to move containers. On top of all this,
vaccine mandates could have a major impact on the
transportation sector. The trucking industry estimates that the
employer based vaccination mandate could result in the loss of
up to 37 percent of drivers for covered companies. Mr.
Chairman, we simply cannot absorb that level of disruption. It
would be impossible to cover every aspect of the supply chain
challenges in one sitting. But I appreciate Senator Peters and
Senator Fischer for holding today's hearing.
I also want to join Senator Fischer in urging the Committee
to hold additional hearings on the supply chain with witnesses
from the Administration and from land based transportation
operators. Recently, I led a letter with several of my
colleagues requesting a briefing from the Administration on how
they plan to address the supply chain issues. I would like at
this point, Mr. Chairman, to ask unanimous consent to insert
that letter into the record at this point.
Senator Peters. Without objection.
[The information referred to follows:]
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Senator Wicker. Thank you, sir. The Administration has made
few attempts at solving the problems--has made a few attempts
solving the problems, such as announcing back in early October
that the ports of Los Angeles and Long Beach would be open 24/
7. But as the Washington Post reported just a week ago, that
has yet to happen. And at this point, I ask unanimous consent
to enter into the record that Washington Post story confirming
that this has yet to happen.
Senator Peters. Without objection, so entered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Wicker. Supply chains are still jammed up. In fact,
just one port of Los Angeles terminal has experimented, just
one, with 24/7 operations. But according to the port director,
``we have had very few takers'' to this one experiment in one
Port of Los Angeles. Very few takers for those extended hours
because of a shortage of truckers and warehouse workers. They
seemed reluctant to show up at 3 a.m. in the morning to load
goods onto their trucks.
The Administration--and this does really concern me. The
Administration has claimed that the number of vessels waiting
off ports of Los Angeles in Long Beach is decreasing. The only
way they can make that claim is that they are using a new
counting method requiring ships to queue up over 150 miles off
the California coast. As of December 4th, over 96 ships were
waiting for berths, and at this point, Mr. Chair, I ask
unanimous consent to insert into the record a Bloomberg article
in this regard.
Senator Peters. Without objection, it will be entered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Wicker. And in other words, there are just as many
ships still out there. Cooking the numbers is not a solution.
And I am disappointed at the Administration for attempting to
suggest that that has been a solution. I have been disappointed
by the resistance to modernizing port and freight operations.
For example, automated terminals and trucks or new technologies
could improve efficiency and transparency within the supply
chain.
There are steps that should be taken to support the
movement of goods. I welcome the President's signature on the
bipartisan infrastructure bill. This includes much needed
investments in traditional infrastructure and will result in
long term benefits to the supply chain to help minimize future
bottlenecks. Furthermore, Senators are working on legislative
solutions. I recently introduced the Freight Act with Senators
Capito, Moran, Young, Blackburn, Thune, and Sullivan.
This legislation would spur improvements to our freight
transportation system, streamline the certification process for
truck drivers, address unlawful shipping conduct, and provide
oversight of transportation operations. Senator Blackburn has
legislation to incentivize a private sector led chassis pool in
Memphis. As a major inland port, Memphis needs to increase its
ability to operate more efficiently in our interconnected
freight system, which stretches from coast to coast.
And I want to applaud Senator Moran for leading a letter to
the Federal Maritime Commission, which I joined. That letter
encouraged the Commission to engage with the ports and swiftly
address any unjust or unreasonable aspects of the new dwell
fees. There are limits to what the Government can do.
The challenges facing our supply chains are enormous, as I
said complex, and involve numerous stakeholders around the
globe. If we are not careful, a heavy Government hand could
result in additional congestion rather than solutions. But
thank you to the witnesses and thank you, Mr. Chairman, for
your indulgence. I look forward to the testimony.
Senator Peters. Well, thank you. Thank you, Ranking Member
Wicker. Our first witness today is Mr. John Butler, who is the
CEO of the World Shipping Council, also known as WSC. Mr.
Butler is here representing more than 20 members of the liner
shipping industry, who operate approximately 90 percent of the
global liner ship capacity.
Mr. Butler has many years of experience working with the
shipping industry, including as a partner at Chevron Blackwell,
where he served as outside counsel to the WSC. Welcome, Mr.
Butler. You may proceed with your opening remarks.
STATEMENT OF JOHN W. BUTLER, PRESIDENT AND CEO,
WORLD SHIPPING COUNCIL
Mr. Butler. Thank you, Chairman Peters, Ranking Member
Fischer, members of the Subcommittee. I appreciate to test up
the invitation to testify today. This hearing is appropriately
titled. We truly are in uncharted waters. We have experienced
localized port congestion in the past, but what we are seeing
today is completely unprecedented. In the 60 plus years of
containerized shipping, this is the first time that we have
seen global supply chain congestion. And of course, it took a
global pandemic to put us in this spot. I would like to leave
you with four points today.
The first one I just mentioned, which is that the supply
chain congestion that we are experiencing is global and it is
triggered by COVID. The second point that I would like to make
is that ocean carriers have put every ship and every container
that they can buy, charter, or repair into service. The
problems are not caused by a lack of ships or containers. We
have plenty of those.
The problem is that we get--when we get to port, we can't
get in. And Senator Wicker made reference to the many, many
ships, for example, waiting to come to berth off of Southern
California. There is too much cargo coming in because of this
import surge for the landside infrastructure to process. And
that is the terminals, that is the railroads, that is the
trucks, that is the warehouses all the way out to the end
consumer. And a lot of that has been further complicated by the
shift to e-commerce.
That part of the supply chain is handling things in ways
that are different than the models that we had before. And as a
result of those problems and the fact that the entire supply
chain is saturated, what we are seeing in too many instances is
customers are using marine terminals and containers and chassis
as temporary storage facilities. And that means that cargo is
sitting on the terminals. It means that empty equipment is not
coming back to be given to the next customer.
And all of that feeds a lack of velocity that makes it
difficult to serve everyone. And that is really just the very
definition of congestion. The third point I would make like to
make is that even though we are facing very real supply chain
challenges, and the problems that you have both raised in your
opening Statements are real, there is no question about it, and
we are absolutely conscious of that, but the fact is, at the
same time, we are moving a record amount of cargo and the
system has been moving a record amount of cargo for the last 18
months.
And you have my commitment that we will continue to do
that. And fourth and finally, the last thing I would like to
speak to is the Government policy response. And frankly, as
ocean carriers, we are getting mixed messages on this front. On
the one hand, for example, the Administration is pressing us to
get our customers to come to the ports and pick up their cargo
so that we can get it out of the way and move additional cargo.
At the same time, we have a House bill and an expected Senate
bill that would restrict the ability to use detention and
demurrage incentives to get that job done.
As another example of the mixed messages, we are being told
by the Administration that we must put empty containers on
outbound ships in order to clear the ports. Again at the same
time, the proposed legislation in both chambers would say that
we have to load all export boxes before we can load empties. So
we are getting mixed messages on that front as well. One of the
things that I am not sure everyone fully appreciates is that we
don't run separate import and export ships. It is a single
continuous loop with the same ships and the same facilities
serving everyone.
And so when the system becomes overloaded, it affects both
importers and exporters, even though the main surge is coming
from the import side. When that is in balance, we can manage
it. When it is not, it becomes harder to do. The last thing I
would say, where I would like to close is to say, and Senator
Wicker made reference to this, there is no legislative silver
bullet on this, but it is possible to make the situation worse.
And there are some proposals in legislation that is kicking
around, frankly, that would take away some of the tools we need
and put the Federal Government in the middle of running a very
complex network.
We would urge you to move very cautiously in taking those
steps to make sure that we don't end up with a situation that
is worse than what we have now. Thank you very much for the
time.
[The prepared statement of Mr. Butler follows:]
Prepared Statement of John W. Butler, President and CEO,
World Shipping Council
1. Introduction: The World Shipping Council and the Liner Shipping
Industry
Chairman Peters, Ranking Member Fischer, and Members of the
Subcommittee thank you for the invitation to testify today. My name is
John Butler. I am President and CEO of the World Shipping Council\1\
(``WSC'' or the ``Council''). WSC is a non-profit global trade
association whose goal is to provide a coordinated voice for the liner
shipping industry in its work with policymakers, the public, and other
industry groups with an interest in international transportation.
WSC members comprise an industry that has invested hundreds of
billions of dollars in the vessels, equipment, and marine terminals
that are in worldwide operation today. Approximately 1,200 ocean-going
liner vessels, mostly containerships, make more than 28,000 calls at
ports in the United States during a given year--almost 80 vessel calls
a day. This industry provides American importers and exporters with
door-to-door delivery service for almost any commodity to and from
roughly 190 countries. The ocean common carrier community is committed
to serving the international trade of the United States, and the record
volume of import and export cargo that we continue to move is the
evidence of that commitment.
2. Record U.S. Consumer Demand and COVID-19 Disruptions Have Strained
Every Link in the Supply Chain
The U.S. is experiencing unprecedented import cargo demand due to
pandemic-altered consumer spending patterns and COVID disruption. U.S.
consumers made a dramatic shift in spending from services to goods,
with many of these goods purchased on e-commerce platforms. What was
perceived as a temporary consumer shift during the beginning of the
pandemic to e-commerce is increasingly appearing to be a permanent
shift. This behavioral change has resulted in record import volumes, as
the majority of goods U.S. consumers, businesses and importers are
ordering are made overseas, or assembled in the U.S. with components
from other countries. U.S. import demand is further complicated by
COVID disruptions when factories, port terminals and other operations
throughout the world are sporadically shut down in response to
infection outbreaks, putting pressure not just on ocean carriers, but
on every link in the complex global and North American supply chain
from both a production perspective and a transportation perspective.
Ocean carriers responded to the U.S. consumer import demand by
deploying every container ship available. But when these ships and
containers reach the entrance to U.S. ports, a shortage of landside
capacity to process the cargo--in marine terminals, trucking, chassis,
warehouses, distribution centers, and rail cars--has created
bottlenecks. This video is illustrative of the challenge: https://
youtu.be/_56qEFojS1I The most visible bottleneck is the record number
of ships backed up off the ports of Los Angeles and Long Beach. On
November 16, a record 86 container ships were at anchor or loitering
offshore waiting for a berth assignment. For reference, from 2018 to
2019, the number of ships at anchor or loitering was typically zero--
arriving ships proceeded directly into port to offload cargo.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
What is the primary cause of this congestion? Simply put, U.S.
landside capacity cannot keep up with the volume of import cargo that
American businesses and consumers are ordering from overseas. Because
cargo owners' warehouses are full, and there is strong competition for
trucking and rail services to pick up and process the cargo, in some
cases cargo owners are effectively using the marine terminals and
containers as temporary warehouses. This practice is consuming precious
space and limiting the terminals' ability to operate at full capacity.
It is also taking up the space where returned empty containers would
typically be stored, so in some cases marine terminals are unable to
accept empty container returns from truckers unless a loaded import
container is removed in the same transaction in order to create space.
The inefficiencies that these conditions generate are made worse by
the fact that both loaded and empty containers are too often stored
outside of the marine terminals on the same truck chassis that are
needed to move imports off of the terminals and to move export
containers onto the terminals to be loaded on outbound ships. Each
inefficient process affects every other connected process, and each
individual problem compounds problems in the rest of the supply chain.
3. What are Ocean Carriers doing to help alleviate this congestion?
Although in most cases ocean carriers' contractual obligation is
completed once they deliver merchant haulage cargo to the marine
terminal, ocean carriers are working with the Administration's Supply
Chain Disruption Task Force, Port Authorities, and their customers
(cargo owners) to encourage them to pick up their cargo as soon as
possible. This collaborative effort has resulted in a decline in long-
dwelling containers in Los Angeles and Long Beach from 62,000 to
39,000--a 37 percent reduction.\1\ One WSC member company has even
taken the unique step of instituting an ``Early Container Pickup
Incentive Program'' which offers importers up to $200 per container if
they pick up their container from Los Angeles and Long Beach within
eight days of delivery, in an effort to improve cargo fluidity.\2\
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\1\ See Ports of LA, Long Beach, delay container fee for 4th time--
Press Telegram
\2\ See https://www.cmacgm-group.com/en/news-media/cma-cgm-
implements-incentive-pro
gram-to-ease-congestion-at-the-ports-of-Los-Angeles-and-Long-Beach
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Ocean carriers are also working where possible to operate dedicated
empty container evacuation ships--so-called ``sweeper ships''--which
have picked up some 20,000 empty containers, freeing up both terminal
space and chassis, which provides more chassis availability for
truckers to retrieve laden containers from the marine terminals and to
deliver U.S. export containers to the ports for loading on outbound
ships.\3\
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\3\ See Empty Containers Pile Up at Port of Los Angeles as Ocean
Liners Add `Sweeper' Ships to Clear Backlog (gcaptain.com)
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4. When Ocean Carriers Return Empty Containers to Alleviate Port
Congestion and free chassis, are these ``empties'' displacing
U.S.
Agricultural and other exports?
Within the category of agricultural exports that move in
containers, there has been an assertion that more containers should be
set aside for agricultural exports. Although it is understandable that
all shippers would prefer to have a favored position in the market, it
is not possible to arbitrarily favor one group of customers without
disrupting the functioning of the entire system, to the detriment of
all. When overall U.S. import volume surges and overall U.S. export
volume remains relatively flat--as has been the case since mid-2020--
this results in an increase of empty containers in the U.S. that need
to be repositioned to overseas locations to be filled with U.S. import
cargo.
Without that repositioning of empty containers to the origin
countries from which U.S. importers purchase goods, U.S. importers
would not be able to meet the demands of U.S. businesses and consumers
that purchase those imported products. Equally important, if these
containers are allowed to pile up in ports, the resulting congestion
slows down the system for everyone--importers and exporters. The
containerized ocean transportation system is not two disconnected
import and export systems. It is one system comprised of a single
interconnected network employing the same ships and containers in
continuous service loops, and that network must be managed to keep all
types of cargo moving. Everybody's cargo moves, or nobody's cargo
moves.
U.S. agricultural exporters face the same land transportation and
equipment challenges as importers as they work to move their export
cargo in the opposite direction, as well as the additional challenge of
synching their export loads up with the ships they are booked on. This
combination of challenges has created frustration among exporters
because it is difficult to match inland transportation arrangements
with ship schedules that are themselves uncertain because of port
congestion. This has resulted in problems with what is termed the
``earliest return date'' (ERD) for outbound cargo--the window during
which the marine terminal will accept cargo for a particular ship. If
the cargo comes into the terminal too early and the ship does not
arrive, then that cargo contributes to congestion. If the cargo comes
in too late, it may miss the ship. The Federal Maritime Commission
(FMC) recently announced it is addressing this issue using a ``Supply
Chain Innovation Team'' composed of representatives from ocean carriers
and marine terminal operators to address exporter concerns and bring
certainty and predictability to the ERD process.\4\
---------------------------------------------------------------------------
\4\ See New Supply Chain Initiatives Announced at FMC Meeting--
Federal Maritime Commission--Federal Maritime Commission
---------------------------------------------------------------------------
While there have been allegations that exporters of agricultural
products have been disproportionately affected, in fact all exporters,
both agricultural and non-agricultural, have been affected by the
bottlenecks caused by the pandemic induced supply chain congestion.
Notwithstanding the congestion, however, U.S. agricultural exports are
moving at high and in some cases record levels.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
By way of context, containerized cargo is a relatively small
percentage of total agricultural exports. Exports to Canada and Mexico
move almost entirely by land transportation. For agricultural exports
moving by sea, the majority are exported on bulk freighters.
However, U.S. containerized agricultural exports are also moving at
pre-pandemic and in many cases record levels. According to the Foreign
Trade Division of the U.S. Census Bureau, containerized export tonnage
of soybeans increased almost twenty-five percent in the October 2020-
March 2021 period, reaching the highest levels ever. Additionally,
containerized exports of Tree Nuts, Frozen Beef, and Dairy were at
record levels and Pork, Cotton and Forage (Hay & Clover) were at near-
record levels.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. Department of Agriculture Forecasts project exports for Fiscal
Year 2021 at $173.5 billion, an increase of $9.5 billion from the May
2021 projection.\5\ The USDA forecast for 2022 continues this upward
trend rising $4.0 billion to $177.5 billion, with soybeans increasing
by $3.3 billion from 2021, to a record $32.3 billion, cotton forecast
up $500 million to $6.8 billion, and livestock, poultry and dairy
exports up $400 million to $36.8 billion, primarily due to growth in
dairy and poultry products. Overall agricultural exports to China are
forecast at $39 billion--an increase of $2 billion from FY 2021.
---------------------------------------------------------------------------
\5\ See United States Department of Agriculture, Economic Research
Service, Outlook for U.S. Agricultural Trade: August 2021, available at
USDA ERS--Outlook for U.S. Agricultural Trade
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
5. The Ocean Carrier Industry is not highly concentrated; Vessel
Sharing Agreements (VSAs) enable carriers to offer a broader
suite of services and use vessels more efficiently
Recently there have been assertions that the ocean carrier industry
is highly concentrated and that price increases caused by the ongoing
COVID-19 disruption might not be market driven. In fact, the opposite
is true. Both the FMC and European Union competition authorities have
recently reviewed pandemic-driven price increases, with both agencies
concluding that they have not received any evidence or identified any
anticompetitive behavior in relation to price increases.\6\ In fact,
these competition authorities have concluded that the pandemic has
presented operators across the supply chain with exceptional
challenges, that the causes of the prices hikes and of the current
level of service quality are multifaceted, not necessarily the same
across the entire world, and are not attributable to one determining
factor or one category of operators.
---------------------------------------------------------------------------
\6\ See International Shipping Competition Agencies Meet--Federal
Maritime Commission--Federal Maritime Commission (fmc.gov); Increase in
maritime freight transport costs (europa.eu); Answer for question E-
004399/21 (europa.eu)
---------------------------------------------------------------------------
The fact is that prices in the ocean shipping markets are driven by
supply and demand. Demand for ocean transportation services into the
United States is at a record, sustained level. Despite the fact that
ocean carriers have deployed all available ships and equipment, the
landside bottlenecks discussed above are preventing those ships from
efficiently unloading import cargo and loading outbound U.S. exports.
In this way, the operational and infrastructure challenges that begin
at the ports and run inland all the way to the final destination of the
imported goods are reducing the effective capacity of the ocean vessel
fleet. Ships forced to wait to get into port are not moving cargo and
satisfying demand.
There has also been some misunderstanding about vessel sharing
agreements, or VSAs. These longstanding arrangements are one of the
most important structural features of the liner shipping industry. VSAs
allow carriers to share vessel capacity on each others' ships, causing
ships to be used more efficiently and resulting in more service
offerings to more ports by more carriers than would otherwise be the
case. These are purely operational arrangements, however, and each
carrier continues to individually price its services.
VSAs are recognized worldwide by regulators as increasing service
levels and operational efficiency, to the benefit of all supply chain
users. In the United States, VSAs are filed with the FMC and are
subject to strict monitoring to ensure that they remain pro-
competitive. In the conditions that we are currently experiencing, VSAs
provide a mechanism to ensure that every slot on every vessel is used
to move loaded containers or to reposition equipment for the next use--
efficiencies that are critical to getting the best performance from an
ocean transportation system that is constrained by inland congestion.
6. The Federal Maritime Commission (FMC) has the Necessary Authority
and is Actively Regulating the U.S. International
Transportation
System
In challenging trade conditions, it is not uncommon for there to be
complaints about marketplace behavior in all transportation modes. For
liner shipping, if there are problems that run afoul of the Shipping
Act, the FMC punishes unreasonable behavior. The FMC is actively
investigating allegations of Shipping Act violations through its ``Fact
Finding 29, International Ocean Transport Supply Chain Engagement'' in
order to address any abuses and to identify operational and regulatory
solutions to cargo delivery system challenges related to COVID-19.\7\
---------------------------------------------------------------------------
\7\ See www.fmc.gov/fact-finding-29
---------------------------------------------------------------------------
The FMC also recently completed an audit of the top nine ocean
carriers by market share for compliance with the Commission's recently
promulgated ``Interpretive Rule on Demurrage and Detention Under the
Shipping Act'' \8\ and subsequently urged ocean carriers to adopt best
practices for detention and demurrage.\9\ Detention and demurrage
charges are used to ensure that shippers expeditiously pick up their
cargo and promptly return empty containers so the equipment can be used
by the next customer. This keeps the supply chain moving and enhances
service efficiency, reliability and predictability. The Commission has
been especially focused on detention and demurrage charges recently,
both because these mechanisms are necessary to maintaining the free
flow of cargo, and also because cargo volumes and related congestion
have raised questions about how charges are applied in some cases.
---------------------------------------------------------------------------
\8\ Federal Maritime Commission, Interpretative Rule on Demurrage
and Detention Under the Shipping Act, 85 Fed. Reg. 29638, at 29647 (May
18, 2020).
\9\ FMC VOCC Audit Team Urges Carriers to Adopt Detention &
Demurrage Best Practices--Federal Maritime Commission--Federal Maritime
Commission
---------------------------------------------------------------------------
The FMC's active engagement and oversight demonstrate that the FMC
is uniquely positioned and has ample authority to address these issues.
The Commission has repeatedly confirmed that questions about detention
and demurrage are inherently fact-specific, and adjudication of any
complaints is the sort of task to which administrative agencies, with
their adjudicative and investigatory resources, are well suited to
handle. To date, there have been very few formal complaints filed with
the FMC, and the Commission has the authority to undertake enforcement
actions on its own initiative if it finds cause to do so.
7. Conclusion
Every sector of the global supply chain remains under tremendous
stress, and that stress is more acute in the United States than
anywhere else on the globe. That is the case because of the surge in
U.S. import cargo. The record-level import surge has clogged overseas
ports as well as some of this Nation's ports, the inland transportation
system, and warehouses and distribution centers. Those landside back-
ups mean that we have ports where ships are waiting for long periods of
time to unload and load cargo, thus reducing the effective capacity of
the world's containership fleet. The import surge has also exacerbated
an existing imbalance between import and export volumes, which
increases the need to reposition empty containers in order to meet the
continuing demand from U.S. importers. If those empty containers pile
up in marine terminals or are left sitting on chassis outside the
terminals, that slows down the flow of cargo for both importers and
exporters. All of these factors build upon one another to cause the
situation that we find ourselves in today.
Everyone experiencing these unprecedented conditions has been
impacted by the business challenges, costs, and delays resulting from
the pandemic and its cargo demand surge. As testimony from all
witnesses today will show, this is not a situation caused by the
failure of any one part of the supply chain, and no part of the system
has been untouched. To the contrary, all parts of the chain are
affected, and all parties are working overtime to keep cargo moving.
And while there are obviously disruptions, costs, and delays, the fact
is that the international ocean and U.S. intermodal transportation
system is moving more cargo right now than at any time in history. The
system is bent, but it is not broken.
The supply chain challenges that we face require logistical and
management solutions, as well as a return to a more normal volume and
balance of import and export cargo, which will happen over time.
Necessary solutions are being provided through the common purpose and
efforts of many supply chain actors. These are operational and
commercial challenges that must be addressed first and foremost by the
commercial service providers and customers involved, with a steady
regulatory backstop provided by the FMC. The ocean common carrier
community is committed to serving the international trade of the United
States, and the record volume of cargo that we continue to move is the
evidence of that commitment.
Senator Peters. Well, thank you, Mr. Butler. Our second
witness today is Mr. Greg Regan, President of the
Transportation Trades Department at the AFL-CIO, also known as
TTD. In that role, Mr. Regan leads and oversees the daily
operation of a labor organization consisting of 33 unions that
together represent workers in all areas of transportation.
Mr. Regan also serves as TTD's spokesperson and chief
strategist, working with elected leaders on both sides of the
aisle to fight for long term investments in our transportation
system and to ensure that jobs in the sector are both safe and
secure. Welcome to the hearing. You may proceed with your
opening Statements.
STATEMENT OF GREG REGAN, PRESIDENT, TRANSPORTATION TRADES
DEPARTMENT, AFL-CIO
Mr. Regan. Thanks, I am a little un-used to an unmute
button. It is nice to see a physical one in here. Well, thank
you, Chairman Peters and Ranking Member Fischer for inviting me
to discuss the challenges facing America's supply chain and
freight network.
The employees represented by TTD's 33 affiliated unions are
on the front lines of these challenges, including workers
directly engaged in the freight transportation of railroads,
ports, and in trucking, as well as those who work in industries
like manufacturing that are grappling with the rippling effects
of supply chain choke points and delays.
Ultimately, there is no lone actor, decision, or policy,
that is responsible for this situation. However, we must
acknowledge the long term structural issues going back 40 years
that must be addressed so that we do not find ourselves in the
same place when the next crisis occurs. The historic rise in
cargo volume has stressed every component of the freight
transportation network frequently to the breaking point.
And this includes workers, many of whom have been pushed
past the brink of exhaustion. I must be perfectly clear on one
point. Workers are not the cause of this crisis, but they are
working around the clock to fix it. Putting any amount of blame
for this crisis on the shoulders of hardworking Americans who
drive our economy through thick and thin is unacceptable.
This is particularly true when such scapegoating is done as
an excuse to undermine collective bargaining rights or further
deteriorate their safety or working conditions. Instead, let's
acknowledge that shortsighted industry practices and decades
long underinvestment supply chain infrastructure have rendered
our supply chain incapable of meeting the current soaring
demand for goods. Unfortunately, while the drastic spike in
demand was unpredictable, the results were in many ways
inevitable.
For example, the lack of elasticity among freight railroads
has worsened the supply chain challenges. For years, Class I
railroads have pursued an operating model known as precision
scheduled railroading, or PSR. Through the PSR model, the
railroads all but ensured that their operations would not be
able to rapidly respond to economic shocks or rapid changes in
the flow of traffic like those we are now seeing.
The real world impact of the freight railroads business
model is that they slash a staggering 20 percent of their
workforce in the 5-years prior to the pandemic. When greater
and more reliable freight service was obviously needed, the
railroads only dug in further to their skeleton crew operations
and continually prioritize profits over people. Some claim a
shortage of employees in the supply chain as a major factor in
this crisis. Such claims imply that the workers needed to
perform a job do not exist in our current market.
This is simply not true. The truth is that many employers
fail to provide the incentives, including good wages, working
conditions, and benefits that will attract and retain skilled
workers. In the trucking industry for example, blatant worker
misclassification is artificially suppressed wages and made
working conditions untenable. This is also true in rail, where
our union's report mid-career employees walking away from
formerly good jobs and secure retirements due to eroding
workplace conditions.
We are unequivocal, PSR and other industry practices have
resulted in a network that was less prepared for this crisis.
There are no overnight fixes to our supply chain challenges.
When the scope of disruption became clear, the Administration
established a whole of Government response that paved the way
for nimble and integrated collaboration and planning. The Biden
Administration's decisive actions are already yielding positive
results.
Just since the beginning of November, we have seen a 41
percent reduction in containers sitting on our docks for over 9
days. While there have been misleading, if not outright
falsified claims of empty store shelves, the on-shelf
availability of goods in grocery and drugstores has in fact
effectively returned to pre-pandemic levels.
Ocean shipping costs remain high, but we are now--but they
are now showing signs of meaningful decrease. Decisive and
focused actions have made a difference here. Policymakers,
including those in Congress, must, however, address the
systemic problems that put us in the situation in the first
place.
In doing so, we call on you to work closely with supply
chain employees and their union representatives across the
Nation to develop real, long term solutions. Congress and
economic regulators must consider and address the impacts of
drastic reduction in the rail workforce and degradation and
service quality have had on supply chain disruptions, let alone
whether current railroad operations are consistent with our
common--statutory common carrier obligations.
I would like to thank Senator Baldwin for introducing an
amendment to the NDAA, which would give the Surface
Transportation Board more tools and authority to address bad
behavior by the railroads. Solutions must also include robust
and well directed investments in our Nation's freight
infrastructure. To that end, we strongly applaud the enactment
of the IIJA, the Infrastructure Act, which provides $2.2
billion for the Port Infrastructure Development Program,
offering a lifeline to the almost half of all U.S. ports who
state the better rail access could increase their throughput
capacity by over 25 percent.
Historic investments in the rail network and in multi-modal
development will similarly act to prevent or blunt future
supply chain challenges. Congress should also consider novel
approaches to supply chain challenges that would create jobs
and economic activity. For example, the expansion of waterborne
transportation alternatives to our marine highways may ease
supply chain bottlenecks, particularly at major ports.
And finally, we once again call on you to reject ill-
conceived efforts to manipulate the crisis to attack workers
themselves. The pursuit of a more efficient supply chain cannot
be an excuse to eliminate regulatory safeguards or attack
collective bargaining rights. Thank you again for the
opportunity, and I look forward to your questions.
[The prepared statement of Mr. Regan follows:]
Prepared Statement of Greg Regan, President, Transportation Trades
Department, AFL-CIO
On behalf of the Transportation Trades Department, AFL-CIO (TTD)
and our 33 affiliated unions, I first want to thank Chairman Peters and
Ranking Member Fischer for inviting me to testify before the
Subcommittee today on the challenges facing our supply chain and
freight network. The employees represented by TTD-affiliated unions are
on the front lines of these challenges--including the workers directly
engaged in freight transportation at railroads and ports, and who work
in industries that are struggling with the down-economy effects of
chokepoints and delays.
The State of the Supply Chain
The fact that these disruptions have resulted in enormous economic,
financial, and environmental costs is clear. Despite no shortage of
finger-pointing and over-simplifying, we must acknowledge that the root
cause of our supply chain bottlenecks is multivariate. Principally, we
know that year to date, overall cargo volume through the Port of LA
Long Beach, for example, has increased by a massive 26 percent compared
to 2020, driven in part by a sharp uptick in consumer demand for
durable goods.\1\ This remarkable rise in cargo volumes has stressed
every component of the freight transportation network, frequently to
the breaking point. By way of example, earlier this year, Union Pacific
found itself unable to clear backlogs, and stopped running desperately
needed trains between the West Coast and its Global IV gateway in
Chicago. Burlington Northern Santa Fe similarly began rationing service
over its LA-LB to Chicago routes. Still, today, dozens of cargo ships
remain anchored off the port, currently unable to dock due to lack of
capacity at port terminals. Terminal operators at both LA-LB and the
Port of Savannah are repurposing additional facilities to store
overflow containers, as storage at the port has been exhausted.
---------------------------------------------------------------------------
\1\ https://www.portoflosangeles.org/business/statistics/container-
statistics
https://www.clevelandfed.org/en/newsroom-and-events/publications/
economic-commentary/2021-economic-commentaries/ec-202116-durable-goods-
spending-during-covid19-pandemic.aspx
---------------------------------------------------------------------------
It is not surprising that this historic increase in cargo volumes
and demand would result in supply chain challenges. There are few if
any industries that would be positioned to handle this level of new
demand without difficulties. Ultimately, there is no actor, decision,
or policy that is individually responsible for the scenario the Nation
finds itself in. However, as we seek to move past these supply chain
bottlenecks, Congress and the administration must acknowledge and
examine conditions that increased the severity of the crisis, alongside
efforts to alleviate the backlogs of today and tomorrow.
I must also take this opportunity to be perfectly clear on one
point. There are many in Congress and in the industries our members
serve who are cynically using this opportunity to scapegoat hard-
working Americans, undermine their collective bargaining rights, and
further deteriorate safety and working conditions for supply chain
employees. Putting any amount of blame for this crisis on the shoulders
of your constituents--the American workers who drive this economy
through thick and thin--is unacceptable. We reject this misguided
placement of blame out of hand and urge all policy makers to do the
same.
A Decisive Response
As discussed below, many of the potential remedies to the supply
chain challenges of today and tomorrow will require long-term
structural changes to how we operate the supply chain network, prepare
for shocks to the system, and invest in freight infrastructure.
However, since the crisis began the Biden Administration, through
thoughtful and sustained engagement with stakeholders, has taken
decisive actions that are having demonstrable positive results.
When the scope of disruptions became clear, the administration
established a whole-of-government Supply Chain Disruptions Task Force
that has paved the way for nimble and integrated collaboration and
planning. At the Port of Los Angeles/Long Beach, this included working
with the private sector to begin 24-hour port operations, and the
waiving of fees assessed to truck drivers when they arrive at night or
on weekends, incentivizing greater throughput at traditionally slower
times. Through its Action Plan for America's Ports and Waterways, the
administration leveraged existing Federal investments, including
allowing the Port of Savannah to flex Port Infrastructure Development
Program funding to convert existing inland facilities into five pop-up
container yards to hold overflow containers and reduce congestion at
the port. And the Department of Transportation has renewed targeted
hours of service flexibility for drivers with critical cargoes.
There is no overnight fix that will make these issues disappear.
However, since just the beginning of November, we've seen a 41 percent
reduction in containers sitting on docks for over 9 days. While
misleading if not outright falsified claims of empty store shelves and
unprecedented product scarcity that would leave Americans without
turkey on Thanksgiving have abounded, the on-shelf availability of
goods sold at grocery and drug stores has effectively returned to pre-
pandemic levels.\2\ Ocean shipping costs remain high, but are now
showing signs of meaningful decrease. These disruptions and their
impact are not over, and the continued effects of the COVID-19 pandemic
and other variables will remain a challenge. However, we applaud the
administration for its approach to the crisis which has played a major
role in our path to recovery.
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\2\ https://indices.iriworldwide.com/covid19/?i=5
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Unexpected Conditions, Inevitable Results
The supply chain crisis has put a spotlight on components of the
freight network that were particularly ill-prepared for the demand
shock of the last year. For years the Class I railroads have pursued an
operating model known as precision scheduled railroading, or PSR. PSR
operations seek to lower operating ratios--a railroad's expenses as a
percentage of revenue--to appease shareholders and increase returns.
Fundamentally, a PSR railroad abandons the traditional operating model
of a service industry that responds to the variable demand of its
customers. Instead, it operates on a regimented schedule more akin to
passenger rail. After eliminating on-demand response, flexibility in
the construction of train consists, and the availability of service,
railroads then jettison capital assets like locomotives and cars and
slash jobs across the network.
In doing so, Class I railroads all but ensured their operations
would not be able to rapidly respond to economic shocks or rapid
changes in the flow of traffic, like those the Nation is currently
experiencing. This is evident in the hollowing out of the industry that
has taken place in recent years. During the five-year period between
2014 and 2019, Class I railroads eliminated a staggering 20 percent of
their overall workforce. I might add that many of these freight rail
employees have specialized skills and training--many require
certification--that are not easily replicated in the broad U.S.
workforce.
Throughout the pandemic, employment dropped further as freight
volumes collapsed. However, freight rail has enjoyed a ``v-shaped''
recovery--carloads have nearly returned to 2019 levels. Yet, Class I
carriers today employ fewer employees than they did pre-pandemic, and
amid the supply chain crisis, employment continued to decrease in
August and September of this year. Further, in the first three quarters
of FYI '21, an analysis of four Class I railroads shows a shocking -
19.5 percent decrease in employee service hours compared to FY '19,
while handling only 3.2 percent fewer carloads. Now, after years of
capricious job cuts, yo-yo-ing employees back and forth between active
and furloughed status, and a degradation of the work environment,
railroads find themselves experiencing service issues due to inadequate
staffing. In a recent letter to Norfolk Southern, Surface
Transportation Board Chairman Marty Oberman remarked that ``Coinciding
with the marked deterioration in NSR's performance metrics, the board
has received an increasing number of complaints from NSR's customers
about poor performance'' and requested ``a review of the current state
of NSR's network, and your assessment of what factors are affecting
NSR's ability to achieve past levels of fluidity and consistent
service, and in particular the impact on customer service of previous
headcount reductions for train, yard and maintenance employees.''
Unsurprisingly, NS and other carriers take no responsibility for their
role in today's skeleton crew workforce. We are unequivocal--these
reductions have resulted in a rail network that is less prepared, less
capable, and less safe.
Not only do railroads lack the personnel to respond nimbly to the
supply chain crisis, but they frequently also lack equipment. In its
2020 financial disclosures, Union Pacific stated that it had reduced
its active locomotive fleet by 24 percent and only managed to keep 58
percent of its remaining locomotives in service. Other carriers have
similarly eliminated equipment, and TTD unions report that equipment
not in use is often not kept in a state of good repair, meaning that it
cannot quickly be put into service when needed. As a result, when a
surge of force was required to resolve congestion issues, railroads
were left without the institutional flexibility required to do so
quickly.
While drastic spikes in demand were always likely to result in
significant operational challenges, the lack of elasticity among
freight railroads has worsened and extended supply chain challenges.
Today, while rail carriers will cite that some metrics have improved,
many of these improvements are recent--for example, rail dwell times at
West Coast ports didn't begin a sustained decrease until August.\3\
Further, despite these efforts intermodal rail volumes have actually
decreased year over year, with U.S. intermodal volumes for September
6.7 percent lower than September 2020, and 2.8 percent lower than
October 2020. as shippers look elsewhere to move cargo.\4\ It is clear
that challenges persist, and have persisted longer than they needed to.
---------------------------------------------------------------------------
\3\ https://www.pmsaship.com/wp-content/uploads/2021/10/West-Coast-
Trade-Report-October-2021.pdf
\4\ https://www.freightwaves.com/news/us-intermodal-rail-traffic-
softens-in-september-on-supply-chain-woes
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Good Jobs Attract Strong Workforces
Today, Class I's are acknowledging the need to hire additional
employees to meet demand, and we strongly encourage them to do so.
However, in a tight labor market,\5\ rail employers are pointing to so-
called ``labor shortages'' as an explanation for ongoing difficulties
in staffing. TTD rejects any characterization that the rail industry is
suddenly experiencing a shortage beyond its control, given the
calculated elimination of tens of thousands of jobs over the past
decade. If the existing rail workforce is inadequate to handle current
freight demand, and we believe that it is, this is the result of
intentional decision-making by Class I carriers as they've embraced the
PSR model. They must be held accountable during this supply chain
crisis for decisions that have contracted our freight rail capacity and
left our economy in a worse state as a result.
---------------------------------------------------------------------------
\5\ https://fred.stlouisfed.org/graph/?g=E9Bs
---------------------------------------------------------------------------
Not only have carriers drastically cut headcount, but they have
also fostered workplace conditions that have degraded the quality of
railroad employment. TTD unions have increasingly reported on the
phenomenon of mid-career rail employees resigning from well-paying jobs
and giving up stable retirements due to an unwillingness to continue to
work in unsafe conditions where the perpetual threat of furlough looms
large. According to data provided by the Railroad Retirement Board,
even when adjusting for retirements, approximately 7,200 employees left
the rail industry during the pandemic. The bulk of these individuals
were employed by Class I railroads. While targeted hiring campaigns and
incentive programs to boost ranks are certainly welcomed, an ongoing
exodus of highly-skilled and experienced employees is liable to
undermine any forward progress.
More generally, we do not believe that a shortage of employees in
the supply chain is a factor in current conditions. A workforce
shortage implies that the workers needed to perform a job do not exist
in the market. What we have today in our economy is the failure of
employers to respond to market conditions and provide the incentives--
wages, benefits, working conditions, that will attract the workforce
they need. In addition to rail, proponents of the shortage explanation
frequently cite trucking as an example of an industry where total
employment is lacking despite best efforts. Yet, the 90 percent
turnover rate for long-haul truckers speaks to a similar market
response from drivers who are disinterested in long hours, low wages,
and a difficult working environment.\6\ As an example, port truck
drivers working for XPO Logistics recently won a settlement of nearly
$30M after successfully arguing that they had been willfully
misclassified under Federal labor law, to deny them fair wages,
benefits, and bargaining rights.\7\ The mistreatment faced by XPO
drivers, operating in a key node of the supply chain, was hardly
unique. The failure of an employer to incentivize its future workforce
is not synonymous with a labor shortage, and the solutions are not
interchangeable.
---------------------------------------------------------------------------
\6\ https://www.ccjdigital.com/economic-trends/article/15064753/
driver-turnover-rate-holding-steady
\7\ https://teamster.org/2021/10/xpo-drivers-achieve-nearly-30-
million-in-settlements-after-company-misclassified-its-workers/
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A Path Forward
As Congress and the administration continue to work to solve the
ongoing challenges, and prevent future interruptions of this magnitude,
we call on you to work closely with supply chain employees and their
union representatives across the Nation to develop long and short-term
solutions to the supply chain crisis.
This must include considerations of the impacts of the drastic
reduction in the rail workforce and degradation in service quality, how
these factors have contributed to supply chain disruptions, and even if
the manner in which railroads have chosen to operate is consistent with
statutory common carrier obligations. We encourage the pursuit of long-
term structural changes that will reverse the current path of the
industry and return to the prioritization of long-term viability, high-
quality service, and the creation and support of thousands of good
jobs.
Solutions must also include robust and well-directed investments in
our Nation's freight infrastructure. To this end, TTD strongly applauds
the enactment of the generational Infrastructure Investment and Jobs
Act (IIJA), and we thank Chairman Peters and Ranking Member Fischer, as
well as Chair Cantwell and Ranking Member Wicker, for their hard work
and support of this legislation which will transform our Nation's
transportation and freight systems.
As policymakers and the private sector consider strategies to
expedite the flow of goods at major ports, the $2.2 billion the bill
contains for the Port Infrastructure Development Program offers a
lifeline to the nearly half of U.S. ports that state that better rail
access could increase throughput capacity by over 25 percent.\8\
Historic investments in the rail network, and in multimodal development
will similarly act to prevent or blunt future supply chain challenges.
Critically, to achieve the greatest economic impact for IIJA, it is
essential that the legislation is implemented in a way that sustains
good-paying jobs while acting as an economic force multiplier
throughout the supply chain.
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\8\ https://aapa.files.cms-plus.com/PDFs/
State%20of%20Freight%20III.pdf
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Congress should also consider novel approaches to supply chain
challenges that would create jobs and economic activity. For example,
the expansion of waterborne transportation alternatives through our
Marine Highways may alleviate symptoms of a supply chain bottleneck,
particularly at major ports. Short sea shipping is the practice of
commercial waterborne transportation utilizing America's Marine
Highways and is a practical alternative to moving freight from major
ports to its destination. A fully developed short sea shipping sector,
utilizing smaller cargo vessels, would supplement and complement
services provided by rail and truck transportation and would provide
shippers with an additional alternative to direct goods to their final
destination. In addition, being able to use our waterways more
consistently would create benefits for the U.S. maritime industry by
creating good jobs aboard vessels and at ports and shipyards, while
reducing port congestion.
We also call on you to reject ill-conceived efforts to hijack the
crisis to attack supply chain workers and their industries. The pursuit
of a more efficient supply chain cannot be an excuse to eliminate or
deconstruct critical regulatory safeguards, such as fatigue
protections, or to water down carefully crafted training and
qualification requirements. In particular, we strenuously oppose
legislation that seeks to amend long-standing labor law to deny
collective bargaining rights. Transportation labor views any such
efforts as an unwarranted and deeply misguided assault on employees in
the supply chain who continue to work tirelessly to keep the economy
and the flow of commerce moving.
TTD thanks the Subcommittee for the opportunity to testify today on
the significant challenges facing our supply chain. We look forward to
continuing to work together to alleviate current congestion and to
foster more resilient freight transportation industries well into the
future.
Senator Peters. Well, thank you, Mr. Regan, for your
comments. Next, our third witness today is Mr. Paul Doyle, the
CEO of Coastal Automotive, a small, forward looking automotive
safety component manufacturer headquartered in Holland,
Michigan, with manufacturing facilities there and with sales
and technical team in Rochester Hills, Michigan. Mr. Doyle has
a wealth of experience, having spent over 20 years in the
manufacturing industry before leading Coastal Automotive. Mr.
Doyle, welcome. You may proceed with your opening comment.
STATEMENT OF PAUL DOYLE, CHIEF EXECUTIVE OFFICER, COASTAL
AUTOMOTIVE
Mr. Doyle. Chairman Peters, Ranking Member Fischer and
committee members, on behalf of all the employees of Coastal
Automotive, as well as my colleagues at the Motor and Equipment
Manufacturers Association and its division, the Original
Equipment Suppliers Association, I am really thrilled to be
here today to share our experiences as a Michigan manufacturer,
as you wrestle with the solutions to the tangled web that is
our supply chain reality. Both MEMA and OESA represent over
900,000 team members in the United States, and Coastal makes up
a small but proud 200 of those.
I have worked in the automotive market for thirty 3 years
and I have never seen such a combination of issues facing our
manufacturers, including those of the Great Recession of 2007
to 2009. Coastal Automotive is a small company, but we have a
global footprint.
We do all of our manufacturing and our R&D in Michigan. The
main product we make is a specialized foam responsible for head
impact safety. Our products are in well over 60 percent of all
vehicles on the road in the United States. As many have said,
there is no singular root cause to this challenge that we are
facing.
In the last 20 months, automotive manufacturing has been
challenged by COVID, multiple challenges of semiconductor
supply and demand, labor shortages, Suez Canal blockages,
increased trucking demands driven by COVID related home
shopping, enhanced and extended unemployment, increasing
material and wage costs, port shipping and truck trucking
infrastructure issues, and I am not blaming nor complaining, it
is just the landscape that we are dealing with. In April 2020,
Coastal sales dropped from about $5 million per month to about
$500,000.
What we did in response defies everything I know about
managing a lean operation. But between clever management and
the PPP dollars, and thank you for that by the way, we remained
a viable business today. But here is our current situation. We
received through East Coast ports roughly 250 sea containers
each year from Greece. And like most, we have seen delays and
extended lead times.
We have a long term agreement with our largest supplier,
which expires in April 2022, and we expect about a 20 percent
increase in cost. The increase is based largely on the cost of
their logistics, shipping containers have gone up to $27,000
compared to pre-pandemic levels of around $3,000, storage and
demurrage charges at the docks, subsequent transportation cost
on rail to Chicago and truck to Michigan. In the last 20
months, we have been required to order and receive inventory in
a manner other than just in time.
Our main supplier is much bigger than we are, so when the
ships, docks, and trucks do get a load rolling, our contract is
not going to prevent our suppliers from sending to our docks
five times the number of trucks than we have agreed to or are
prepared to receive. Quoted lead times mean little anymore.
Capital equipment purchases from both China and Korea have been
20 to 29 weeks beyond quarter expectations.
We ship to 30 different countries around the world, and we
are regularly informed that trucks will not arrive on scheduled
ship dates for lack of trucks and drivers. Our material cost to
the percentage of sales next year will be 25 percent higher and
our labor costs will be 20 percent higher as well. As you
noted, Mr. Peters, global logistics is not the only issue
facing Coastal and the automotive manufacturers. As the ports
and supply chains eventually get untangled, we will be left
with other parts of the web that will also require attention.
The well-known semiconductor shortage issue, raw material
and labor cost increases that are unlikely to move back down to
pre-pandemic levels, Section 301 tariffs on China, as well as
Section 232 steel and aluminum tariffs. While I expect 2022
will remain tough for the automotive suppliers, I am confident
we will solve the supply chain issues in time. And when we do,
my fear is that we are going to find waiting for us the very
serious matter of an acute worker shortage.
Currently, we are running 10 to 15 percent below our
required staffing levels, and when demand returns, that is
going to worsen proportionally. Sickness, fear, continued State
and Federal pandemic relief, and COVID guidelines, combined
with a massive economic growth, has caused significant distress
to the labor market.
The final point I would like to make is regarding cash-
flow, profitability, and investment. Occupant safety is the
purpose of Coastal Automotive, but profit is the gas in our
tank to fund our future, to fund innovation. The automotive
industry is once again in the middle of a technological
transformation.
The two major growth areas are the electrification of the
vehicle and automated technologies, which is in large measure,
all about safety. The new infrastructure bill has included a
proposal to review units of safety standards, which is
something we fully support. We have been a three time supplier
of the year to General Motors, but by virtue of our reduced
cash and profit, I suspect that we are 2 years behind in our
product innovation.
The reduction of profitability also reduces our ability to
provide better working conditions for our team members, reduces
our ability to provide training and team member development,
reduces our ability to support our communities, and as noted,
significantly reduces our ability to invest in growing, and in
doing so, create and maintain a sustainable business. The ports
and shipping issues are indeed a tangled web, and we need your
help with fast solutions for breaking down silos and bringing
Government and private sectors together to solve this problem.
We hope that our comments bring clarity, compassion, and
urgency to your deliberations because there are 900,000 MEMA
team members affected, and every day I get to look 200 of them
in the eye and all they want is the opportunity to do
meaningful work and provide for the dreams of their family.
Thank you very much.
[The prepared statement of Mr. Doyle follows:]
Prepared Statement of Paul Doyle, Chief Executive Officer,
Costal Automotive
Chairman Peters, Ranking Member Fischer, and Committee members, on
behalf of all the team members of Coastal Automotive and my colleagues
at the Motor & Equipment Manufacturers Association (MEMA) and its
division the Original Equipment Suppliers Association (OESA), I am
happy to be here today to share our experiences as a Michigan
manufacturer as you wrestle with solutions to the snarl that is our
supply chain reality.
I have worked in the automotive market for 33 years and have been a
member of the OESA Board of Directors for 14 years. I have never seen
such a combination of challenges and issues facing our manufacturers,
including those in the great recession from 2007-2009. One of these is
the ports and shipping crises facing our industry and our country.
Ship transportation of goods to and from ports is at or above
capacity and increasingly gridlocked on both the east and west coasts.
Manufacturers, farmers, retailers, and consumers have all witnessed the
adverse impacts of this gridlock. Since July 2020, shipping costs from
Asia have increased four to tenfold. As recently as the last few weeks,
more than 70 container ships have been waiting at the ports of Los
Angeles and Long Beach with delays reported in other key ports such as
Savannah and Seattle. There are now reports that backlogs are starting
to clear at America's ports. For example, the ports say that wait times
and the number of ships in the queue are decreasing at L.A./Long Beach.
However, carriers have been told to slow their Pacific Ocean travel
time and to anchor further out. MEMA and the experts they consult
believe that delays and price increases from the carriers will persist
into 2022.
In our industry, these challenges and cost increases come at a time
of other significant supply chain tensions and an increased need for
new investment in technology, sapping much needed resources and human
capital away from other issues.
Coastal Automotive is a small company, with a global footprint,
headquartered in Holland, Mich., with manufacturing facilities there,
and a Sales and Technical team in Rochester Hills, Mich.. We have
annual sales in the neighborhood of $50 million and we employ over 200
people. In our way of thinking that makes us directly responsible for
the livelihoods of 200 families. The technical term for our products is
``passive safety countermeasures.'' The main product we make is a
specialized foam responsible for automotive head impact safety. Our
products are in well over 60 percent of all vehicles on the road in the
United States. We are a supplier to most of the established automakers
such as GM, Ford, Stellantis, Toyota, Volkswagen, Honda, Nissan, and
BMW. We are also supplying many of the emerging automakers, such as
Tesla, Rivian, Zoox, and Lucid Motors. We are also a key supplier to
the automotive racing industry, as our products ensure driver safety in
both NASCAR and the IndyCar Series. We have earned the coveted ``GM
Supplier of the Year'' award three times and have been awarded five
consecutive GM Supplier Quality Awards, a feat that a fraction of GM's
entire supply base has achieved.
In April 2020, our sales dropped from about $5.0 million per month
to $33,000. What we did in response defied much of what I know about
lean operations, but between clever management and the SBA Paycheck
Protection Program (PPP) dollars we remain a viable business today.
Thank you for passing funding for this program; I assure you it helped
keep Coastal Automotive--as well as many other small businesses--viable
during the pandemic in 2020-2021. Since that day in 2020, we have
continued to refine our strategy for growth and sustainability almost
weekly.
Coastal Automotive is a proud member of MEMA. MEMA represents more
than 900 member companies that manufacture motor vehicle components and
systems for the original equipment and aftermarket segments of the
light vehicle and heavy-duty industries. Nationwide there are more than
900,000 employees in the motor vehicle parts manufacturing industry
with 143,000 of them in Michigan and 200 of them under our care. Parts
manufacturers are the largest employer of manufacturing jobs in the
country and approximately 1 in 20 U.S. workers support the global
mobility market.
Automotive suppliers provide over two-thirds of the value of a new
vehicle, and two-thirds of the innovation. I talk and strategize with
MEMA member companies every day who are at the center of the
transportation supply chain crisis, and who will be here, standing
strong, when this problem ultimately recedes. Our customers and supply
chains are necessary in every corner of the earth, so governments here
and abroad are making decisions that affect an inextricably
interconnected system of customer fulfillment.
I would be remiss if I did not point out that Coastal Automotive
supports legislation that would strengthen passive safety measures in
new vehicles. Even though the goal of automated driving is zero
crashes, we all know that there will be some. When that happens,
passive safety devices, like our energy absorbing countermeasures, will
be cheap insurance against catastrophic injury. We believe that the New
Car Assessment Program, or NCAP, should be revisited and strengthened,
and that the five-star safety ratings should be more robust.
Additionally, we believe that the harmonization of global safety
standards will serve emerging markets where safety technology should be
accelerated and consumer awareness increased. For years, our industry
has been advocating for NHTSA to address and revise NCAP for years, and
we are excited to see that the most recent infrastructure bill includes
elements that address this issue.
Our focus here today is on shipping and the supply chain crisis at
the ports. We are truly in ``Uncharted Waters'' right now as we face
shipping supply chain challenges. This is at the top of the logistics
and public policy challenges for Coastal Automotive as well as many
MEMA member companies. Others on this panel undoubtedly know more about
the root causes of this bottleneck. Every participant in this industry,
and ultimately our overall economy, will benefit from policies and
practices that get products and materials flowing again. I am simply
here to recount our experiences as an American manufacturer in the
middle of this crisis over the past year or so.
However, this is not the only issue facing automotive suppliers.
Our industry is facing serious supply chain woes due to the well-known
semiconductor shortage issues. There are numerous raw material price
increases, and many companies are struggling with Section 301 tariffs
on imports from China as well as Section 232 tariffs on imported steel
and aluminum, which will soon face tariff rate quotas (TRQs). While
2020 will remain tough for motor vehicle parts manufacturers, I am
confident that, in time, we will solve these supply chain challenges.
And when we do, my fear is that we will find, looming in the darkness,
the very serious matter of acute worker shortage.
Currently, we are running at 10-15 percent below our full staffing
levels and when demand returns that will worsen proportionally. We have
the reputation of being a good company to work for, we have a great
culture, and we have great leaders. We have raised wages 20 percent in
the last year and in terms of attracting talent, all we have done is
borrow talent from our neighbors and they will ultimately borrow it
back. Toby Curry, our Director of Operations, continually reminds me of
the COVID impact that Coastal's workforce faces. Before 2020, he
measured employee tenure in years, now he measures it in the number of
breaks the team members stick around for. Sickness, fear, the need for
parents to support and educate children at home as well as continued
State and Federal pandemic relief combined with massive economic growth
has caused significant distress to the labor market.
The crisis at our Nation's ports has added to these other looming
challenges. At Coastal Automotive, approximately 40 percent of our cost
structure is from our supplied input materials and 95 percent of those
raw materials come from overseas. During the past year, Coastal has
seen unparalleled increases in costs for both raw materials and
transportation. Our second largest supplier increased prices 70
percent. Due to the rising price of lumber, the prices of pallets have
increased 90 percent. Many other suppliers have increased their prices
upwards of 25 percent. While our largest supplier has not increased
prices over the past year, this is due to a long-term agreement that
expires in April 2022. We have already been informed that there will be
a significant increase from them in the next few months, likely more
than 20 percent.
In most industries, raw material costs are the subject of price
negotiations with one's customers--this is not necessarily the case in
automotive. Our customers, the original equipment manufacturers (OEMs)
have historically not allowed price increases on contractual awards.
This practice is likely to receive significant pressure in 2022, as
suppliers will either have to increase prices to the OEMs, or face
going out of business. This ultimately means that the cost of new
vehicles is going to continue to rise for at least the short term, as
the OEMs pass along these supply chain price increases to the American
buying public. And, as history has shown, when supply and demand
returns to pre-pandemic levels, it is not likely that prices will fall
accordingly.
The port situation on the West Coast certainly attracts the most
attention, and it seems that is rightfully so. While Coastal Automotive
does not import nor export goods through the ports in California, we
were negatively impacted last year when we ordered critical machine
components from China. A quoted 12-week lead time turned into a 29-week
delay before we were able to receive the needed parts.
We experience our primary shipping delays in the importation of our
primary raw material which comes from Greece, and therefore through the
ports in New York. Because of the delays and inefficiencies at the
port, our supplier is incurring significant storage and demurrage
charges, costs which have never occurred to the extent that they are
occurring in 2021. These costs are a major driver in the upcoming price
increase that we expect to see in 2022.
We receive roughly 250 ocean containers each year from Greece, and
we have seen delays and extended lead times--during which time we
maintained a 99.9 percent on-time delivery performance--this is our
brand and commitment to our customers. However, to pull this off
required a huge cost on people and cash reserves.
When you are a smaller company, you have little leverage against
multi-billion-dollar companies who dictate their terms and conditions.
While we have contractual agreements that qualify order size and
shipment in the last few years we have been required to order and
receive inventory in a manner other than ``Just-in-Time.'' This creates
a plethora of problems for a lean operation; specifically, we do not
have the space, we do not have the cash, level scheduling is disrupted,
and nothing good ever happens to inventory. However, when the ships,
docks, and trucks get a load rolling, our contract is not going to
prevent our suppliers from sending to our docks two to three times the
number of trucks other than what we have agreed to.
Outside of our direct operations, our customer OEM needs have been
unpredictable, at best, and 40 percent down, at worst. We all know the
reasons for this, and we do not look to blame anyone. COVID is a
serious matter and doing the right thing in terms of bringing people in
to work and having them there safely is the right thing to do. That
does not negate the reality that production schedules are not
predictable and supply chains are not predictable; at the end of the
day our people must deal with the whiplash. As I said earlier, we have
made what I consider to be clever and responsible management decisions
to keep people working and financially healthy with the help of PPP
funds. We built huge quantities of inventory when people needed to work
and granted lots of leave time when families needed it for sickness, or
to be home to provide schooling.
Raw materials are up 25 percent, direct labor is up 20 percent and
these price increases are compounded by supply chain woes, customer
price reductions, and labor challenges, it will be no surprise to
anyone that profits are down 30 percent, but I would ask that you hear
this in a distinct way. The 30 percent is not money going into an
owner's pocket. The reduction in profitability reduces our ability to
support community charities, reduces our ability to provide better
working conditions to our team members, reduces our ability to provide
training and team member development, and significantly reduces our
ability to invest in growing our business.
Automotive is, once again, in the middle of a technological
transformation. The two major growth areas are electrification and
automated technologies, which is in large measure all about safety.
While we believe that this economic down cycle is temporary and not
reflective of any fundamental problem in the industry, it has, by
virtue of reduced cash, restricted our ability to invest in innovation
that is so clearly demanded by both regulations and markets. We are 18
months behind in product innovation and I fear this puts our
sustainability as a company at risk.
The overall motor vehicle parts sector remains at risk, due to the
ports and shipping concerns being discussed today. While I will not
delve into solutions too deeply, I offer the following thoughts that
reflect a separate communication that the Committee has received from
MEMA.
First, MEMA strongly supported the passage of the bipartisan
infrastructure legislation. That bill provides $17 billion for ports
and inland waterway improvements as well as additional funds for
intermodal transportation centers, rail, and trucking. My understanding
is that the Biden Administration is prioritizing availability of some
of these funds for ocean going ports, which will be helpful. If this
money can get out the door quickly, it will help alleviate some of the
tension in this situation.
We appreciate that the ports of L.A./Long Beach are moving toward
24-7 operations. Competitors to the U.S., such as China and the EU,
already have these robust hours. Other U.S. ports need to implement a
similar program if we really want to eliminate bottlenecks.
In 2022, the Congress needs to pass a version of H.R. 4996, the
Ocean Shipping Reform Act, which has been introduced in the House with
80 cosponsors. That measure will increase the enforcement ability of
the Federal Maritime Commission on detention and demurrage issues. It
prohibits discrimination by ocean carriers or marine terminals against
shippers who have filed complaints or used alternative carriers. The
bill also applies anti-retaliation safeguards and sets minimum service
standards for ocean going carriers. I hope that each Senator on this
Committee can support a Senate bill on ocean shipping reform.
Finally, American exporters and importers need you to remain
focused on shipping reform. This crisis must lead to improvements in
ocean shipping and at the ports to prevent future crises. Passing
legislation is important, but we urge this Committee to use the bully
pulpit of future Senate and House hearings to keep the focus on the
Biden Administration, state and local governments, and the private
sector to continue to make progress. Historically, there has been an
episodic and siloed approach to ports and shipping reform in the United
States. As CBS News reporter Bill Whittaker said in a November 14 story
on a recent 60 Minutes broadcast on this issue, ``The truckers blame
the terminals, the terminals blame the shippers, the retailers blame
the truckers and the shippers. How do you get that contentious group to
sit at the table, stop pointing fingers, and actually clear out this
backlog?'' \1\
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2021-11-14
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The ports and shipping issue is indeed a complex and tangled web,
and we need your help in breaking down silos and bringing the
government and all private sector stakeholders together to solve this
problem. Everyone at Coastal Automotive and MEMA thanks you for taking
the time to hear our concerns. We hope that our comments bring clarity
and compassion to your deliberations.
Senator Peters. Thank you. Thank you, Mr. Doyle, for your
comments. Our last witness today is Mr. Norman Krug, who serves
as the CEO of Preferred Popcorn, which is based out of Chapman,
Nebraska. Mr. Krug founded Preferred Popcorn nearly 25 years
ago with a vision and a goal of providing high quality,
wholesome popcorn with both honesty and integrity. Preferred
Popcorn currently ships to over 70 countries around the world
and supplies some of the biggest movie theater chains in
America. Welcome Mr. Krug. You may proceed with your opening
remarks.
STATEMENT OF NORMAN KRUG, CEO, PREFERRED POPCORN
Mr. Krug. Thank you, Chairman Peters and Ranking Member
Fischer, Chairman Cantwell and Ranking Member Wicker. I truly
mean that. Thank you for the opportunity to testify today. My
name is Norm Krug, and I am the CEO of Preferred Popcorn. I am
a farmer from Chapman, Nebraska. We grow corn, soybeans, and of
course, we especially love growing popcorn.
23 years ago and a mile and a half away from my house,
there was a cleaning facility that was vacant, and it was my
vision to reopen that facility and to provide opportunities for
local farmers. I had hoped that we can start by showing our
popcorn to Nebraska concessionaires and cinemas and stadiums,
and then expand from there. But we were so good at producing
popcorn that our very first year we grew to 200 truckloads.
So one of my first calls was to the University of
Nebraska's Athletic Department to see what their annual
consumption was. Well, it turns out the whole university, and
those of, you know, who have been to Nebraska, we all go there.
It turns out that Nebraska uses one load per year.
And even that load at that time was being donated. So my
plan of opening a popcorn company to supply the needs of the
State of Nebraska was not going to be big enough. While we
struggled to gain name recognition and credibility with large
domestic theater brands, we were growing rapidly in the global
marketplace. Countries including Mexico, Thailand, Indonesia,
China, India, Taiwan were all loving our American popcorn. And
with the support of the EXIM Bank, we were able to ship to
these countries without concerns about receivables. Soon we
were shipping to over 50 countries, and now as has been
mentioned, 70.
We are feeling confident and are--we were feeling quite
confident in our future until COVID-19 came along, and like
many small businesses, that dealt us a devastating blow. In the
case of 2020, for the first time in history, nearly all the
cinema industry was closed, not only in the United States, but
in every country.
We had then sold the popcorn and our largest category of
customers were shut down in an instant. But we are farmers and
farmers find a way to make it. Once again, exports were the key
to our success. We were able to move dramatically into new
markets into the Middle East. But it was then, however, we
started to see a shift in our logistics--as our logistics team
began informing me that the steamship line bookings were not
coming back from our forwarders as quickly as they had in the
past. For the next few months, we heard about the problems on
the West Coast and the buildup of ships waiting to be unloaded.
At the beginning of 2021, we started to see large increases in
wait times for the steamship line booking of the East Coast as
well.
So explaining the global freight crisis to our customers
has now become part of our daily routine. Had these logistics
not been obstacles in October--by October of this year, we
would have shipped more than 900 additional containers to our
customers who need our popcorn.
And overall, this is equated to a loss of sales for
Preferred Popcorn totaling more than $10 million. Of course,
that means strained relationships with our national partners
and distributors that we had fought hard to maintain over these
23 years. And eventually it is going to result in a higher cost
to the consumer.
We have heard from our foreign partners that many
containers that could be filled with American products are
being returned across the ocean empty to be loaded again with
goods coming into the United States. This practice confines our
exports and limits new potential sales. Small businesses need
these containers in the Midwest. I believe that given an equal
opportunity, American farmers can compete with anyone in the
world, and given an efficient container delivery system.
I appreciate the opportunity to share our story
respectfully--and I respectfully encourage the Committee to
provide the relief and assistance to the agricultural community
at large who work tirelessly every day to feed the world. Thank
you for this opportunity and look forward to your questions.
[The prepared statement of Mr. Krug follows:]
Prepared Statement of Norman Krug, CEO, Preferred Popcorn,
and Farmer, Chapman, Nebraska
Chair Peters, Ranking Member Fischer, Chair Cantwell, and Ranking
Member Wicker,
Thank you for the opportunity to testify today. I am Norm Krug, CEO
of Preferred Popcorn, and a farmer in Chapman, Nebraska. We grow yellow
dent corn, white corn, soybeans and especially love growing popcorn. My
father grew popcorn for forty-five years, and I have now been producing
popcorn for over forty-four years.
Twenty-three years ago, a mile and a half from my house, there was
a popcorn cleaning facility that been vacant for two years. It became
my vision to reopen that facility allowing for us to market our own
popcorn as well as provide more opportunities for local farmers. I
called some close friends who were also farmers and the Aurora
Cooperative. Together we decided to see if we could make this new
venture successful and market the products of our toils.
I hoped that we could begin by selling our popcorn to Nebraska
concessionaires, cinemas, and stadiums, and then expand beyond that to
ship into other surrounding states. In our first year, we grew enough
popcorn to fill 200 semi truckloads. I called the University of
Nebraska to see what their consumption would be. It turns out that the
University of Nebraska only used one truckload per year for all their
sporting events, and even that popcorn was donated. Thus, my plan of
opening a popcorn company to supply the needs in the state of Nebraska
was not going to be enough. We quickly learned that we needed to look
outside of the state and maybe even outside of the country to sell all
the popcorn we had produced.
A few days after forming the new company, my wife and I, as well as
some of the owners, attended our first trade show. At that trade show
we saw the evidence that the U.S. market for popcorn was nearly
saturated. There were few U.S. companies that seemed to need a new
popcorn supplier. Thankfully at that show we met a man named Doddy from
Indonesia, and he was willing to hear about our new company, Preferred
Popcorn. We started shipping our popcorn to him two months after our
initial meeting, and I am thankful to say that twenty three years
later, we still ship to my good friend Doddy. In the first few years,
we had numerous stories like this. While we struggled to gain name
recognition and credibility with the large domestic theater brands, we
were growing quickly in the global marketplace. Countries including
Mexico, Indonesia, China, India, Thailand, and Taiwan were loving our
high-quality American popcorn. We started investing in exporting to
support our international customer base. We staffed international
documents specialists at our facility to learn the customs requirements
in the countries we were shipping to, and we started traveling to trade
shows overseas to find more distributors for our popcorn. With the
support of the EXIM bank, we were able to ship to these countries
without concerns about receivables. These investments paid off and soon
we were shipping to over fifty countries. We purchased a second
facility in Palmyra, Indiana to help with our domestic and
international sales and we continued to innovate to meet the diverse
needs of our customers. We've been blessed with substantial growth over
the last twenty-three years, and we thank God often for leading us and
giving us a vision for the future. Our mission statement reads,
``Preferred Popcorn strives to honor God by providing high quality
products and serving our customers with integrity.'' With His help, we
have been able to do just that.
2020 hit our business hard. Today much of our popcorn goes to the
cinema business. COVID's effect on the movie industry cannot be
overstated. I always believed that our diverse allocation of
international customers meant we would be cushioned from the ever-
changing global trade landscape. On many occasions, we observed one
country's popcorn needs decrease, while at the same time, another
country's needs would increase. In the case of 2020, the difference was
that in every country there were no operating theaters. We had bins
full of popcorn, and our largest category of customers were shut down
in an instant. But we are farmers, and farmers will always find a way.
For the next six months we ``left no stone unturned.'' We reached
out to contacts in new markets and to old friends, trying to keep our
employees working and our facility up and running. Thankfully it
worked, and we were able to move dramatically into new markets in the
Middle East and Asia. These countries tend to consume popcorn in their
daily diet and not just in cinemas. Countries like Egypt and Dubai were
taking dozens of containers towards the end of 2020. It was then that
we started to see a shift. Our logistics team began informing me that
the steamship line bookings were not coming back from our forwarders as
quickly as they had in the past. Within a few weeks I started getting
calls from customers asking why our popcorn was taking so long to get
to their ports. For the next few months, we heard about the problems on
the west coast and the buildup of ships waiting to be unloaded. At
first there were not enough containers to load at our local depot in
Omaha. Then, we could not get space on steamship lines going from the
west coast to our customers in Asia.
At the beginning of 2021, we started to see a large increase in
wait times for steamship line bookings off the east coast as well. This
drastically slowed our ability to ship from our Indiana facility. In
April of this year, we had a customer fly urgently from Cairo, Egypt to
Nebraska. We had contracted to sell over 300 containers of popcorn to
companies in Egypt. Sadly, because of the logistics breakdown, we had
not been able to ship many of them. Our Egyptian customer visited
Nebraska to find out if it was our fault that these containers had not
shipped. At that time, much of the world did not know what was
happening in the freight industry and what American businesses were
facing as they shipped their goods overseas. Some of these containers
were arriving three months later than normal transit times.
Explaining the global freight crisis to our customers has now
become part our daily routine. Had there not been these logistics
obstacles, Preferred Popcorn would have shipped over 600 more
containers in 2020 from our docks. Through October of this year, we
would have shipped more than 900 additional containers to our customers
who desperately need our popcorn.
For cinemas, popcorn provides the highest margin and nets the most
profit of anything being sold at the concession stand. Popcorn is a
pillar in the financial stability of any cinema chain. Theater owners
often tell us that popcorn is the one thing that they simply can never
run out of. The container freight issues have obviously affected our
bottom line as well. Many of the contracts that we write with our
customers have a hard stop date. Meaning that after a certain date, the
contract is void and we lose those sales. Because we were not able to
ship the necessary containers, we have lost many sales entirely; many
times, to our competitors who produce popcorn in other countries. In
the last two years we have seen many of our customers turn to popcorn
producers in Argentina and Brazil because we are not able to get the
necessary containers or steamship line space to ship our products.
Unfortunately, once we lose these customers, it is a struggle to regain
them. Our international distributors sell our brand, Preferred Popcorn,
to their customers. Once they change their product line from American
products to alternatives, it can be difficult to switch back. Our brand
has hard-earned name recognition in many countries, and losing market
share due to logistical issues has become a stark reality. Preferred
Popcorn employs over eighty people in small Midwest towns. We contract
with over 125 farmers to grow our popcorn in seven states. The millions
of pounds we sell to our customers overseas represent dozens of hard-
working families that rely on good paying jobs.
Along with the container shortages and steamship line delays we
have experienced a large increase in freight cost. We are continually
being told from our freight carriers that the current shortage of
drivers and dock workers are raising prices for businesses all over the
Midwest. Preferred Popcorn has seen a 30 percent increase in freight
costs since 2020. In many cases we have had to absorb that additional
cost, but most impactful has been the opportunity cost of the freight
increases. Over the last twelve months we have lost some ability to
compete in the global market because we can no longer move our product
affordably to many international ports. Overall, this has equated to a
loss of sales for Preferred Popcorn totally more than $10,000,000. It
has meant strained relationships with international partners and
distributors that we have fought hard to maintain over these twenty-
three years, and it will mean a higher cost to the consumer.
Over the last year our team and I have met with our forwarders and
trucking companies to try and find solutions to our shipping problems.
We have been given many reasons for the current situation including the
lack of containers in the Midwest, the lack of space on the steamship
lines, trucker shortages, and port congestion. Solving any one of these
problems is difficult but finding ways to ship consistently in this
freight climate has become insurmountable.
Our popcorn is a good-for-you, affordable snack food that is cost
effective enough to be consumed in some of the most impoverished
nations. The current freight situation has been passed on to the end
consumer in many countries including our own. Trucking, and rail costs
have both risen in conjunction with container costs. This has meant a
higher popcorn cost to U.S. businesses and theaters.
Our industry is not unique in how the container freight crisis has
affected us. Many Nebraska small businesses are feeling the burden of
lost revenue and high cost of goods. We have heard from our forwarder
partners that many containers that could be filled with American
products are being returned across the ocean empty to be loaded again
with goods coming into the United States. This practice confines our
exports and limits our potential new sales. Small businesses need these
containers in the Midwest. We are hoping for more accountability
between the steamship lines and the Federal Maritime Commission to
accomplish our mutual goals of fast and affordable trade. Hopefully
this would allow U.S. exporters a fighting chance at loading and
shipping containers and providing American goods to a global audience.
I believe that, if given equal trade opportunity, American farmers
can compete in any market, but we need free trade to do so. The trade
limitations facing American farmers are putting all of us at a
disadvantage with our competitors. The rising cost of inputs for our
growers and high import duties into many countries mean American
farmers are getting besieged on multiple fronts. Import duties on U.S.
goods, including popcorn, can be as high as 55 percent into many
countries. These import duties, on top of the freight crisis, have
meant losses for our company and many other small exporters in the
Midwest.
Exports are essential to Preferred Popcorn and to the state of
Nebraska. Our state has a population of 1.9 million and operates 45
million acres of farmland. Nebraska farms exported nine billion dollars
in goods in 2019 alone. We grow and raise more food products than our
state could ever need. We want to be able to better serve our global
customer base and provide them with the high-quality products that our
state offers.
I appreciate the opportunity to share our story and to respectfully
encourage the committee to provide the relief and assistance to
Nebraska processors and the agricultural community at large who work
tirelessly, every day, to feed the world.
Senator Peters. Well, thank you. Thank you for those
comments. Questions, Mr. Doyle, in your opening comments, you
certainly painted a very challenging picture for you and your
company and all of your employees to get through what you are
still working to get through because we are not through this.
But in your testimony, you talk about the critical machine
parts that were, ``with a 12 week lead time turned into 29 week
delays'' before you finally received those parts. That is an
incredible management challenge, and I understand you are still
been able to maintain your deliveries, which certainly speaks
well to what you are able to do.
But my question to you is that I know you are committed to
doing most of your manufacturing in the United States, your
research and development, which was done in Rochester Hills and
as we look long term on this challenge because it will continue
to be a challenge going forward, could you speak to whether or
not a good way to think about dealing with supply chain
distributions from overseas is that we need to onshore more
manufacturing here in the United States with American workers?
Talk to me a little bit about that and how you would see
that as something we should be thinking about as a policy
direction.
Mr. Doyle. Thank you for the question. I think that there
are probably two thoughts that come to mind when that happens.
One is the very personal one of our case about bringing a
supply base on shore. We are a $50 million company, and our
supplier of our principal materials is a multibillion dollar
company.
So our chances of asking them to think about the
optimization of their manufacturing on our behalf is a little
silly. That having been said, we are exactly involved in that
conversation with them. We have been working with them on their
costs. We both know that the logistics costs are non-value
added to either of our operations. They are looking to add
manufacturing locations in the United States that would shorten
our supply chain from instead of Greece.
It would be actually a place in the Midwest, which would be
great. So while I think our ability to affect that is limited,
that I do believe that it is something we are pushing for and
we are trying to do that to optimize our operation, shorten our
supply chains, which makes it easier to manage our operations,
reduce inventories, those sorts of things all go with shorter
supply chains. So absolutely, we are asking those questions.
From the motor vehicles kind of point of view, there are 30,000
parts that go into the manufacturer of a vehicle.
And the nature in which the way the supply chains have been
developed over the course of the 30 years that I have been
involved in this, particularly when you look at the incredible
expansion of manufacturing of vehicles in China and in Europe
in some cases, a global supply chain developed, and the
manufacturers optimized that down to the minute.
You know, when we are late a minute to our customers, the
consequences of that are fairly severe. Therefore, I think when
you look at that, there is a much bigger kind of question. On a
personal side, I think that we have discovered over the course
of the last couple of years that there are certain supplies,
commodities, services that we need to protect and be careful
about, and I would absolutely support giving serious
consideration to some of those things being balanced in a
supply base.
I think a lot of us have learned about single source of
supply and the risk that goes with that. Secondary sources in
the United States and other friendly places, I would absolutely
endorse.
Senator Peters. Right. Well, thank you, Mr. Doyle. And I
realize that as one company, you can't affect all of those
changes, but it is about policy and how we make sure that we
are providing companies like yours and others the ability to
have supply networks that are based in the United States with
American workers and make logistics a whole lot easier than
what we are seeing right now, but more importantly, create jobs
and opportunities for Americans. And I applaud what you already
are doing. You are doing that every day. So thank you for what
you are doing, and we want to be able to try to support those
activities. Mr. Butler, throughout the COVID 19 pandemic, ocean
carriers have reported record profits due to increasing the
price of container shipments and increased demands for goods.
Earlier this month, the Danish shipping company Maersk
reported a net income of $17 billion. I understand it is their
best quarter and more than 100 years, and we have seen an
increase in container shipping pricing of 121 percent from just
a year ago.
Clearly, these record profits are good for the shipping
industry, but have placed real challenges on businesses in
Michigan, both large and small, as they try to deal with these
increased shipping costs. We heard from Mr. Doyle what is going
to happen later with his contract as a result of these large
shipping costs. We have heard some testimony, and I have
certainly heard from small suppliers in the automotive
industry, that these price increases are putting significant
strain on those businesses.
And large businesses like Leprino Foods, which operates two
manufacturing facilities in Michigan, are being heavily
impacted by current ocean shipping practices. Over 99 percent
of Leprino's 2021 ocean shipments have been canceled, have been
rebooked for a later date at least once, if not twice, and in
some cases up to 10 times or more, and they have incurred
millions of dollars in detention and demurrage fees on top of
that.
So my question for you, Mr. Butler, is what would you say
to a company faced with the prospect of going out of business
as a result of these exorbitant fees and practices at the same
time ocean shippers are making record profits?
Mr. Butler. Well, thank you, Senator. As I said during my
opening Statement, we realize the conditions are difficult for
folks all over the world, and I have got nothing but sympathy
for people that are like Mr. Doyle's business who were dealing
with those situations. The price situation right now is
entirely unfamiliar to us.
I mean, for the last 20 years, the ocean shipping business
has been lucky to make its cost of capital. And what we are
facing today is, you are absolutely correct, it is completely
unprecedented, and it is purely the result of supply and demand
in the market. Couple of things I would like to say about
pricing.
There are really two kinds of pricing in the industry. One
is pricing under service contracts, which are long term
agreements between ocean carriers and their customers. Those
rates have not gone up nearly as much as you hear with respect
to these headline rates that don't often make it to the
newspaper. The headline rates are in what is called the spot
market, which is what it sounds like. It is you go out on, you
know, tomorrow and ask what the rate is to move a box next
week. And those are the rates where you are seeing the really
eye popping numbers.
So one of the things we are seeing in the industry right
now is a lot of our customers, shippers, are really looking
forward wanting to make sure that they lock in capacity at a
fixed rate under a service contract going forward. So that is
just a little more background on that situation.
The other piece with respect to pricing is that the ocean
carriers that actually operate the ships are not the only
actors in the market that price. There are far more middlemen,
if you will. What they call non-vessel operating common
carriers, or NVOCCs, those folks buy space from our members and
then resell it. And so that part of the market has also driven
some of these pricing increases.
Senator Peters. Thank you. Ranking Member Fischer.
Senator Fischer. Thank you, Mr. Chairman. Welcome to all of
our panelists today and a special hello to Norm. I am so happy
that you could join us and thanks for taking the time to zoom
in for this hearing. In a normal year Norm, how long would it
take you to ship one container from your farm to an
international partner?
Mr. Krug. Well, thank you. As has been commented
previously, it has been that efficiency that has made it
possible for us. Normally, from example, Chapman, Nebraska to
Tokyo, Japan was 37 days. And that is pretty good when you
think about the distance, and we are able to do that quite
efficiently and land products around the world and be
competitive. Currently, there are two issues. One is the axle
transit time now would be 60 to 90 days to get that product
shipped. But the bigger problem is that it takes two to 3
months to get space on the ship.
So the booking time isn't where we need to put it in and
request 10 containers Japan, Tokyo and then we get a response,
in 2 weeks, the containers would be here. So its those two
months, combined with the two months of shipping time that is
often putting us four, 5 months late from when the customer
would--longer than what we enjoyed in the past. The most
extreme case, which is an interesting and appreciate this
opportunity to share that with you, where you have to remind
everyone that the popcorn, along with many other foods, are
perishable.
And so when you ship a container and you think on the way
it is going to take 37 days, and at 90 days, and Japan
recently, they just said, take that back, we don't want that
popcorn. That popcorn had made it all the way to the coast, and
they were concerned enough about quality that we had to return
as painful as that was, as you can imagine, those containers
all the way back to Chapman to be unloaded and reclaimed and
checked and all those things.
So the problem gets amplified even more when you talk to
them about perishable goods. So, yes, long answer to your
question, but has went from a pretty dependable 37 days to 4 to
5 months.
Senator Fischer. And your business isn't unique in this,
right? I mean, I am hearing from Ag producers all across
Nebraska, all across this country who, first of all, are
concerned that they can't get containers in order to even
export their products. But then you add in the time involved,
and as you said, these are perishable goods, it is affecting
all parts of agriculture. Would you agree with that?
Mr. Krug. Yes, I definitely agree. Preferred Popcorn is
just one of many, many companies that are impacted. And of
course, a lot of the cases, there are even larger amounts of
grain and other Ag products that are not being shipped. And
then those sales, those sales are often lost forever because
like all of us, the consumer is going to look elsewhere to get
their product if they are not able to get it from us.
Senator Fischer. And Norm, I would like to ask you and
also, Mr. Doyle, when you were looking at the shipping problems
you are having now, a big part of that is cost. You know, you
have alluded to that. So how much of your shipping costs have
gone up this year? We will start with you first, Norm.
Mr. Krug. Yes. Well, our actual freight costs are up about
30 percent from a year ago, which is hard enough. And then, of
course, there is additional costs in storing the product
longer. And then ultimately, we have got a lot of the demurrage
cost. And but you have to work that out with the customer, who
is going to pay that and who follows that when really it is
neither. But to answer your question directly, our export costs
are up about 30 percent.
Senator Fischer. And Mr. Doyle.
Mr. Doyle. Ours is a rather unique situation or unique to
some of the others. We are actually not freight responsible.
Therefore, our supplier provides it to our dock. The way it
impacts us is that we have already begun negotiations with them
for when our contract expires in April 2022 and they have
informed us that we should be expecting a price increase of
about 20 to 25 percent. They have told us that that--and we
know that the raw material underlying that cost has not
substantially increased. It is a raw material. It is going to
be the logistics question that is going to drive the increase
in costs. So we are expecting 20 to 25 percent.
Senator Fischer. OK. And one last question for Norm, when
you were--you have talked about being a farmer, and
agriculture, of course, is very important for the State of
Nebraska. You are talking about delays that you have in your
business, but what about the delays in equipment, fertilizer,
when you add in everything on these delays, how is that
impacting not just you, but obviously the entire economy there,
the farm economy?
Mr. Krug. Yes, good question. Well, as you probably heard,
the input costs for 2022 are very high. Fertilizer prices are
up not just percentage points, but about three times, as long
as--as well as costs of our pesticides that we, all farmers
use.
The most interesting thing in this year's negotiations, as
we are talking about next year's input costs, where the co-ops
are actually telling us that yes, you should buy ahead, yes,
you should lock the price in, and additionally, you should
probably come and get it, and then have it stored on your farm
because it is going to be such a tight supply.
So in 2021, farmers did have adequate pesticides and
fertilizers to produce the crop. The fear is that it is going
to be 2022 that will be very impactful in the cost of
production for farmers in the Midwest.
So I think we have only seen the beginning of the
inflationary impact of these transportation issues. They are
not going to go away, as been stated already. Personally, I
think it is going to increase more and more as we go into next
year and the years following.
Senator Fischer. Thank you. Thank you, Mr. Chairman.
Senator Peters. Thank you, Ranking Member Fischer. Senator
Blumenthal, you are recognized for your questions.
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. Thanks, Mr. Chairman. Mr. Regan, as you
know, there have been a number of polls on Department of
Transportation nominees. Do those have an impact on the ability
to deal with supply chain delays?
Mr. Regan. Absolutely. You know, most of this would be
dealt with under DOT jurisdiction not being fully staffed up,
not having full authority for those who are Senate confirmed
positions that need to be in their jobs, including the FRA
Administrator, for example. That is going to impact our ability
to respond in an effective way.
Senator Blumenthal. And those holds are Republican holds on
nominees to the DOT?
Mr. Regan. That is my understanding, yes.
Senator Blumenthal. What do you think are the sources of
the workforce shortage?
Mr. Regan. To me, it is not a workforce shortage so much as
it is a quality of jobs problem and a pay shortage, certainly
in the trucking industry where you see misclassification. Owner
operated truckers that oftentimes are leasing their vessels,
they are only paid for when they hold the cargo, they are
waiting in hours long lines, and they have to pay their own
benefits and their own overhead on top of that, and that is not
a very attractive job.
That is the reason we see 90 percent turnover in that
industry. And similarly, on the rail side, you know, these have
been historically the types of jobs that people work for their
entire career and retire under, and we are seeing mid-career
employees walking away, walking away from a secure retirement
because oftentimes the pressure that is put on based again on
stock returns and other sort of profitability are making them
less attractive, including the threat of furloughs, the
pressure to get inspections done earlier, the safety concerns
that many people have.
And that is, again, these aren't people that have been--
that are walking away. So they have been doing those jobs and
now they are no longer doing them.
Senator Blumenthal. So it is really a quality of work
rather than a workforce shortage?
Mr. Regan. Yes.
Senator Blumenthal. Is the issue?
Mr. Regan. Yes, indeed.
Senator Blumenthal. What about skilled training? Could
employers attract more workers by providing more skilled
training?
Mr. Regan. Yes, I think certainly from a rail perspective,
the type of training, and also engaging their unions because
this is a highly unionized industry, to make sure that we bring
in skilled employees and making sure that we are stressing
these are safe jobs that are going to provide good benefits.
That is an important part of retaining and attracting skilled
workers.
Senator Blumenthal. Do you think that with these changes in
the quality of work and more skilled training, we can meet what
people commonly call the workforce shortage, but really is not
a shortage of people willing to work, it is the other factors
that go along with the workplace?
Mr. Regan. Yes, I think that this is something that we can
address. Certainly again, there is sort of separate issues
between some of the railroad and the trucking side of this. On
the trucking side, you know, it is our contention that
misclassification of these workers, disconnecting people from
their employer, making these less attractive jobs is a key part
for why there is such high turnover rate and why we are having
so much difficulty attracting people to do that work.
On the rail side, you know, this was once again the type of
career that people would do for their entire careers and making
sure that we are addressing some of the movement of the
industry toward the sort of hedge fund managed style and away
from the consistent, sustainable operations that we require of
our freight network, would transform, bring us back to the type
of jobs that frankly, most of the people that I know in the
railroad industry think of very fondly and are very proud of.
Senator Blumenthal. Thank you, Mr. Krug, talking about the
popcorn business, is popcorn as you manufacture and ship it, a
perishable item?
Mr. Krug. It is. Thank you, Senator, for the question. It
has a long, perishable time and if stored properly, is--our
normal expiration dates are 18 months. But it is perishable,
and it is of course, very dependent on the conditions. If it is
stored in high humidity, then it would last, of course, only a
short time. It could mold in a month if the conditions aren't
correct. So it is perishable. But we are fortunate it has a
long perishable time, if the conditions are good.
Senator Blumenthal. Do you tell shippers about conditions
that you recommend for it to be transported?
Mr. Krug. Yes. Yes, of course, we communicate that in all
of our documents that are required for shipping and with our
customers as well. And so we do the best we can to communicate
that information.
Senator Blumenthal. How has the pandemic affected the
popcorn business, if I may ask?
Mr. Krug. Yes, well, it has been very difficult, as I
stated earlier. You couldn't really imagine anything that could
come around and shut down every theater, every cinema, every
stadium, not only in America but in the world. There has been--
some counter to that is there has been increased grocery sales
of the product line, and that has been helpful. To offset some
of the loss that we have had in exports and in bulk
consumption, there has been increases in the retail market and
in the microwave business, and that part has been helpful to
offset the total picture.
Senator Blumenthal. I am a big popcorn fan, so I wish you
well. I am especially a fan of Nebraskan popcorn.
Mr. Krug. Great.
Senator Blumenthal. Thank you, Madam Chair.
Senator Peters. Thank you. Thank you, Senator Blumenthal. I
will now recognize the Full Committee's Ranking Member, Senator
Wicker.
Senator Wicker. Thank you very much, Senator. Mr. Butler,
let me ask you about a Statement you made, certain legislation
could actually have the opposite effect and I think you and I
agree on that. Let's try to be specific, though. On the Freight
Act, the legislation would spur improvements to our freight
transportation system. That would not be unhelpful, correct?
That is not one of the things you are talking about, right?
Mr. Butler. That is correct, Senator. I think the things
that are systemic in terms of building up infrastructure and
improving information flow and that sort of thing is all to the
good. I was referring to amendments to the Shipping Act, some
of which I think would be detrimental.
Senator Wicker. OK, well, specifically, tell us what not to
do.
Mr. Butler. OK, well, there are--for example, in the House
bill that is being considered probably this week, just as an
example of the conflicting signals that I was talking about in
my opening Statement, there is one provision in that bill that
says, you have to--as a carrier, you have to provide adequate
equipment to everybody who wants to ship.
The next provision says you have to put exports on the ship
before you can put any empty containers for repositioning on
the ship. Now, as I said earlier, in normal times, we can
balance that even though we have a 2 to 1 imbalance of imports
to exports. We can work around that. But in times of scarcity,
it becomes very difficult. And those are some of the things we
have talked about here today.
Senator Wicker. OK. Well, perhaps our colleagues in the
House will help us by making good decisions over there. What
about streamlining the certification process for truck drivers?
Mr. Butler. That is not in the legislation that I am
speaking of----
Senator Wicker. OK, so it is in the Freight Act, but would
that be helpful streamlining the certification process for
truck drivers?
Mr. Butler. I would defer to my colleagues in the trucking
industry, but if it maintains safety and brings people on more
quickly that want to work, I can't see how it could hurt.
Senator Wicker. OK, I see. Well, let's talk about demurrage
and detention. Now that detention is when the product doesn't
get there soon enough. And demurrage fines, demurrage fees are
when the shipper doesn't come and pick it up from the port
quick enough. Detention and demurrage. And it--are we sort of--
when somebody talks about dwell fees, does that term describe
both detention and demurrage?
Mr. Butler. So the term dwell fee has come into use with
these fees that have been proposed but not yet charged on the
West Coast, and I would say those are essentially demurrage
fees. Those are fees that would be imposed if you don't pick up
the cargoes soon enough.
Senator Wicker. OK. Right. Well, are demurrage fees adding
to the cost of goods? And are they being charged to companies
and shippers who through no fault of their own, are unable to
comply? And is that a problem? And if so, is there a solution?
Mr. Butler. Well, there is no one answer to that question,
but I will say a couple of things. With both detention and
demurrage, there has to be a balance. The Federal Maritime
Commission has recognized that these fees are a critical
incentive to get people to either pick up their cargo from the
port and get it out of there, or to bring back the empty
equipment.
Senator Wicker. Is it helping right now, Mr. Butler, with
everything else that is causing the supply chain delay?
Mr. Butler. In many cases, it is helping. It does help
because it does provide an incentive for people to keep that
equipment moving. Part of the problem is, and again, I am
trying to point fingers and somebody else mentioned this
earlier, everyone is trying to optimize their little piece of
the supply chain, right.
And if you have got a full warehouse and you have got more
product coming in that you have ordered from overseas, you have
got no place to put it, if you could leave it on the port for
free, you are going to leave it on the port for free, even if
it is going to gum up that same supply chain.
Senator Wicker. Let me ask you quickly, Mr. Butler. Were
you surprised at the information I gave to the Committee about
a different queuing system, a different counting system? Is
that information that I alluded to from the Bloomberg article
correct? You have actually got more ships there, longer waiting
times, they are just counting them different.
Mr. Butler. I don't know if they are counting them
differently. That was a voluntary program that was set up
between the industry, the Coast Guard, and the Marine exchange
office out in Southern California. We had too many ships too
close together and too close to shore with winter weather
coming on. There was concern about safety and so------
Senator Wicker. OK, but if they are loitering out for
whatever reason, slowing their speed, to say that those ships
are not part of the supply chain delay is a little inaccurate.
So thank you for that. Let me just ask briefly, Mr. Krug. Mr.
Krug, that 90 day old popcorn that was still probably OK, I
hope you are able to send that somewhere.
Mr. Krug. Yes, we are able to check that over and
recondition it, and we were able to reuse that product. So it
is just an ongoing complication that probably you don't think
of when you say there are delays in shipment. Like--testified
here today, the problem just grows and grows.
And we have all the more reason to do all we can, and I
again appreciate you meeting to work on that today to keep the
amazing system that we have had in the past moving. It is best
for agriculture and best for small businesses, and best for
consumers.
Senator Wicker. Well, thank you. I wish you well, and I was
just going to offer to take some of that popcorn because I am
with Senator Blumenthal in support of popcorn, and with some
relatives in Nebraska, I am sure it is among the finest. I
yield back and thank the Chair for his indulgence.
Senator Peters. Thank you, Ranking Member Wicker. Senator
Baldwin, you are recognized for your questions.
STATEMENT OF HON. TAMMY BALDWIN,
U.S. SENATOR FROM WISCONSIN
Senator Baldwin. Thank you, Mr. Chairman. So shortages in
shipping containers, chassis, and truck trailers have all
contributed to the supply chain problems that are the subject
of this particular hearing. And I have seen media reports that
describe these newly in demand items as simple or an
afterthought. In Wisconsin, however, we know that these
products are actually highly engineered by companies like
Stoughton Trailers, and the work of Wisconsin manufacturers is
never an afterthought for me.
What is overlooked is the decline of our manufacturing
capacity, which has left us unprepared to respond to many of
the problems that are created by the pandemic. So in order to
rebuild our manufacturing base and make products that we need
for our supply chains right here in the United States, I have
introduced the Supply Chain Resiliency Act.
That legislation, which was referred to this committee,
provides assistance to address supply chain bottlenecks by
increasing production, domestic production. And I am working to
ensure that similar support is included in our Build Back
Better legislation.
So, Mr. Regan, in your view, how would increasing the
domestic production of things like containers and chassis and
trailers improve our supply chain bottlenecks--I guess reduce
our supply chain bottlenecks would be a better way to put that.
And what sort of emphasis should we be putting on buy America
and make it in America?
Mr. Regan. Well, thank you, Senator, and thank you for your
unwavering support for U.S. manufacturing and the good union
jobs that it supports. I think you have really hit the nail on
the head here. And we--the fact that we are so reliant on
foreign manufacturers, foreign products, including chassis and
other parts of the supply chain in railcars, for that matter,
really made us much more susceptible to failing when something
like this happens, when we have a crisis. Increasing our
domestic manufacturing capacity should be a priority for this
Congress and for this Administration.
I know that it is for many of you. And also, as we start to
see more emerging opportunities with new technology, things
like electric vehicles and things like that, those are emerging
markets, and we have an opportunity with the right type of
investment and the right type of policies to make sure that the
U.S. is getting an important part of that supply chain in that
market share for manufacturing.
Senator Baldwin. Thank you. I am going to stick with you
with this next question. I have been long concerned about rail
service and competition, and these supply chain challenges
underscore the need for structural changes for freight rail. At
the Surface Transportation Board, Chair Marty Oberman has
raised concerns about the significant impact the job cuts have
had on the railroads.
I know we have already been discussing that, about their
ability to serve their customers and move goods across the
country. Since 2014, the industry has cut about 30 percent of
its work force, and I introduced an amendment, as you gave it a
shout out, to the NDAA that would direct the STB to develop
standards and guidance related to their common carrier
obligations, and in so doing, require the STB to consider
workforce reductions and infrastructure maintenance by
railroads.
So now more than ever, the railroads really should be
focused on their workers and shippers, not just shareholders.
What do you see as the impact of these job cuts, specifically
on the ability of railroads to be able to provide reasonable
service and again meet their common carrier requirements?
Mr. Regan. Thank you. And we talk a lot about this, and in
our written as well, about precision scheduled railroading, is
what we like to call it. It has put a lot more of the onus on
the shippers themselves. There is a lot of reduced flexibility
because of the sharp decrease in work forces and also in
equipment. There has been a lot of mothballing of railcars and
closing of rail yards. So what shippers end up with is a take
it or leave it approach.
So it is essentially, can I reach this car and ship my
goods? Or am I going to have to try to, you know, catch the
next train or use another mode of transportation? And
oftentimes, that alternative is far more expensive. We have
spoken, I have spoken with Mr. Oberman quite a bit about this,
and he does need the tools and the authority to be able to
really look into it and investigate it and oversee to ensure
that these railroads are fulfilling their common carrier
obligations.
Senator Baldwin. Thank you.
Senator Peters. Thank you, Senator Baldwin. Senator Tester,
you are recognized for your questions.
STATEMENT OF HON. JON TESTER,
U.S. SENATOR FROM MONTANA
Senator Tester. Thank you, Mr. Chairman. This is a great
committee. We have got folks from the World Shipping Council
and the American Federation of Labor. Mr. Doyle, do you deal in
cars or car parts? Parts? That is a good thing because we like
to redo cars on the farm, and we also like to eat popcorn. So
here we go. I am just a couple of months away from starting our
45th year on our family farm.
And so we have seen a lot of increases of inputs, and I
hate to say every time, but I am going to say every time we see
a bump in prices, we see a bump in the cost of inputs. And this
is for you, Mr. Krug, how much of the increased price in
fertilizer and chemical that we talked about, and I have heard
the same statistics you have, and I believe them to be true,
but how much of that increase cost actually has to do with
shipping? Do you know?
Mr. Krug. I don't have any exact numbers on that, but I am
sure it is a combination of input cost of fuel is one of those,
and as has been mentioned earlier is also market seeing as
demand is high, there often seems to be increases in prices.
As far as the products that we produce, the popcorn, we
are--there isn't any supply shortage. We are able to tell our
customers we have the product. But it will be a big deal next
year, you are correct. Sounds like we are both in farming, and
it will be challenging to see how we are going to afford those
increase in inputs.
And I don't have a good answer on why it is such a big
increase, but I know that it is.
Senator Tester. I have my own thoughts on it, and it has a
lot to do with the lack of competition in the industry, I
believe, but time will tell that out. This is for you, Mr.
Butler. The statistics I have seen is that we are losing
potentially about 22 percent of our exports, our Ag exports,
because of the lacking--lack of shipping ability.
I didn't get here at the very beginning, but one of you,
and I think it might have been you said, we got more coming in,
imports, than we got going out. It would seem to me that that
would mean that exports have an advantage in this system
because there is more boats and containers to take care of
those exports. Can you tell me why it isn't happening? And if
you want to add in why taking empty containers back when we are
losing 22 percent of our exports is something that we should
accept?
Mr. Butler. Thank you, Senator. On the 22 percent, my
understanding is that number comes from a poll that the
Agricultural Transportation Coalition did. We have never seen
that poll, so I don't really--I can't really speak to the
legitimacy of that number. But we do know this. We know that
both importers and exporters are having trouble moving their
goods efficiently. So there is no question about the nature of
the problem. In terms of the space in and out, and I did refer
to this a little bit earlier, in normal times--pardon me.
In normal times, we are about two to one imports to
exports, right. So you always have to reposition some empties.
During this import surge, particularly in Southern California,
we have gone up three to one or more. So the big problem is
really the imbalance, and it is keeping everything moving so
you can get it to the next person, and in the case of your
question, a U.S. exporter. And then once they get that
container, a lot of their fight is getting it to the port so we
can put it on a ship.
Senator Tester. Yes, and there is money in the bipartisan
infrastructure package to do some things with shipping and do
some things with rails that I look forward to get out the door.
I do agree with Mr. Regan that we have an opportunity here to
start manufacturing more stuff in this country, and my good
friend Senator Baldwin, because quite frankly, this is kind of
silly.
I mean, truthfully, that we are depending upon other
countries for stuff we can do right here. And we might say,
well, you know, it costs too much to build it here, but it is
costing us a lot with this supply chain stuff. And so it is
really important.
So I have got a question for you, Mr. Doyle, simply because
you are in the automotive business, and I like my son, actually
like to fix up old cars. If you were king for a day, what would
you do to solve this problem?
Mr. Doyle. I suppose retire is not an acceptable answer.
[Laughter.]
Senator Tester. You would retire immediately, is that what
you said?
Mr. Doyle. I think that we have got long term and short
term issues. I have joked with my peers, having read through a
lot of the bills and acts that are out there, that one of the
things that I have seen is that you are pretty clever at naming
these bills. I like The Grinch Act and things like that. In the
short term, I have joked about the idea, I would like to see
the Dunker Act. Everybody on the boat go out and pick up
something and bring it to shore and let's get things rolling.
And I know that is in jest, but it gets at the question of
urgency, and it gets at the question of creativity to solve
this problem.
What I have to do every day is look at my employees and
talk to them about wages and unemployment issues and lower
bonuses and less opportunity for training. And why is that?
Well, part of it is because there is this backup in the system,
and I will defer to the two gentlemen to my right as experts on
why and how that is occurring. But if I were king for a day,
first thing I would do would be I would create a sense of
urgency by getting these things done. I don't know what the
answers are. I think there is a lot of good stuff in the
Freight Act that gets at this.
I have seen a lot of the bills and I think a lot of really
good thinking is being done. I would ask for urgency. The
second thing if I were king for today is I think that there is
an awful lot of being that is also being talked, that is
fundamentally addressing the needs for us to upgrade our
infrastructure to support manufacturing for the long term.
I think that the infrastructure bill gets at a lot of those
things. There is money out there for roads and bridges, and it
looks like you are electrifying everything from vehicles down
to tricycles. All very cool stuff. And so I think that that is
on the right path as well. King for a day, I would get after
those things with a sense of urgency.
Senator Tester. OK, thank you. Thank you, Mr. Chairman.
Senator Peters. Thank you. Senator Tester. Senator Scott,
you are recognized for your questions.
STATEMENT OF HON. RICK SCOTT,
U.S. SENATOR FROM FLORIDA
Senator Scott. First, I want to thank Chair Peters and
Ranking Member Fischer for hosting this hearing today. As
President Biden continues to push failed policies and
unconstitutional vaccine mandates, the United States is facing
a major supply chain crisis.
Higher prices and product shortages caused by this crisis
are hurting families, like poor families that are struggling
every day to make ends meet and our small businesses in my
state, and I know all across the Nation. Around my state what
they are seeing is they are seeing the shelves not stocked with
everyday items, and it is an everyday challenge to get the
goods on the shelves.
So what we have seen is instead of creating a friendly
business environment to help rebound from the pandemic,
President Biden has made a priority of his Administration to
add burdensome regulations that have stifled economic growth.
When I was Governor of Florida, what I saw is not just
cutting taxes, it is reducing regulations and streamlining the
permitting process that help you get more jobs. I have got--we
have 15 seaports in my state, and what we are seeing around the
country as American ports are experiencing severe cargo delays
as we head into the holiday season. We are also seeing
inflation now is the worst it has been in 30 years. And as I
talk to many manufacturers, are seeing double digit cost
increases and that is going to get passed on over the next year
or two to customers.
I find it--you know, the way I have watched is, instead of
the Secretary of Transportation, the Secretary of Commerce
going on and figuring out how to solve a problem, what they are
seeing is--what I have seen is they go on TV, and they have
commentaries about what the problem is, but they don't solve
it.
I have requested oversight hearing in this committee to
address the current supply chain crisis. I have called for
Secretary of Transportation Buttigieg and Secretary of Commerce
Raimondo to testify about what their plans are. When I was
Governor of Florida, when we had a problem, we got on a plane,
we went down to the city, and we sat there and solved the
problem.
And what we are seeing right now with those two Secretaries
is, I mean, I see them on TV, but I have not seen one of them
go to the port in Long Beach and done squat. I mean, that is
not what you do if you get elected in your--or you get
appointed to these positions.
So I want to thank Chair Peters and Ranking Member Fischer
for hosting this meeting, and I am encouraging Chair Cantwell
to urge Secretary Buttigieg and Secretary Raimondo to share
their solutions. I don't know why they wouldn't want to come
and share their solutions and show what they are going to do to
solve these problems.
But in the meantime, I am going to hold all the nominations
to the Department of Transportation and Commerce until that
happens. I think the American public deserves it. And I think
it is wrong that they won't come here and tell us what they are
doing to fix it. So my first question is for Mr. Butler.
So as the CEO of World Shipping Council, what would you
say--would you say the Department of Transportation has a
pretty significant impact on shipping and the overall supply
chain?
Mr. Butler. Senator, the fact of the matter is that whether
it is the Department of Transportation or any other part of the
Government, there is a limited number of things that Government
can do to unwind the situation. There has been a lot of talk
today about some of the infrastructure investments, and in the
long term, those are absolutely critical. But in terms of the
short term situation that we are facing today with this
important surge, it has really just saturated the supply chain
from end to end. It is going to be commercial actors, the folks
that run that supply chain that unwind that thing. We
appreciate all the help we can get, but in the end, it is our
job.
Senator Scott. So my--we had, when I had a hurricane, some
days we were selling nine times as much gas in 1 day. And for a
week before a hurricane, we sell multiples. And what we did is
we sat down, we organized, and we sat down with every level,
every player all along, and we streamlined the process. We
waived regulations.
We had--highway patrol helped move the trucks to get the
gas out. And I have not seen one thing like that out of this
Administration. So I don't believe that it is going to be run
by Government. But clearly Government could have an impact by
just helping move the process along and getting everybody
together and talk about it because you have to be able to
streamline this.
And I haven't seen them do it one time. So Mr. King and Mr.
Doyle, what--do you guys employ--how many jobs do each of you
have?
Mr. Krug. We have about 80 positions in the United States,
and we have a small company in Mexico where we have about 50
employees.
Senator Scott. How many non-essential--how many non-
essential workers do you guys have?
Mr. Krug. Probably zero. They are all pretty essential, and
we have been fortunate to keep all of them throughout all this.
In a lot of ways, the system has worked quite good. The PPP was
very helpful, and we stayed open through all of the pandemic,
and we have not let anyone go. We need all of them. They are
all essential.
Senator Scott. How about you, any non-essential? So, when
you hear these regulations that come out that you have got to
treat these nonessential workers somehow, you know,
differently. What that means--I mean, does that make any sense
to you?
Mr. Krug. If you are talking to me, no. And as far as
Nebraska, the unemployment rate is quite low, and I think we
want to continue to encourage hardworking Americans and reward
them. And that--so that, yes, there is a great need for work,
and we are grateful for the great workforce that we have, but
certainly need to continue to encourage them and reward those
that are working.
Mr. Doyle. I would completely concur with all that was just
said. Our issue isn't non-essential workers, our issue is not
having enough workers at the moment. We have what I would
consider an outstanding company culture. I think we address a
lot of the questions of wages, training and development,
excellent leadership throughout the facility, and my biggest
concern is that we need to focus on growing employment and
focusing on the things that will continue to attract people to
us as their best option as a place to work, because through our
work, they can provide for their families, and they can provide
for their personal and professional development. That is our
focus on employment.
Senator Scott. Thanks for being here. Thank you, Chair
Peters. Thank you, Ranking Member Fischer.
Senator Peters. Thank you, Senator Scott. Senator Warnock,
you are recognized for your questions.
STATEMENT OF HON. RAPHAEL WARNOCK,
U.S. SENATOR FROM GEORGIA
Senator Warnock. Thank you so very much, Chair Peters.
Whether it is parents shopping for groceries and holiday
presents or businesses trying to deliver for their customers,
we have all felt the effects of the current supply chain
disruptions.
And that is why I convened a roundtable last month with
Georgians representing the Port Authority's workers, freight
transportation, local small businesses, and big international
companies to learn more about the challenges they are facing,
and to discuss the solutions that they are already
implementing.
And after that roundtable and many conversations with the
White House supply chain disruptions task force and the Georgia
Ports Authority, we were able to secure $8 million to help
alleviate congestion at the Port of Savannah.
With these funds, the Georgia Ports Authority is able to
partner with railroads to convert existing inland facilities
into pop-up container yards.
Mr. Regan, I know from your testimony that you are quite
familiar with what the Georgia Ports Authority is doing. Could
you elaborate on how investing in these pop-up facilities will
help relieve dockside congestion and move vessels in and out of
ports more quickly, especially when we see these big spikes in
container traffic?
Mr. Regan. Certainly, Senator. While we know that, you
know, all the challenges of LA, Long Beach have gotten a lot of
the headlines, we know that there are a lot of problems in
Savannah as well. But you know, these pop-up shops again, as
Mr. Doyle or Mr. Butler mentioned, one of the problems is there
is no place to put these containers. So the pop-up areas will
have more areas for containers so we can start moving them out
more quickly.
And this is actually an example of an area where the Biden
Administration has actually provided more flexibility for port
operators to be able to use allocated money for more flexible
purposes to alleviate the problems existing in the supply chain
right now. So this is an example where the Biden Administration
has acted to alleviate to provide more flexibility and more of
an ability for operators to address the problem that they are
seeing right now.
Senator Warnock. Thank you so much. I think these pop-up
facilities are a part of the solution, and we are already
seeing declines in vessel backlog, load time, truck turn times.
As a native of Savannah, Georgia, I am very proud of the port
in Savannah, and we want to make sure that we provide capacity
so that the port can address the current supply chain issues.
Mr. Butler, in your testimony, you mentioned the lack of
land side capacity at U.S. ports as one of the causes for the
congestion that we are seeing. Do you think increased Federal
investments in port and multimodal freight infrastructure will
help ease congestion and buildup that necessary capacity to
handle increased ocean shipping traffic long term?
Mr. Butler. Senator, long term, it is absolutely--it has to
be beneficial to have that increased investment. There is no
question about it.
Senator Warnock. Can you say more about that?
Mr. Butler. Well, you know, you asked your question in
terms of long term, and I think that is appropriate and this
goes a little bit to something I said to Senator Scott. The
short term is really an operational situation that we all have
to work together throughout the supply chain to try to solve.
And it is every hand-off from the ship to the port, from
the port to the railroad, from the railroad to the warehouse,
all of that right is saturated. So we have to work through all
of that. But having said that, for the long term, if each of
those points in the supply chain is more robust from better
investment, then it all works better, right, when you get
pushed with a situation of congestion like we have today.
Senator Warnock. These investments, as you point out, are
critical. And that is why I was proud to support Georgia Port
Authority's successful INFRA grant application for nearly $47
million to build the Northeast Georgia inland port in Hall
County.
And that is one reason I pushed for increased funding for
port projects and multimodal grant projects in the bipartisan
infrastructure package. I look forward to working with you,
with the Administration to get these investments out to Georgia
as soon as possible. Thank you so much.
Senator Peters. Thank you, Senator Warnock. Senator Thune,
you are recognized for your questions.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Chairman Peters and Ranking
Member Fischer, and thanks to all the witnesses for being here
today. It has already been pointed out and we all know that the
country is facing an unprecedented supply chain crisis, with
Americans encountering empty store shelves, long wait times,
and rising costs as the holiday season approaches.
Agricultural producers are also feeling the crunch, with
capacity for their goods being hampered by a combination of
surging demand for containerized shipping and a massive backlog
at our Nation's ports, particularly L.A. Long Beach. This
inefficiency has downstream effects on commodity prices, which
is hurting farmers and ranchers across the country and
including in my state of South Dakota.
And that is why Senator Klobuchar and I, along together
with Senators Sullivan and Baldwin, plan to introduce the
Senate companion to the Ocean Shipping Reform Act of 2021,
which takes significant steps to clarify the authority of the
Federal Maritime Commission in resolving disputes and curbing
anti-competitive behavior.
I believe these changes will increase the accessibility of
the FMC to smaller shippers and provide the agency with clearer
authority to intervene when unreasonable practices relate to
the movement of cargo are discovered. More generally, our
Nation's ports are desperately in need of two things,
modernization and transparency.
And a failure to invest in terminal automation and port
efficiency initiatives such as data sharing compounds the
problems we are already facing today and puts the United States
below the global average in vessel wait times. Which is why I
am also proud to be a co-sponsor of Ranking Member Wicker's
Freight Act, which takes strong actions to improve the movement
of freight, I should say, across the supply chain. A resolution
of this crisis is imperative, and I look forward to discussing
this matter with our witnesses today.
Mr. Krug, thank you for being here to testify today
virtually about the supply chain challenges that your business
has faced throughout the pandemic. I have heard from several
businesses like yours and can certainly understand the
frustration of losing hard won business across the world due to
circumstances that were entirely out of your hands.
As I previously mentioned, the bill that I plan to
introduce with Senator Klobuchar would provide the FMC with
authority to pursue enforcement action if truly unjust or
unreasonable practices related to vessel space accommodations
were discovered.
Do you believe that such a change would help address the
challenges that you are facing in getting your products to
markets across the world?
Mr. Krug. Yes, that certainly sounds positive and helpful,
and we appreciate all of your efforts in that regard. And so
yes, the answer would be yes, I think that would be very
beneficial. I did have one more idea in regard to that
opportunity, if I were king for a day. I was just thinking
about that. I think I would order everyone to go to the movies
and buy two boxes of popcorn.
[Laughter.]
Senator Thune. OK. Well, I don't think you would have any
opposition to that idea on this committee, at least not from
this group. You mentioned in your testimony the difficulty you
face in getting containers inland, and I am just wondering if
you have any suggestions for what Congress can do to ease the
movement of containers once they leave the ports?
Mr. Krug. Once they leave the ports?
Senator Thune. Yes.
Mr. Krug. Yes, I think the biggest thing there is good
communication from the shippers to us. One of the big costs
would be if we plan on 10 containers coming and then are good
forwarding companies are only able to ship out 2. So the better
the communication is in regard to, no, this ship really is
going to not come in, it is not going to be available, it will
be 3 weeks--while that doesn't really solve the problem and the
big picture, it does help reduce demurrage charges and
warehouse that are overfilled because you are expecting to ship
10 and you get 2 containers. So that would be one point.
Senator Thune. Yes, thank you. Mr. Doyle, you mentioned in
your testimony the effects of demurrage charges on the price of
your products and called for an increase in the enforcement
capabilities of the FMC in respect to detention and demurrage
charges.
In the bill, as I mentioned, that I plan to do introduce
with Senator Klobuchar would require the FMC to further define
what constitutes unreasonable detention and demurrage
practices, while also establishing a separate, streamlined
complaint process to more efficiently resolve disputes.
Do you believe that improvements to the complaint process
and better guidance from the regulator on what constitutes an
unreasonable detention or demurrage charge will help to address
the challenges that you are facing?
Mr. Doyle. As I mentioned at the beginning, since our
contracts do not have us as freight responsible, we see the end
of this, but not the causes of it. Everything you have said
sounds logical, but I would certainly defer to the people who
are wrestling with the issues. I don't understand the current
condition well enough to, I think, give a reasonable answer to
your question.
Senator Thune. Mr. Butler, can you react to that?
Mr. Butler. Senator, I think having better dispute
resolution mechanisms probably would benefit everybody. There
are some other provisions, if I understand the bill correctly,
that I would like to work with you and your staff on, having to
do with certification, for example. There is some real problems
with how that would work. But in general, the FMC has a lot of
authority today. If we can make it quicker and easier to get
disputes resolved, I think that is all to the good.
Senator Thune. OK. Thank you, and thank you, Mr. Chairman.
Senator Peters. Thank you, Senator Thune. Votes have been
called, so I am going to be stepping out to vote. Ranking
Member Fischer will take the gavel, but before I step out,
Senator Klobuchar, you are recognized for your questions.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Very good. Thank you very much, Chairman
Peters, Senator Fischer, for your work. As Senator Thune noted,
we have to take action here. Agricultural exports, and we both
are in major, all three of us here, major Ag producing States,
very important export for our country in so many ways. And Ag
exports have been particularly hard hit by increased costs and
transportation challenge. I think one of our problems here is,
yes, we have supply chain problems. We all know that.
We all know there are multiple answers and proving the
infrastructure, what is going on in the shipping industry, work
force, everything from training people to go into the jobs that
we have available now to wages, to making sure that we do
immigration reform and get some more workers into certain
industries.
So but the problem is it is not the same size fits all. At
the start of the pandemic, Minnesota Ag producers saw a 47
percent decline in exports, and in the last 2 years, Ag exports
have lost--exporters have lost 22 percent of sales. Meanwhile,
ocean carriers have reported record profits from the increased
demand for imported goods and higher price for container
shipment.
And so that is what we are dealing with here, and that is
when you step in, because we want the economy to work for
everyone and especially, obviously for our constituents and
those that are feeding the world.
Mr. Krug, in your testimony, you note how your company is
losing its ability to compete in the global market due to
challenges moving freight. Do you agree that FMC needs to do
more to protect competition?
Mr. Krug. Yes, so we certainly--you know, it is normal
market, it is a competition that takes place if you are unable
to deliver or a ship. That end customer is going to get that
product from some other part of the world.
So in this case with Argentina and Brazil and so if we are
not able to deliver, they are not going to say, well, we
understand we will wait, they are kind of trying to find that
product as competition normally works, they are going to find
somewhere else to buy it. So that is where this becomes the
really important. And I appreciate that. You are doing a good
job.
Senator Klobuchar. Well, thank you. Unsolicited, remote,
but unsolicited. Mr. Regan, it currently costs seven times more
to ship an export from California to China than to ship that
same product from China to California. Can you speak to some of
the challenges with moving freight on land, particularly with
transporting empty containers?
Mr. Regan. Sure. And we discussed a little bit this earlier
in term, yes, we are having our ability to manufacture them
here and have develop our own capacity to be able to meet some
of the challenges we are seeing here in terms of container
supply.
And I also want to comment that we also agree with the
comments the Federal Maritime Commission needs to have the
authority to investigate and oversee the statutory requirements
that are put in place by that agency.
Senator Klobuchar. Thank you very much. Maybe you can take
this one as well. The Port of Duluth is the largest and busiest
port of the Great Lakes, with 800 vessels and an average of 35
million tons of cargo per year.
Minnesota, however, has deferred building a portion of the
Twin Ports Interchange, a project to replace aging
infrastructure and better accommodate freight access because of
construction costs. Mr. Reagan, in your testimony, you note how
the Port of Savannah is using inland ports to hold overflow
containers. How important are our inland ports in relieving
some of the congestion from the coastal areas?
Mr. Regan. They are extremely important. And I think--the
other thing that we often find right now in terms of the lack
of development in some of these major port issues is frankly
funding. Funding is a big problem, in terms of pursuing whether
it be more inland port, but also more intermodal facilities.
And we have discussed the lack of rail connectivity as one
of the major problems. But 60 percent of ports say that funding
is their number one hurdle toward addressing some of these
problems. So we are very positive about the $2 billion in the
bipartisan bill toward the Supporting Infrastructure
Development Act, and that is really going to go a long way
toward the long term solutions.
Senator Klobuchar. Great. From a Duluth, Minnesota
perspective, agree. Mr. Krug, this will be my last question.
While small and medium sized enterprises account for 98 percent
of U.S. exporters, rural businesses are often located far from
transportation hubs, making it difficult for them to access
international markets. Senator Hoeven and I have introduced a
Promoting Rural Exports Act.
It actually makes permanent what has been a very successful
effort to have a set group of people working on rural exports
and giving rural businesses the expertise they need. And this
is based on our experience both in North Dakota and Minnesota.
Could you talk about the importance of rural businesses
having increased access to foreign markets and how it is not
the same as a multinational corporation, many of them are also
located in my state, who can employ full time trade experts in
different regions of the world.
Mr. Krug. Sure. Yes, transportation, obviously is key. We
started out a few years ago and we had to pave a road that is
only 1.2 miles long to get to the highway. But that 1 mile
opened up the world. And that ability to be able to reliably
ship containers each day was a big step, and the state of
Nebraska was supportive of that. So anything that can be done
to improve transportation and ability to get these Ag products
to the marketplaces is huge. And there is the rail, of course,
is important to that. That was some of the issues that have
happened too--great communication.
Senator Klobuchar. Yes, OK----
Mr. Krug. The rail----
Senator Klobuchar. Yes, I see some of my colleagues are
here, so I am over--overdone my questions here. So I want to
thank you very much, all of you. Thanks.
Senator Fischer. Thank you, Senator Klobuchar. Senator
Lummis.
STATEMENT OF HON. CYNTHIA LUMMIS,
U.S. SENATOR FROM WYOMING
Senator Lummis. Thank you, Madam Chairman. My first
question is for Mr. Butler. Are there any regulatory barriers
facing the carriers from operating additional sweeper ships
that would help alleviate the excess container capacity at the
ports?
Mr. Butler. Senator, today, the answer is no. And that is
one of the things that our members are doing to try to clear
out some of the empties that have piled up that are getting in
the way of everybody being able to move their cargo.
It is a good question though, in the context of some of the
legislation that is out there because there are provisions both
in the new Senate bill and in the House bill that would
essentially say you have to load all export containers before
you can take any empties. And it doesn't work that way. We have
to keep both moving, and if we get too restrictive about how we
operate our networks, then it is going to make it worse for
everybody.
Senator Lummis. Followup on that with regard to
transparency of data. I know Congress has passed several laws
relating to data transparency for how ports are operating, but
would additional transparency mechanisms needed for port
operations, and would they help with that? Could they help the
communication between empties and offloading and in all of what
seems to be jamming up some of the ports right now?
Mr. Butler. There is no question that better communication,
pardon me, can only improve the fluidity in the system. And
that is something that really every private sector actor within
the supply chain is working on today.
At a place like L.A., Long Beach, where you have got, you
know, so many terminal operators, so many carriers, so many
trucking companies, it is a tremendously complex thing. So I am
not sure how big the role is, for example, for the Federal
Government in that, but it is absolutely something that is part
of the solution.
Senator Lummis. So how do the private sector providers of--
coordinate the communications?
Mr. Butler. Well, so it is probably a different answer for
every port, every terminal operator, every carrier, but in
broad scope, I mean, the ocean carriers communicate with the
terminals that they are going to call while the ship is still
at sea. Say, this is when we want to come in, this is what we
have on board, you know, and they begin communicating with the
inland transportation providers, the railroads, et cetera.
So there is a tremendous amount that goes on today. I mean,
sometimes when you hear this debate, you would get the
impression that nobody is talking to anybody. And that is not
true because if that were the case, we wouldn't be able to move
the tremendous amounts of cargo that we move. But having said
that, the cargo volumes keep going up, the challenges get more
and more complex, and so we have to improve our communications
and information sharing to match that.
Senator Lummis. So that--there is no role for the Federal
Government in that, correct?
Mr. Butler. Well, I would never say never. You don't want
to say there is no role. There may be some roles in terms of
encouraging the exchange of information, but if you are asking
me, should there be some Federal system to handle all that? I
think from our industry standpoint, we would prefer if you
would keep that in-house.
Senator Lummis. Yes, OK, thank you. With regard to the lack
of available storage space for containers coming off the ocean
carriers, earlier this fall I wrote a letter to President Biden
outlining several actions his Administration could take to help
alleviate some of the supply chain issues we are currently
seeking. And one of the recommendations was to explore using
Federal properties for temporary storage for excess containers.
Do you believe that is a viable option?
Mr. Butler. Senator, storage off the ports is something
that I think everybody is looking into today. Whether a
particular piece of property will work depends on its location,
whether it can be secured, whether you can get equipment there.
But if we have empty Federal properties that meet those
criteria, then that is something we should be looking at.
Senator Lummis. Well, I noted, and I turn this to Mr.
Regan, when the gentleman from Georgia was here, he alluded to
some of these pop-up storage sites. And Mr. Regan, in your
written testimony, you mentioned how the Port of Savannah use
Federal funds to create offsite overflow container storage
areas. What has been the impact for that specific port? And is
it an idea that should be expanded to other ports?
Mr. Regan. Sure. The impact has been to remove some of the
bottleneck that is existing at that port. So you are moving
some of the containers away from where the offloading is
happening away from the intermodal facilities, and you are
creating more of a fluidity at the port. And the reason why
that was appropriate in that case was the operator of the Port
of Savannah had leftover money from previous Federal grants,
and they were given the flexibility to be able to use it to
address the problem as they saw fit.
That may be the best solution to other ports. They may want
to use excess money or use Federal grants for other purposes
because I think the problems are different at each place. But
the flexibility is a key part there, and I think that is a
really important part of the way that the Administration has
addressed this problem.
Senator Lummis. Well, you sense the frustration of the
Committee and trying to understand what the role of Congress
might be in these issues. I have heard you compliment some of
the provisions of the bipartisan infrastructure bill. So I am
hopeful that that can begin to address some of the issues we
are discussing today. And I encourage you when you have other
thoughts about how we can help alleviate this problem, we would
be grateful for your thoughts. And thank you, Mr. Chairman. I
yield back.
Senator Peters. Thank you, Senator Lummis. So we are joined
by the Chair of the Full Commerce Committee, Senator Cantwell,
you are recognized for your questions.
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
The Chair. Thank you, Mr. Chairman, and I want to thank you
and Senator Fischer for both being stalwarts in getting this
hearing done. I think this is the third hearing we have had on
supply chains, so we very much appreciated and appreciate all
the witnesses being here today to talk about this important
issue.
I don't know if any of you caught Fareed Zakaria's
discussion a couple of weeks ago about supply chain and the
Infrastructure Investment Act. I thought it was great and I
will submit this to the record if I can.
Senator Peters. Without objection.
[The information referred to follows:]
Spending on infrastructure might not be sexy.
But it's even more important than you think.
By Fareed Zakaria, November 18, 2021 at 6:35 p.m. EST
Every two minutes, a water main breaks in America. The total amount
of treated water wasted every day is about 6 billion gallons, or 9,000
swimming pools. Every day! And it highlights why the infrastructure
bill that President Biden just signed into law is so important. The
need to fix America's crumbling infrastructure has become a weary
cliche--but that doesn't change the fact that it is indeed falling
apart. And just as is the case with any kind of deferred maintenance,
the longer we wait, the worse the problem becomes--and the more
expensive it will be to fix.
One way to make clear what a shift the Biden administration's
infrastructure legislation represents is to look at the amount that the
Federal government has spent on infrastructure over the decades. In the
1950s and '60s, infrastructure spending as a percent of gross domestic
product was over 1 percent. In 2019, decades later and with an
exponentially bigger economy, spending was at about 0.7 percent of GDP.
The new surge of spending from the bill will raise it to about 1.3
percent over the next five years. And the bill has many good ideas to
encourage private investments that would increase these numbers.
Economists disagree on exactly how much growth is produced by
infrastructure spending. But if we take a longer and broader view, the
payoff seems obvious. Felix Rohatyn, the banker who rescued New York
City from bankruptcy, wrote ``Bold Endeavors,'' a book that shows how,
over 150 years, Federal investments created the American economic
system--from the Erie Canal to the first transcontinental railroad to
rural electrification to the interstate highways.
We tend to think of the United States' competitive advantages
largely in terms of either the capitalist system or the hard-working
and inventive people who have come to the country over the centuries.
While those things are certainly a part of the equation, other
countries can boast similar advantages. An almost unique feature of
America is that it has the world's largest and most easily accessible
consumer market in the world, a point made in Peter Zeihan's excellent
book ``The Accidental Superpower.'' As he notes, the United States has
17,600 miles of navigable waterways, the world's largest network by
far. (China and Germany have 2,000 miles each.) Those waterways feed
into a series of massive deep-water ports. Some of the largest natural
harbors are Puget Sound, San Francisco Bay and the Chesapeake Bay. The
latter has ``longer stretches of prime port property than the entire
continental coast of Asia from Vladivostok to Lahore.''
But this massive advantage has been eroding for decades as
waterways, railroads and ports have all faced increased traffic and
insufficient investment. Almost 80 percent of the inland locks and dams
that made America's waterways work should have been replaced by now,
many of them being 60 or 70 years old. New locks would mean barges
would move through the system much faster. Similarly, investments in
port infrastructure will ease up these crucial choke points. Better
roads and faster railways will all make a difference.
This is a once-in-a-generation opportunity for Democrats to show
the country that public investment can work. That makes it crucial that
this money should be spent well and fast. Common Good, an organization
that advocates good and cost-effective government, put out an excellent
report in 2015 on infrastructure approvals that should be read by
everyone involved in administering these funds at the federal, state
and local levels. A six-year delay in starting construction projects,
it notes, could cost America $3.7 trillion, which is more than double
the amount of money needed to modernize key sectors of the country's
infrastructure by the end of the decade. Common Good's Philip K. Howard
writes in the report that, ``As practiced today, environmental review
often harms the environment. America's antiquated power grid, for
example, wastes the equivalent of 200 coal-burning power plants.''
Infrastructure sounds like a bore, but it's important not simply
because of the obvious fact that it makes the economy run. Spending on
infrastructure is a sign of a healthy society that is willing to invest
in its future. Yale economist Ray Fair wrote a paper in September in
which he analyzed the United States' infrastructure spending from 1929
to 2019. He found that it was around the 1970s that spending as a
percentage of GDP started to plunge, never to fully recover. It was
also about that time that America began routine deficit spending. To
him, both are signs of a society that is more interested in spending on
consuming in the present than investing for the future. In 2019, the
Federal government spent four times as much on programs for elderly
people compared with programs for children.''
Fair sees the infrastructure bill as a very small shift in that
long-term trend. But let's celebrate the change and hope that we can
begin, once again, to embark on some bold endeavors for the country's
future.
The Chair. Basically, he was talking about the percentage
of infrastructure investment as it relates to GDP and how we
had fallen off getting to less than 1 percent down to 0.7
percent. But obviously with the infrastructure bill by 2026 we
would get up to 1.3 percent.
So while we are dealing with these phenomenon that Mr.
Butler adequately describes in his opening Statement about the
impacts of being able to order more and import more and the
challenges of COVID, we also have to keep in mind that we have
to make significant infrastructure investments.
So I think you would all agree that that was a good thing
that we made these infrastructure investments, and now that we
have to get them actually implemented. Is that correct that you
think that this helps immensely in changing the picture here?
Mr. Regan. Yes, absolutely.
Mr. Doyle. No argument.
The Chair. OK, so now we are talking about new patterns in
addition to this very historic pattern of under-investing in
infrastructure. And I say this coming from a big trading state,
so obviously we are exporters and importers, but we, you know,
a lot of our products, practically every sector is, you know,
an international more than half of the businesses.
If you are talking about Washington wheat, 90 percent of it
is exports. If you are talking about our agriculture or other
agricultural products, it is exports. If you talk about
airplanes, the markets are exports.
So, we care about both, but I am interested in following on
the discussion about the congestion that is occurring at the
ports. And Mr. Butler, you mentioned some of the innovation
that is occurring to try to temporarily move these containers
to other locations.
What else should we be doing to try to expedite that? And
what should we be doing--I am not so sure how much discussion
has happened on the rail side this morning because obviously
the price of rail affects this issue as well.
And a few years ago, we had really exacerbated problems of
Ag product not even being able to get on to the rail because
oil was pushing it off. So what do we need to do to help get
more innovation and moving congestion out of the ports on these
containers? And what do we need to do to think about rail? And
maybe Mr. Reagan or Mr. Doyle, you can answer that.
Mr. Butler. Chair Cantwell, you have hit the nail on the
head, which is that we, you know, our ports are the interface
with the sea, and that is the most valuable commercial real
estate in our country, and it is limited in terms of space. We
know many of these ports, there is not much room to grow
physically, so we have to use that space as efficiently as
possible.
And to the extent that we can move some of that activity
off of the terminals that provides a buffer that keeps things
moving. And that is essentially what we are trying to do right
now in Southern California. There is a big push in both
directions.
One is to get importers to pick up their cargo and find
someplace else to put it, which is a real challenge for them in
many cases. So I am not pointing fingers, but that has to
happen.
The Chair. Because the warehouses are stacked too?
Mr. Butler. Correct.
The Chair. OK, so this is--the problem is, you know, we are
importing a lot in general, and your testimony specifies why
that is, because we are making it easier for people to do that
too.
Mr. Butler. Right. And so but the port, if you will, is the
commons for everybody that imports and exports. So if somebody
has a warehouse space problem, if that impacts every other user
of that port that is not the best solution. Really, we have to,
and this is what I mentioned in my opening Statement, is that
this is new, we have saturation throughout the entire land side
of the supply chain. We really haven't seen that before. So we
are working through this in a way for the first time.
So all those pieces have to fall altogether at the same
time. And at the same time, we are getting lots of pressure,
and rightly so from the Administration and others to move out
empty containers, right, because they get in the way as well.
If you have too many empties piled up on the port, then that
stops imports and exports.
I mentioned earlier one of the things I am concerned about,
and we would like to work with, with the Committee and the
staff on the new legislation is to make sure that we end up
with legislation that recognizes that we have to both move
exports and reposition empties. It is two sides of the same
thing.
The Chair. Listen, we were very involved in getting new
Federal freight legislation. We said freight can't wait. So
maybe the new motto is empties have to be moved. So we got to
get them somewhere else. Thank you, Mr. Chairman. I will take
for the record, if I could, Mr. Regan, because I see our
colleagues waiting. We have to get to a vote on that about the
rail.
I am very serious about the rail part of this equation
because I do think that also affects people when the rail
prices are so high, people don't move the product, they rather
sit there and wait for another route. Thank you.
Senator Peters. Thank you, Chair Cantwell. Senator Lee, you
are recognized for your questions.
STATEMENT OF HON. MIKE LEE,
U.S. SENATOR FROM UTAH
Senator Lee. Thanks so much, Mr. Chairman, and thanks for
holding this hearing. At the outset of the COVID-19 pandemic,
e-commerce sales spiked abruptly, and this is something that
had a tendency to frustrate and did frustrate our already
troubled supply chain infrastructure and work force.
Some of the challenges included truck driver shortages,
others involved outdated scheduling technology or poor
concentration, lack of storage capacity for containers, port
labor difficulties and shortages, and scarce freight equipment,
including things like truck chassis. I want to make very clear
these are not just coastal state issues. Utah, not a coastal
state. It is entirely landlocked.
And yet Utahns and Utah businesses are very directly
feeling the effects of our supply chain backlog, and they are
experiencing everything from empty store shelves, online orders
taking weeks for delivery for things that used to take days,
and price hikes basically across the board, sometimes more
excessive with some goods than others, but they are being felt
everywhere. Utans and Americans generally are, of course,
looking for solutions right now.
And while we certainly will have to address some of the
long term root causes of these problems, it is not something
that should distract us from the fact that there were also
temporary but immediate actions that I think we can and must
take in order to ease the backlogs, especially in time for the
holidays.
I have packaged some of these shorter term actions into a
single bill, a bill that I refer to as the Stop the Grinch Act.
Mr. Butler, I would like to start with you on this because in
your testimony, you mentioned the lack of container storage as
an issue and that U.S. landside capacity simply can't keep up
with the volume of import cargo.
Now, it seems to me like we need both short and long term
capacity. And in the long term, I think there are a lot of
options that are attractive, including things like the Utah
Inland Port, which can store containers and ease the burden.
But that takes a while, of course. So in the shorter term,
would temporarily using some land managed by the Bureau of Land
Management for multiple uses to store overflow containers, is
that something that could help alleviate the challenges with
land side capacity?
Mr. Butler. Senator, there is no question that among the
tools everyone is looking at is, is temporary inland storage.
With respect to any particular piece of property, now there is
a whole laundry list of things you have to go through to know
if it is going to work. Is it in the right place, can you
secure it, et cetera?
Senator Lee. Sure. I am just referring to extra space
generally. I assume that would be helpful if----
Mr. Butler. That would be helpful, yes.
Senator Lee. Now you also mentioned the availability of
truck chassis. You know, so not only are containers sitting on
chassis, rendering them useless for additional transportation
needs until the container can be delivered, but the emergence
of more e-commerce has also highlighted the need for more truck
chassis as well.
Do you think increasing the amount of available chassis
would help alleviate the backlog? If we could do that, overall
increase the number of chassis, would that be beneficial?
Mr. Butler. Overall, it would probably help, but when I
talk to people in the terminals and at the ports, frankly, what
I hear most often is we need to use what we have better. We
need to keep things moving.
Senator Lee. Right. And to that end, to the end of using
what we have better, what about expediting the processing of
truck credentials? Would that help some of the workforce
challenges at the port?
Mr. Butler. I have not heard of that being a limitation.
Senator Lee. From what I understand, it is, from the
information I have gathered suggests that it is. And all three
of these issues that I have just mentioned are addressed in the
Stop the Grinch Act, which includes temporary solutions to a
lot of those same problems. And Mr. Butler, there has been a
lot of conversation about rerouting cargo to less congested
ports. Is that happening? And to the extent it is not, what are
some of the challenges that is causing that to not happen?
Mr. Butler. It has happened, and it has happened over the
really the 18 months we have seen this surge. Often, though,
what happens if you move too much cargo, you just create a
problem in another place. I mean, there is a reason the cargo
goes where it goes today.
That is where the infrastructure is, that is where the
customers are. So that is something that has been done on the
margins by a lot of our members to try to maintain schedule
reliability and keep things moving, but it is not something you
can do on a wholesale basis.
Senator Lee. Could temporary Jones Act flexibility help
with the rerouting of cargo or at least with the transfer of
cargo off of a ship, anchored off the coast of another vessel?
Mr. Butler. Senator, we have both Jones Act and non-Jones
Act members, and we have a policy with our organization of not
taking positions on the Jones----
Senator Lee. No, I understand. And you and I may disagree
on the Jones Act itself. I am just saying that in a time of
diminished capacity and diminished supply, sometimes it can be
helpful to utilize provisions already built into the law that
allow for that.
Mr. Regan. Senator, if I may----
Senator Lee. And port depth is also an issue. Port depth
also sometimes frustrates our ability to reroute because we
don't have access to dredging. I am out of time, but if you
wanted to weigh in, I would be happy to hear from you as well.
Mr. Regan. Sure. And when you talk about waiving the Jones
Act, and I know you are what you are essentially talking about
is short sea shipping, which we have done a very thoughtful
proposal to create a national maritime highway. What your
proposal does in this bill does not address the underlying
problem, the underlying hurdle that we have toward creating a
national maritime highway, which is the double taxation issue.
Waiving the Jones Act would do nothing to promote greater
shipping opportunities or actually to make it better to be able
to move ship across up and down coast and between U.S. ports.
There are reasonable and strong ways to do this. Unfortunately,
just waiving the Jones Act is not the way to accomplish this
goal.
Senator Lee. Well, I strongly beg to differ, especially
given that rerouting can be more possible--you can reroute and
not have to deal with the Jones Act as much if you have access
to more ports capable of receiving vessels that have made the
transoceanic voyage. But we have access to so few dredging
ships and our ports are less deep than they need to be, we have
fewer international ports capable of receiving these vessels.
And so that is a problem as well that needs to be addressed. I
see my time has expired now. Thank you, Mr. Chairman.
Senator Peters. Thank you, Senator Lee. Well, as we are
closing this hearing, I just want to kind of have one more
question to think through. These are some of the points that
came up and Mr. Butler, you mentioned how the most valuable
spaces are in our oceans there, and that it is limited and
there is not much capacity to be able to actually expand those
parts out there because of all the development that has already
occurred around them. It is difficult, and if you did, it is
incredibly expensive. Then there has been issues related to
moving cargo to other ports.
And that is really what I want to explore because I think
there is a great opportunity for us to use the Great Lakes and
the St. Lawrence Seaway to a greater extent than is currently
being used. Throughout history, it has been used very heavily
and you were able to bring cargo right into the heartland,
right Mr. Doyle, the heartland of America and Michigan, and in
our ports that we have in the Great Lakes. And if you are going
to expand ports that have the capacity, you mentioned sometimes
that capacity isn't there.
If you are going to invest in capacity, it is a whole lot
cheaper to do that with ports throughout the whole Great Lake
system that can handle additional freight that is coming in,
but you have to have equitable access to Federal resources and
you have to be held to the same standards.
We find that the standards for Great Lakes ports are
different than they are at other ports around the country, and
that includes standards related to CBP and security issues. My
question for you, Mr. Regan, is how would smaller seaports
factor in and thinking about the Great Lakes and other areas as
long as there is equitable distribution of resources to make
sure those ports can make the kinds of investments necessary?
And we know how powerful those investments can be. What are
your thoughts?
Mr. Regan. I think they can play a really important role in
expanding our durability when it comes to these types of crises
and expand our capacity for moving goods. I think the more the
investment that we make into making these ports capable of
receiving larger vessels and capable of transporting them more
quickly to rail and truck facilities, that is going to be the
key to making sure they are successful.
It is one thing to be able to bring a ship in and dock it.
It is another thing to have the access to the rest of the
country that makes it a viable financial option. So making sure
that we have those intermodal facilities and having the
facilities built to move it is the key to making that a success
and improving our broader capacity.
Senator Peters. Right. And certainly, there is no shortage
of intermodal capacity in the industrial Midwest with
significant rail assets and highways and material that comes
through there. And Mr. Doyle, I am sure if material came
through the port of Monroe that is a whole lot closer to you
than someplace else and an opportunity for us to grow economies
in those areas while also dealing with what is a significant
problem.
So certainly, look forward to chatting with each of our
witnesses in the future about how we can think that through
because I think it is certainly an option that needs to be
fully considered. I would like to reiterate my appreciation for
each of our witnesses. Thank you so much for being here today.
This is a big issue, it is an important issue, and it is a
complex issue. And we need to all get together and put our
heads together to think through how we deal, not just with the
short term issues, as you mentioned, Mr. Doyle, king for a few
moments, which it is always good to be king, but it is not just
the short-term issues, but the long-term issues.
This is not something that is going to go away anytime
soon, and it will continue to be complex, and we will continue,
this committee will continue to explore those issues, from
ocean shipping to the intermodal issues, when you get here to
the United States as well.
The hearing record will remain open for two weeks. Any
Senators that would like to submit questions for the record
should do so within two weeks. And with that, this hearing is
now concluded and adjourned.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Written Questions Submitted by Hon. Shelley Moore Capito to
John W. Butler
Question 1. Congress was able to pass a historic, bipartisan
legislation that reflected our commitment to nation's infrastructure
and just this last month it was signed into law. The Infrastructure
Investment and Jobs Act (IIJA) made significant investments across our
Nation's transportation system, investing $16.6 billion in port and
waterway infrastructure. Will the multimodal and port infrastructure
investments in IIJA help build the landside capacity needed in the
industry?
Answer. Yes. The IIJA represents a significant down payment on
modernizing U.S. ports and intermodal infrastructure, with over $5
billion for port-specific programs and significant additional grant
monies for port-eligible programs. Given that the current supply chain
congestion is the result of an interrelated set of landside
infrastructure bottlenecks, money wisely spent on transportation
infrastructure across ports, rail, inland waterways, and highways--and
the interfaces between the different modes- will increase capacity and
resilience.
Question 2. On November 19, I joined my colleague Senator Moran in
sending a letter to FMC Commissioner Maffei expressing our concern with
the new ``Container Excess Dwell Fees.'' We are concerned that these
fees will ultimately be passed on to the American consumer. If these
fees end up taking effect, what would the impact be on your members?
Answer. WSC members have worked closed with the Administration's
Supply Chain Task Force and Port Envoy, the Ports of Los Angeles and
Long Beach, and their customers to encourage cargo owners to retrieve
their long-dwelling cargo that ocean carriers have delivered.
Because of these collaborative efforts, the number of long-dwell
laden import containers has been significantly reduced, and the long-
dwell fees have, to date, never been charged.
If the long-dwell fees ever are imposed, WSC cannot speculate on
how individual members would be impacted and what their response would
be.
Follow-up: Since your members contract ends once the cargo
reaches the marine terminal, is it likely that these fees will
be passed on?
Answer. Under the FMC's guidance on these sorts of fees, such fees
are to be charged to the party that has the responsibility to move the
cargo. As your question suggests, for cargo (the substantial majority)
that the importer is responsible for moving off of the port, it would
be that importer that should properly be charged any such fee.
Question 3. On November 23, I joined Ranking Member Wicker in
introducing the Facilitating Relief for Efficient Intermodal Gateways
to Handle Transportation (FREIGHT) Act. This legislation will build on
the work of the IIJA by minimizing barriers and harmonizing port
operations in order to alleviate the current shipping crisis. Will the
provisions of the FREIGHT Act help alleviate the logistical challenges
you mention in your testimony?
Answer. Yes. As I responded to Senator Wicker's question during the
hearing, provisions in the FREIGHT Act would result in improvements to
landside transportation and logistics--and it is the landside inability
to process all the cargo that U.S. consumers are ordering and ocean
carriers are delivering that is the cause of the current port
congestion.
Follow-up: What are some of the initiatives your members
have implemented that have worked to improve the operational
and logistical challenges?
Answer. Ocean carriers have deployed every available ship and
container to carry and deliver record levels of cargo. They have
shifted unprecedented vessel capacity into the U.S. trades in response
to demand.
Ocean carriers have also sent numerous empty container vessels--or
``sweeper ships''--to retrieve thousands of empty containers which has
freed up needed port space to expand cargo handling operations, as well
as chassis (upon which the empty containers were fixed for transport),
which are needed by drayage truckers to haul out the loaded import
containers and bring export cargo to the ports.
WSC members are also working with farmers to find solutions in
getting their goods to global markets. For example, several WSC member
companies recently joined the International Dairy Foods Association and
the Port of Los Angeles in the creation of the Dairy Exports Working
Group, which focuses on identifying and addressing supply chain
challenges affecting U.S. dairy product exports. Many of the solutions
are the result of direct commercial and operational collaboration
between individual carriers and their customers.
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