New Congestion Surcharges

April 30, 2014
By Rich Roche

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Ocean carriers in the Asia/U.S. trade recently announced a new Congestion Surcharge to be applied to import or export containers in any case of labor disruption that results in terminal congestion at U.S. ports.

The announced charges are:
$800 per 20’ container
$1000 per 40’ container
$1125 per 40’ high cube container
$1266 per 45’ container

Effective dates vary by carrier from May 20 to mid-June.

Surcharges for ocean freight have been a way of life for decades, but this alarming new trend has become increasingly common among ocean carriers and their terminal operations, as they add new ways of collecting revenue.

The storms we endured this past winter resulted in unprecedented demurrage charges at ocean and rail terminals around the country. Vessel delays, labor problems, and equipment shortages fueled long lines at the terminals, where efficiency (measured as moves through their gates) plummeted to nearly 60%. With reduced flow, equipment could not be returned or reused, compounding the problem. By the end of February, extended evening hours and weekend gates were added to clean up the mess. Still, not all containers were evacuated within their allotted free time. Terminals stuck it to cargo owners by assessing demurrage charges, even though it was the terminals themselves that could not handle the proper flow.

How does this make any sense?
Terminal operators, like carriers and freight forwarders, are required to file charges for international cargo in tariffs with the Federal Maritime Commission (FMC). They are also compelled to by law to invoice for those charges. So, even though one could argue that the new congestion surcharges are unfair, they are perfectly legal. The FMC has heard numerous complaints on this subject, and is reportedly investigating the issue’s many complexities.

What’s next?
Ocean carriers have learned from past experience that disruptions to the normal flow of cargo through their terminals wreaks havoc on earnings. In a system where time is money, and equipment turn time is a cost factor, carriers have become adept at offsetting additional expenses through creative methods, such as the congestion surcharge. While the concept may not be a new one, how and when it will applied is hazy at best.

The language that is being used by carriers as they announce the new surcharges is deliberately vague and lacking in detail.

For example, “should any U.S. labor unrest (strike, lockout, work stoppage, work slow-down or other labor-related disruption) impact any U.S. port resulting in terminal congestion, [the carrier] will implement a congestion surcharge on all cargo originating from/destined to Asia ports.

Terms such as “work slowdown” and “other labor-related disruption” are never defined, allowing the carrier to apply these surcharges at their own discretion.

This language leaves cargo owners with many unanswered questions. How did carriers arrive at the surcharge amounts? What do the charges cover? Do they apply per day or per event? According to carriers, the congestion surcharge is filed as a catch-all fee to cover some but not all of the related costs that might be incurred should there be terminal congestion.

It is clear that carriers are serious about applying these charges to cargo owners. As a contingency plan, you might consider having cargo arrive at U.S. terminals before the charges go into effect or after the highest risk period (mid-July).

Mohawk Global Logistics will continue to work with carriers through this period to restrict the use of the congestion surcharge whenever possible. We will also work with you through the high risk period to suggest the best routing alternatives for your freight. Please contact your Mohawk customer service representative for more information.

Rich Roche is Vice President, International Transportation for Mohawk Global Logistics. Read more about Rich here.

 

 

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