Thursday, July 15, 2021

Worldwide Row Over Container Freight Costs Continues to Grow

Talk Turns to Legal Action on Demurrage and Detention Charges
Shipping News Feature

WORLDWIDE – As tempers rise amongst the shipping community over the seemingly ever increasing costs of container demurrage and detention charges, a subject we have returned to numerous times, comes a tongue lashing from the International Federation of Freight Forwarders Associations (FIATA) and even rumbles of legal redress against the shipping companies with allegations of cartel action regarding freight rates.

Recognizing that these are exceptional times for all maritime supply chain stakeholders, FIATA says it regrets that demurrage and detention charges continue to reach record highs. FIATA calls on all maritime supply chain actors to take cognizance of, and apply, the valuable principles developed by the Federal Maritime Commission (FMC). In that vein, FIATA also invites its members to raise awareness of the crucial information it has developed on this subject and to leverage them in their discussions at the national level.

Disproportionately high and opaque charges hinder the ability for all stakeholders to operate on a level playing field, and this ultimately impacts the fluidity of international trade. FIATA reminds all maritime supply chain stakeholders of the importance of ensuring that policies protect shippers of all sizes, and that care is taken to ensure that SME shippers are not disadvantaged.

Schedule reliability in terms of transit and frequency are now at an all-time low resulting in a total absence of predictability, whilst freight rates are at record high levels. Freight forwarders and their customers, many of whom are small and medium-sized enterprises (SMEs), are particularly hard hit by these rocketing prices, being increasingly subjected to spot contracts with high price volatility as compared to longer-term contracts held by beneficial cargo owners (BCOs).

FIATA continues to encourage all stakeholders to work together to develop strengthened and constructive dialogue and exchange of information. It says the entire supply chain, as well as economies at large, would benefit from a less opaque system with transparent, consistent and reasonable demurrage and detention practices.

We recently published reports of a 104% increase in demurrage and detention fees in the past 12 months, the blame principally laid at the door of the pandemic. Now these demurrage and detention charges have also been addressed by US President Joe Biden in a White House Executive Order signed on Friday, 9 July 2021.

The order, aimed at promoting competitive markets across the US economy, encourages the Federal Maritime Commission (FMC) to ensure vigorous enforcement against exorbitant demurrage and detention charges. The order comes amid the recent signature of an agreement between the FMC and the US Department of Justice for greater cooperation in assessing antitrust concerns in the maritime sector.

Meanwhile in the UK e-tailer Buy it Direct, which deals mainly in white goods, electronics and furniture is calling for an investigation by the Competition and Markets Authority into the ‘cartel’ run among international shipping lines with regard to freight rates. Nick Glynne, CEO observed:

“Demand for consumer goods has soared over the past 18 months with people unable to spend their money on travel and other activities, yet there has been a growing shortage of containers and shipping availability in that time. The self-perpetuating cycle has gotten out of control. Factories in China and the Far East don’t have any warehousing capacity, meaning they only produce what they can ship immediately.

This, coupled with the reduced capacity in containers and ships, which are controlled by a small handful of global freight companies, has increased the cost of a container from circa £1,800 pre-Covid to more than £12,600 now. Consequently the freight cost, a key part of a product’s overall price, has increased enormously. For example, where the freight element for a single washing machine was £10 around 12 months ago, it is now more than £70 per item, cutting margins and pushing the price of products up for everyone in the supply chain, including the end consumer.

“As a result, retailers in the UK are left needing to decide whether to continue importing goods and hoping they can sell them at this higher price, or holding off and waiting for the shipping crisis to subside. Either way, this will mean that the prices of some large consumer goods will inevitably go up before the end of the year, while others will be increasingly hard to get hold of.

“It’s hard to avoid reaching the conclusion that the international shipping companies at the centre of this have deliberately reduced capacity over the past 12 months to capitalise on the surge in demand. There are solutions available to the lines but it is clearly more profitable for them to fuel the scarcity and make greater profits on their current fleet.

“A quick look at the big five shipping companies' share prices will tell you all you need to know about the problem, and should be an urgent matter for the Competition and Markets Authority. Otherwise, we’ll be in a position for the foreseeable where goods are not being made and there’s no guarantee on when products will arrive. This is a problem for all retailers and other importers of large goods, and one that’s only going to get worse if it isn’t addressed.”