Congestion Surcharges To The Moon!

By August 1, 2021Blog
Container Ships

More Congestion, More Surcharges

It’s no secret that Trans-Pacific shipping is getting more and more expensive. There is widespread and legitimate fear and frustration from shippers across the globe that there is no relief on the horizon. As we near the traditional peak season, shipments that were delayed by the Covid 19 outbreak in Yantian are hitting U.S. ports, rail operators are playing catch up across the country while carriers stick shippers with another dagger by announcing more surcharges. At least they are creative with the names of the surcharges even if they can’t justify them! 

Duncan Wright, president of forwarder UWL said it best, “You can call them GRIs (general rates increases), PSSs (peak season surcharges), value-added surcharges…but at the end of the day, they do one thing: they are simply mechanisms to keep the rates up.” 

Chaos

Across the board, Trans-Pacific spot container freight rates are being quoted as high as $10,000 per FEU as of late July, compared to $1,350 July, 2020. When you include all the surcharges, it’s closer to $26,000 per FEU. 

The Federal Maritime Commision’s (FMC) investigations of excessive tariff fees don’t seem to be scaring the carriers off even as Congress moves to overhaul the shipping act and the Surface Transportation Board takes a closer look at the monopolistic position of freight rail carriers.

Carriers are prioritizing higher-paying import cargo over lower-value cargo, effectively pricing low margin shippers out.

Even when premiums are paid, drayage and equipment isn’t always guaranteed, leaving forwarders and shippers frustrated, confused, and sometimes desperate. The next few months will be chaotic as we enter peak season. 

Carriers Say They Are Struggling Too

Congestion, equipment shortages, and COVID outbreaks are cutting carrier capacity in the face of shippers’ demand. It’s so intense, large importers like Home Depot are even chartering their own vessels to strengthen their supply chains.

Container lines are increasing Trans-Pacific capacity by 32 to 34% in the third quarter compared to 2020, but a quarter of that increase is expected to be lost due to U.S. and Asian ports congestion, according to Sea-Intelligence Maritime Analysis.  

The backlog from China isn’t the only thing affecting Trans-Pacific shipping. Vietnam and Indonesia are experiencing a rise in coronavirus infections that are interfering with factory and port operations. Singapore, a major transshipment port, is suffering equipment shortages that are causing further delays and cost inflation.

A New Normal?

Carriers may claim these rate increases are due to major disruptions like the Suez Canal blockade and pandemic-induced port congestion in Southern China but some shippers are worried these increases may be the new normal, where carriers hold all the cards.

As UWL’s Duncan Wright claims, “I know I can get any box I want on a ship for $100,000. How is that possible when I’m told there is no space? Oh, well there is if you pay for it.’ At the end of day, we know where we’re sitting. There isn’t structure left anymore. It’s the Wild West.”

Congestion And Chassis Shortages

Dwell time of U.S. chassis is 20% higher than it was in 2020, effectively removing the equivalent of 60,000 chassis from the U.S. network. 

Chicago – the Midwestern freight hub – is the new bottleneck in the global supply chain with rail, trucking and logistics operators struggling with a glut of imports from Asia. According to trade analysts Panjiva, onward shipment through Chicago and the surrounding area increased by 32% in the second quarter, year-over-year, and 18% compared with the same period in 2019.

On July 18th, Union Pacific Corp. and BNSF Railway suspended West Coast traffic to its Global IV terminal outside Chicago and since July 27th has been rationing space on trains from the ports of Los Angeles and Long Beach. This attempt to ease the pileup of freight overwhelming Chicago-area rail terminals and may cause a new bout of paralyzing congestion when a deluge of backed up freight arrives from the West Coast.

If the operational issues and chassis shortage is not resolved, the cycle of freight paralysis may continue. Chassis outages are a prime factor for shippers struggling to pick up, unload, and return equipment quickly. The diversion of shipments to alternate hubs like Kansas City and Memphis has caused backups in those terminals too and have further raised costs and complicated struggling distribution networks. 

Chassis providers claim shippers are holding onto equipment too long, exacerbating the equipment shortage and jeopardizing the ability of Union Pacific Corp. and BNSF Railway to make containers available for pickup, furthering the congestion emanating from Southern California.

FMC DGAF

The increase in apparently infinite surcharges imposed by carriers has prompted the U.S. to clamp down on “unfair” prices and monopolies. Under President Joe Biden’s executive order, the FMC will investigate ocean carriers for alleged excessive tariff fees charged to shippers with an outcome that could lead to new tariff regulations.

The FMC has already voiced concerns about certain carrier actions, i.e.: unfair detention and demurrage practices without formal complaints from a shipper – which was previously required. Challenging unfair detention and demurrage fees might be where they focus their energies to get a foothold to challenge other carrier/alliance actions.

In May of 2021, The National Industrial Transportation League (NITL) a U.S. shipper group proposed legislative changes to shift the legal burden of proof in detention and demurrage billing from shippers to carriers. 

The Law Is Outdated

The NITL claims the nearly 30-year-old law needs updating to address modern challenges U.S. shippers face during a 10-month surge in containerized imports and exports. If enacted, the proposals would give shippers more weight to bring legal claims against ocean carriers.

“The ongoing ocean shipping turmoil has wreaked havoc on U.S. exporters and importers, costing them billions in higher shipping costs, demurrage and detention charges, and lost business, with still no clear end in sight,” the NITL said in the letter to congress. “These unprecedented challenges have exposed gaps in the law governing ocean carrier services that warrant immediate action.”

The NITL’s proposed reforms include formal regulations for detention and demurrage charges that would shift “the burden of proof for complaints onto the service providers to show that their practices are reasonable and comply with the rules.”

Surcharges Aren’t Going Away

As we get closer and closer to the 2021 peak season it’s becoming more clear that it will be as hard to predict and more expensive than any that has come before it. Carriers will impose more surcharges with ever increasingly creative names. #value-added. Hopefully executive orders and legislative action will ease the burden of the flagrant shipping costs but we shouldn’t expect them to happen any time soon.

The volatile nature of global shipping hasn’t eased since we left 2020 in our rearview mirrors and it may be that we are entering a ‘new normal’ of white-knuckle logistics. Thankfully, CargoTrans has an expert team standing by. All you have to do is contact us.

If you have any questions regarding insuring your shipments, all you need to do is contact us.

#shipsimple

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