Ocean Carriers Walking a Tightrope

December 5, 2014
By Rich Roche

U.S. shippers will soon bear the brunt of unprecedented port congestion, as ocean carriers and other transportation providers attempt to recoup costs.

Inside this client alert

  • Carriers withdraw congestion surcharge a second time
  • Watch for a possible mid-December GRI
  • Shippers should be prepared for demurrage, detention charges

Looking back on 2014 we have seen unprecedented problems with congestion, first at ports suffering through winter storms on the U.S. East Coast, then by railroads reeling from the polar vortex in the heartland, and more recently on the West Coast, where containers were piling up from the first mega-ship calls.

One thing that is abundantly clear about all these problems is how fragile our transportation infrastructure is today. We are operating, in the best of times, at or near capacity. It is not just vessel capacity that is maxed out, but also terminal, trucker, rail, and chassis capacity. Add a winter storm, heated labor contract negotiations, and vessel bunching to the mix and the entire industry can be thrown off-course for weeks or months on end.

Congestion surcharge withdrawn a second time

Southern California ports continue to struggle with overwhelming congestion, leaving carriers grasping for strategies to recoup their costs. The G6 vessel-sharing consortium has announced they will be omitting some vessel calls at the port of Los Angeles/Long Beach for the next 4 weeks in hopes of curtailing further congestion and allowing time for the backlog to clear. Other vessels have been forced to anchor while awaiting a berth. Carriers attempted filing a congestion surcharge twice in the last month but have withdrawn it for a second time amidst pressure from industry groups and the Federal Maritime Commission. They are now attempting to replace those fees with a rare mid-December General Rate Increase (GRI) of $1,000, although some analysts are skeptical that this charge will stick.

Demurrage and detention charges to become the new reality for many shippers.

Transportation costs are increasing at a time when the U.S. economy can least afford it. Truckers are looking for higher rates and more compensation for their downtime while waiting in line to retrieve or drop off containers at the ports. Terminals are looking to collect demurrage charges for containers left on their docks beyond free days allotted─even when the terminals themselves cannot handle all containers in a timely fashion. Ocean carriers are also charging detention when containers aren’t returned on time. Mohawk will continue to mitigate the situation on behalf of our clients. While we will front the cost for these charges on your behalf, we must then pass them along to you. These charges are, unfortunately, the new reality of importing and exporting.

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