Aug 11, 2016
The British International Freight Association (BIFA) recently supported the latest challenge by UK shippers against ocean freight surcharges. For years the Global Shippers Forum (GSF), National Industrial Transportation League (NITL) and the ESC (European Shippers Council) have also been complaining about carrier surcharges on behalf of their members. Let’s examine some of these charges, consider why they were enacted and see if they have any merit.
Putting Charges in Perspective
Historically, surcharges have addressed services over and above the carriage of goods. Strictly speaking, an Ocean Carrier is only responsible for moving your merchandise from point A to point B whether by ocean vessel or over-land conveyance, if you have not tendered the freight at an ocean terminal. Most Original Bills of Lading cannot and will not guarantee a specific time of delivery. I guess, any attempt the carrier makes to speed your merchandise along is at their discretion, and may be subject to an accessorial charge. In fairness to the shipper when negotiating freight rates, the Beneficial Cargo Owner (BCO) should expect his carrier partner (and I stress the word partner) to provide certain “benefits” as part of their service offering. They should however be willing to fairly compensate the carrier for services rendered.
Looking at Surcharges - past and present
For years shippers and their trade associations complained bitterly about “REPO Charges” or container repositioning fees. It was unfair, they argued, that BCOs had to bear the cost of moving boxes to meet their shipping needs. Well they no longer have to pay repositioning surcharges. Repositioning has taken on a whole new meaning. In an age when freight rates barely compensate carriers for moving cargo from point A to B, no line would dream of positioning equipment for an individual client unless it was discussed at contract time.
The movement of “empties” is now in part delegated to the realm of domestic freight. The ocean carrier bears as little cost as possible reaping the benefit of empty movement to return units to ship side.
Container Seal Fee
If after the container has been sealed it (and) is required to be opened by CBP or the terminal operator, should the carrier be responsible for paying the cost of resealing the box? This is clearly a case that requires more thought than simply abolishing the charge.
Chassis Flip Charge
The West Coast Marine Terminal Operators Agreement (WCMTOA) recently announced that as of September 1st they would charge $5.00 to service 3rd party chassis upon entering and leaving the terminal. This fee falls into that gray area which needs to be explored directly with the terminal operators. As you know the ocean carriers are no longer in the chassis business.
“Trade” pushes to eliminate all extra fees
This month the Global Shippers Forum (GSF), which includes U.S. Asian and European trade associations called for the elimination of all container surcharges by 2020.
Bunker Adjustment Factor, BAF
While there have been incidences where carriers held over the adjusted price of fuel to regain revenue, as of 2009 many carriers incorporated BAF into their rate to avoid further misunderstanding. When the need for price adjustment arises, the carrier could adjust bunker rates against a weighted average over the life of the contract. But if you take away the line’s ability to adjust compensation as prices fluctuate, then pay the higher average rate without complaint when bunker prices fall.
Currency Adjustment Factor, CAF
Expressed as a percentage of the freight payable, CAF is a surcharge made to account for fluctuations in the local exchange rate against the carrier’s ‘home’ currency. This provides for a more stable compensation for the carrier. What is the alternative? Perhaps a mutually agreed upon value, but here again the BCO would have to accept the established value even in times when the devaluation is in their favor. As with BAF the shipper can’t have it both ways.
Terminal Handling Charges, THC
Terminal Handling has traditionally been a pass-thru charge collected either by the carrier or paid directly to the terminal by the cargo owner. More common in Europe, the charge is meant to distinguish the carrier’s obligation from those of the buyer or seller of the goods depending on the terms of sale. If the shipper of record were required to negotiate these charges directly with the terminal then it would no longer be a surcharge.
Understanding the variables
If the purpose of surcharges is to compensate the carrier for items outside his control then I would think that discussion of variables at the time the freight contract is negotiated would be the way to eliminate any misunderstanding. Also an understanding of how carriers, terminals and accessorial service providers interact in the supply chain would also be helpful for determining who is responsible for what.
Transit time is one element while not guaranteed that should be agreed upon at time of carriage. Ocean Carriers in good faith make an effort to deliver containers to their destination with reasonable speed. Labor unrest or the force of nature does from time to time impact their ability to move cargo expeditiously. It is possible to eliminate this charge but at today’s freight rates the carrier would be hard pressed to make schedule adjustments to compensate for the delay. It is certainly something that both shippers and carriers need to address together as partners rather than adversaries.
What price freedom?
Okay, so we eliminate all the accessorial charges; require the ocean carrier to internalize the cost of doing business over variable conditions, many of which are outside of his control. Transports Associations claim that there are shameful examples of surcharges but many have only named a few of the more common examples as listed above. I would want to be sure that the charges being considered are actually in the carrier’s hands to address. More importantly, should they have already been addressed at time of contract?