Source: https://www.lloydslistaustralia.com.au/lla/blogs/paul-zalai/INDUSTRY-OPINION-Shippers-push-back-on-%E2%80%98questionable%E2%80%99-surcharges-552515.html
INDUSTRY OPINION:
Travis Brooks-Garrett* - Melbournw
March 27 2017 - 14:15:00
IN THE words of the great Bob Dylan, the times they are a changin'. We have been told ad nauseam that this is a golden era for Australian shippers, with zero and negative freight for some of our larger exporters and with shipping lines fiercely competing on price and swamping us with capacity. But is that the real state of play? Or are surcharges obscuring the real commercials?
In a February 2003 Fairplay article, then CEO of Hutchison Ports, John Merdith conceded "shipping lines don't deny there is a built-in profit margin on THC [Terminal Handling Charges]; this gives them a slight cushion if freight rates start heading towards the bottom…" Some shippers now have concerns that this "slight cushion", not just on THC but on a number of surcharges, has festered into something else and while shippers can negotiate freight rates, they have limited power in pushing back on surcharges.
Make no mistake, we want shipping lines to be profitable. But shippers also need transparency and rate security. When surcharges are forced onto shippers non-negotiably, when the margins inside these charges blow out and without consultation or negotiation, when peak season charges are applied when empties are being repatriated, then shippers have every right to start asking questions.
Around the world, a resistance is brewing- demanding more transparency and more security in rates and charges. APSA is not advocating for any of these models but it is clear that some countries, particularly in Asia, are rejecting the status quo and choosing to pursue smarter and better models.
Sri Lanka is leading the way with section 10 of the Licensing of Shipping Agents, Freight Forwarders Non-Vessel Operating Common Carriers and Container Operators Act, No. 10 of 1972, published in The Gazette of the Democratic Socialist Republic of Sri Lanka (No. 1842/16), introduced in early 2014, effectively banning surcharges, requiring an "all in rate", and championing the philosophy that the contracted fee should be the fee. No below the line charges. Lines quote one rate and shippers/forwarders can choose their preferred shipping line on that basis. If the cost environment changes, then the lines can absorb the cost or pass it on in their next quote. The International Chamber of Shipping has opposed this model outright, while the Global Shippers Forum, of which APSA is Australia's representative, has applauded the move. I recently met with Sean Van Dort, Head of the Sri Lanka Shippers Council, who is actively encouraging other countries to adopt the same model.
In Vietnam, a decree now exists that forces all lines to publicise all charges, including surcharges. The move was driven by the Vietnam Textile and Garments Association, which accounted for 90% of boxes in importer and exported from that country. Talk about accountability.
The Americans have their own way of doings things - serving subpoenas while storming the bi-annual Box Club meeting to a room full of shipping line executives, we presume on suspicion of collusion. Maersk shares fell 6% and Hapag Lloyd shares fell 7% in the wake of the news.
The former executive chairman of APSA, Robert Coode, has always feared the pendulum could "swing the other way", after years of attractive conditions for shippers. Some analysts have even predicted a capacity recession in our region, which makes these issues even more critical. APSA will be watching the market closely, particularly the proliferation of new surcharges during peak seasons.
One shipping line has asked us to not forget that freight forwarders themselves also apply surcharges and some forwarders can be unscrupulous in those practices. It's a fair point and warrants mention. The difference is that educated shippers have a much better ability to negotiate surcharges with forwarders without the "no payment, no release" mentality. Shippers have more power over the application of forwarder surcharges. But perhaps it's an area where all service providers could be held more accountable.
It's a changing world and, in our opinion, take it or leave it non-negotiable charges have no place quayside or landside. Transparency and rate security means something to shippers. Perhaps new models need to be explored, either through regulation or smarter commercial practices.
* Travis Brooks-Garrett is a partner at Freight & Trade Alliance and Australian Peak Shippers Association Secretariat