After a time of increased strain between shippers and carriers due to climbing detention and demurrage charges started by pandemic-related port congestion, more regulations are being passed that focus on logistics and shipping. On top of the demand for improvements within this subset of supply chain operations, there is also congressional interest in supply chain regulations due to national security concerns, which puts ocean shipping topics more widely into the spotlight.
Related to shipping, logistics, and transportation, there are three recent regulations shippers should be aware of—the Ocean Shipping Reform Act, the Inflation Reduction Act, and IMO 2023—which can impact port operations and call for greater visibility in 2023.
Ocean Shipping Reform Act
The Ocean Shipping Reform Act (OSRA) became law in 2022 to allow the Federal Maritime Commission (FMC) to address certain challenges that shippers are encountering with carriers. The FMC can now more proactively investigate carrier behavior, enforce regulations, and set new rules regarding detention and demurrage charges for carriers to comply with. Detention and demurrage received significant attention in 2022, when the FMC saw nearly $2 billion in D&D complaints. With detention and demurrage charges outside the shipper’s control starting to improve, shippers can turn to those charges they can control by improving their port performance through visibility data and insights.
Inflation Reduction Act
The Inflation Reduction Act (IRA), signed into law in 2022, aims to support workers. Included in the IRA concerning logistics and supply chain leaders is creating clean energy jobs and strengthening American manufacturing. The IRA provides incentives for purchasing an electric vehicle (EV) at a maximum tax credit of $40,000 per vehicle. However, this could have a low effect on truck owners since an electric truck can cost hundreds of thousands of dollars. Tax credits are also offered for renewable energy. The demand for jobs supporting clean energy, including manufacturing, is generally expected to increase. However, there is a debate that it may not have the intended impact of increasing the adoption of renewable energy.
Lastly, the IRA incentivizes port authorities to go green by offering $3 billion in grants and rebates if they purchase zero-emission cargo handling equipment, as long as a worker, rather than automation, operates it. This should bring new electrification projects to ports in the next few years, until September 2027, putting us in a transition period where port operations will not yet be at their goal level of efficiency and sustainability, but they are making progress in reaching this position.
The International Maritime Organization’s (IMO) regulations for 2023 include EEXI and CII, two measures that aim to improve the sustainability of ocean shipping.
EEXI, or the Energy Efficiency Existing Ship Index, is the IMO’s attempt at measuring the efficiency of vessel hardware and setting a limit on the amount of carbon emissions per unit of transport work for ships over 400 gross tons. The index is calculated based on the ship’s characteristics, such as size, speed, and engine power. Vessels not meeting the standard must be retrofitted with energy-saving measures or face penalties. The industry may see impacts on shipping rates as well as capacity as ship owners invest in upgrades to their fleets.
CII, or the Carbon Intensity Indicator, rates ship operations with regard to carbon emissions. The formula for CII is the annual fuel consumption (multiplied by the carbon emission factor) over the annual distance traveled times capacity. Ships receive a rating A through E, based on measurements from the previous year, starting in 2023.
However, there are challenges with CII, which have been debated since it was announced. First, CII is based on ship capacity rather than cargo carried, an important distinction that lets ships strategically use ballasting — pumping water into ballast tanks to increase stability for lighter loads or when empty — to improve their score without actually increasing energy efficiency. Shorter distance voyages also create a disadvantage since the distance is in the denominator of the formula. This may lead to less efficient ships making longer voyages to improve their score, while efficient ships primarily stay in shorter trade lanes. While CII will not bring about change by itself due to its weaknesses, it is part of a larger effort to make progress in the direction of sustainability.
Prepare for New Changes and Regulations with VIZION API
Many of these new regulations were designed to improve the environment by reducing carbon emissions from ocean freight. However, while organizations and government agencies are figuring out how to go about this for the best long-term effects, there will be an adjustment period in the short term as issues are ironed out.
Shippers need to know how regulations — like the Ocean Shipping Reform Act, the Inflation Reduction Act, and IMO 2023 — will impact them and their need to have accessible data surrounding their operations. With VIZION API, shippers gain visibility and an understanding of their performance even as changes occur within the industry. They can better identify improvement opportunities that ultimately save them time and money.
To learn more about how shippers can stay on top of their ocean freight with visibility from VIZION API, reach out to us today to book a demo.