Date: 28.07.2021

Shippers go out of business as ocean surcharges continue to mount

Container shipping lines are becoming ever more inventive with the names they apply to the surcharges they keep adding to already over-loaded FAK rates.

The latest example is Hapag-Lloyd’s ‘value-added surcharge’ of $5,000 per 40ft, from China to the US and Canada.

The carrier told customers the new surcharge was due to “extraordinary demand from China and the resulting operational challenges along the transport chain”.

Hapag-Lloyd said the surcharge would be implemented from the 15th August and would “replace other ad-hoc surcharges like the SGF” (shipment guarantee fee), which is $1,000 per 40ft.

Some carriers, including Zim, Cosco and ONE, are already charging Asia to US west coast shippers in excess of $7,000 per 40ft for so-called ‘value-added’ products, on top of their FAK rates. Zim is also implementing a $5,000 per 40ft congestion surcharge from the 6th August for shipments to the US west coast ports of Los Angeles and Tacoma.

Last week’s Baltic Index for Asia to the US west coast actually fell by 8%, but in many cases shippers are paying at least double the Baltic Index quoted figure to secure shipment, despite having signed MQC [minimum quantity commitment] contracts with shipping lines.

For Asia to North Europe, the Baltic Index reading rose 7% this week, while the 30% spike in rates from Europe to the east coast of South America this week is likely to be a result of capacity being diverted to the ex-Asia lanes.

There is growing anecdotal evidence that carriers across a number of tradelanes are ignoring contracts and forcing shippers to accept sky-high FAK rates and hefty surcharges and there is growing concern that businesses will be unable to absorb or pass on to their customers these massive freight cost increases.

Increasingly it is reported in the national press, shippers such as Taylor Group, a heavy equipment manufacturer, are getting the ear of US politicians, and legislators don’t like what they hear.

“This situation is causing inflation to run rampant throughout the supply chain. So far, we have kept our production lines running but are facing 30% to 75% price increases from our vendors and transportation companies,” William Taylor, CEO of Taylor Group, told the Senate Commerce Committee this month.

The Biden administration is wading into ocean regulatory waters via an executive order, upping pressure on maritime regulators to crack down on illegal behaviour and work more closely with the Department of Justice (DOJ).

And for the first time in more than 20 years, Congress is on track to rewrite the shipping law that gives the Federal Maritime Commission (FMC) its direction, powers, and purview.

The escalation of federal and Congressional attention on container shipping speaks to how supply chain disruptions have moved out of the world of logistics managers and onto the front pages of general news.

Metro negotiate rate and volume agreements with a wide range of carriers across all three alliances, which means we can react quickly to market changes and offer shippers alternative services, in line with their deadlines.

Our fixed validity contracts provide supply chain security and peace of mind, but with space and equipment in such short supply, we recommend a minimum of four weeks visibility and booking window, to secure space on the vessel and get the right equipment positioned.