Date set for hearing on lawsuit concerning USD 350 million in CBP fines against American Seafoods - SeafoodSource

An initial hearing on a lawsuit concerning approximately USD 350 million (EUR 294.3 million) in fines against American Seafoods and other companies associated with the company's supply chain will take place on 17 September.

The fines, which relate to the use of an intermodal facility in the Canadian province of New Brunswick that is used to transport Alaskan seafood to the U.S. East Coast, are being challenged by American Seafoods subsidiary Alaska Reefer Management (ARM) and the company that operates the New Brunswick facility, Lineage Logistics subsidiary Kloosterboer International Forwarding. In a 2 September filing, the companies asked U.S. District Court Judge for the District of Alaska Sharon L. Gleason for emergency injunctive relief that will help them resolve issues in their supply chains created by the fines.

Gleason granted their request for an expedited hearing on 3 September, according to a court filing.

Additional declarations filed in the case since its filing give more detail as to the problems the fines have caused to the Alaskan seafood sector.

American Seafoods President Inge Andreassen said in a sworn affidavit that "absent immediate relief, ASC's Eastern U.S. customers will be severely harmed because they will be unable to deliver the seafood product that has been promised to their customers."

"This disruption to the entire supply chain will also inflict serious harm on U.S. consumers, who will be deprived of U.S. harvested and processed Alaskan seafood routinely supplied by ASC and other Alaska seafood processors, which utilize the Dutch Harbor-Maine transportation system," Andreassen wrote. "These supply shortages also will result in increased prices, as clearly evidenced by price increases for other products that have already resulted from the breakdown of the worldwide transportation and storage network as a result of the COVID-19 pandemic."

Facing USD 46 million (EUR 38.8 million) in CBP fines "without a clear explanation," American Seafoods has halted consumer deliveries on the U.S. East Coast and faces no viable alternatives for moving its product to the U.S. market, according to Andreassen.

"The financial threat to our business is real and sizable both in terms of fines, but also in terms of customer service. Our customers depend on us and this route for the timely delivery of frozen seafood cargo that is designed well in advance each year around our fishing season, and the Lenten season when fish consumption rises in the U.S. Without immediate judicial intervention, we are facing the options of having to (1) relocate goods back to Dutch Harbor for reshipment into the United States; (2) create a log jam in Dutch Harbor which is a limited sized port, and we will compete with all the other industry products being sent back; (3) delay and pay for transport to carry goods back to the U.S. mainland from Bayside at a time when temperature-controlled shipping containers are running short; or (4) miss critical time windows required by our customers," he wrote. "Alternatively, we can ship the product overseas, which will result in letting our U.S. customers down, and also opens the door to foreign-sourced fish."

American Seafoods operates a fleet of six at-sea catcher-processor vessels in the Bering Sea and the North Pacific Ocean and holds around 17.5 percent of the total quota for Alaskan pollock. It also fishes for several Native Alaska corporations, which are allocated a quota but do not directly fish in the Bering Sea. Andreassen said the company has around USD 400 million (EUR 337 million) in annual sales. Approximately 13 percent of its total pollock catch – representing 90 percent of its U.S. sales – is shipped to the U.S. East Coast via the so-called "Bayside Program," which has been placed in jeopardy as a result of the CBP enforcement.

"Without intervention, we believe we will lose sales this year and incur higher costs, and we anticipate our customers will also lose sales this year if they run reduced volumes on factory lines due to product shortages," he said. "We are struggling to calculate the cost and loss of revenue associated with this incredible level of disruption, but we can estimate that if 10 percent of our U.S. targeted product gets delayed, we are looking at over USD 5 million [EUR 4.2 million] in lost revenue this year, plus all of the costs described above (some transportation quotes we are receiving are suggesting double the current cost to ship). If we have to let our U.S. customers down, we will have to deal with that fallout."

According to Andreassen's statement, American Seafoods customers include High Liner Foods, Channel Fish Processing, and Eastern Fisheries, who "generally further process the fish and then sell branded and private-label products into retail and foodservice," including retailers Walmart, Kroger, and Costco; major restaurant chains including Arby's, Long John Silvers, and Burger King; and foodservice distributors serving schools and mom-and-pop restaurants.

"This disruption is occurring in the season that seafood further processing factories substantially increase their operations in preparation for next year's Christian Lent observance. Many of ASC's U.S.-owned and -operated customers have informed ASC that their U.S.-based businesses are in jeopardy due to demands from their downstream customers, which have increased substantially since the onset of the COVID-19 pandemic. Forced layoffs of employees likely will result if ASC is unable immediately to resume its seafood deliveries. One of ASC's large U.S. customers, for instance, has informed ASC that if it cannot obtain the seafood products expected from ASC within the next few weeks, it will not only run out of inventory, but the jobs of over 200 employees will be in jeopardy," Andreassen said. "Another of ASC's customers, Channel Fish Processing, informed ASC that if it does not receive the seafood products from ASC and other similarly-situated suppliers expeditiously, it likely will experience devastating hardship to its U.S. business, resulting in the layoff of 50 percent of its more than 140 employees."

The supply-chain freeze also threatens the USDA commodity procurement program, which has purchased millions of pounds of pollock this year to help feed families and children in need across the United States.

"The program purchased 12.5 million pounds of pollock in 2020, and an additional 13.4 million pounds this year to-date," Andreassen said. "Most of this seafood product is converted to consumer-friendly seafood products in the Eastern U.S., which means that any delay in the raw material supply will prevent needy families, and re-opening schools from receiving this healthy protein."

Andreassen said the crisis facing the entire supply chain for Alaskan pollock has been exacerbated by the COVID-19 pandemic, which has resulted in higher demand for seafood along with severe strains on global transportation infrastructure.

"Due to constraints in cold-storage facilities and other viable ways to transport ASC's seafood products to its customers in the Eastern U.S., if ASC is unable to continue using its current transportation process for delivery of its seafood products to the Eastern U.S., ASC will be compelled to divert the seafood products slated for its American business customers to Europe," he said.

Currently, more than 11.5 million pounds of pollock are currently stuck in the Bayside cold-storage facility, with another 13.3 million pounds in transit and scheduled to arrive by the end of the week. An additional 12.4 million pounds of pollock are currently onboard American Seafoods fishing vessels or being held in cold storage in Dutch Harbor, Alaska.

Without the prompt release of this product via the lifting of CBP's threat of continued enforcement action against those who transport it, the entire domestic market for U.S.-sourced pollock may disappear, Andreassen warned.

"Absent meaningful and prompt judicial or other relief restoring ASC's ability to supply its seafood product, I expect that many of ASC's Eastern U.S. customers will suffer extreme harm from delays and the inability to receive pollock; and are likely to have to seek an alternative to pollock from foreign sources, which are not similarly constrained, in Europe and Asia. This shift to foreign-sourced seafood will deal a death knell to the excellent work that has been undertaken to distinguish U.S. harvested Wild Alaska Pollock and other U.S. seafood," Andreassen said.

Photo courtesy of American Seafoods