The shutdown of West Coast ports last month has created tremendous congestion and additional costs for shipping companies. In response, many carriers have been announcing new surcharges on shipments moving through West Coast ports, or extending seasonal surcharges to help defray those additional costs.
The Federal Maritime Commission is cautioning carriers that shippers have to be given 30 days notice if surcharges are going to be imposed.
Bryant L. VanBrakle, secretary of the Federal Maritime Commission, said he has seen queries from 10 to 12 shippers asking about the legality of surcharges that have been proposed or have already been assessed by carriers.
"Anytime there is a price increase, somebody starts asking why," VanBrakle said. In response to those queries, the FMC issued a notice at the end of October reminding carriers that the Shipping Act of 1984, as well as its rules on tariffs, "generally prohibit any change in an existing rate that results in an increased cost to the shipper from becoming effective earlier than 30 calendar days after publication."
VanBrakle said the FMC would prosecute if it "became aware of a carrier who was assessing or collecting a surcharge without so providing in an applicable tariff or service contract."
He added that if a shipper has a service contract with a carrier and there is some ambiguity in the contract as to whether a new surcharge can be applied, "that is something a shipper should take up with their counsel."
"If your service contract has a clause that says it is governed by the carrier's tariffs then, yes, all the carrier has to do is add the surcharge to his tariff on 30-days notice and it automatically applies to the service contracts. That is unless the contract is amended to say that this congestion surcharge does not apply," said James E. Devine Jr., president of Distribution Publications Inc., an Oakland, Calif., publisher of ocean and intermodal freight tariffs.
"You will see some contracts that have some sort of a clause that say these are the rates and no additional surcharges will apply no matter what is filed in a carrier's tariff," Devine added. "But that is pretty unfavorable to the ocean carrier, and you won't see many contracts like that."
There is no mystery why carriers would want to impose surcharges in a situation such as this. Last week, more than a month after employers decided to close West Coast terminals in the face of dockworker slowdowns, ships outside the ports of Los Angeles and Long Beach were still waiting more than a week for berths to discharge and load cargoes.
Intermodal facilities have become clogged as carriers strive to deal with the backlog of business and reposition containers that have been discharged in ports other than where they were originally destined. And with hundreds of thousands of additional containers still in the U.S., carriers are experiencing severe shortages of equipment in the Far East.
"Those are not costs we are having tomorrow or in 30 days. Those are costs that we are having today, and we have to cover those additional costs," said a spokesman for Hapag-Lloyd.
Hapag-Lloyd and CMA CGM asked the FMC under a "special permission procedure" to waive the 30-day waiting period and impose congestion surcharges on an expedited basis. "The surcharge is only for the additional costs we have and we have given the FMC a very detailed calculation basis so they could understand," said the Hapag-Lloyd spokesman. The FMC, however, turned down the requests by Hapag-Lloyd and CMA CGM last week.
"Of course we are disappointed," the spokesman said. Instead Hapag-Lloyd will impose the surcharge on Nov. 9 for European services and on Nov. 15 for trans-Pacific services, 30 days after it first gave notice of its plans. The spokesman said he was not sure how long the congestion surcharge will be in place.
"The situation on the West Coast is not settled at all," the spokesman added, with vessels in Los Angeles-Long Beach still waiting eight to 12 days for a berth.
"We have schedule interruption, we have to speed up ships, and that will continue for some time. But we will observe very closely and discontinue the moment that those additional costs are not coming in anymore," the spokesman said.
Hapag-Lloyd, like many other carriers, has declared force majeure, and in some cases has had ships fully discharge cargo at West Coast ports other than where their cargoes were originally destined. Some shippers and attorneys have questioned whether carriers have the right to continue to invoke force majeure, contending that the labor dispute on the West Coast was a management lockout, not a strike, or that the force majeure situation ended when the ports reopened.
"I'm a little surprised by it. Everybody knows why this lockout has happened," said the Hapag-Lloyd spokesman. "I do not find it very fair. There was a slowdown and a slowdown is the worst that can happen to a shipping company, and it was blatantly done and the lockout was the logical consequence, which was communicated and people knew."
Many carriers are planning to impose much higher fees than the relatively modest congestion surcharges of $110 to $180 per TEU that Hapag-Lloyd is planning to impose on shippers. They are "all over the place," Devine said. "Lots of wild and crazy things are happening."
He has seen surcharges as low as $100 per TEU from a South American carrier that calls at West Coast ports, but he said most carriers moving cargo to and from the Far East are imposing congestion surcharges of $500 for 20-foot containers and $1,000 for all other containers. Surcharges on less-than-containerload cargo of $25 per freight ton - 1,000 kilos or one cubic meter - are common.
One Far East carrier has announced a surcharge of $1,125 for a 20-foot container, $1,500 for a 40-foot container, $1,688 for a 40-foot high cube, and $50 per freight ton. Which company? "I'd rather not say," Devine said, "Especially because I would bet that on Nov. 11 when this is effective, they will cancel this, postpone it or reduce it. There has been a lot of that."
Furthermore, he suspects the carrier "might be trying to bundle port congestion with peak season or some other surcharge. There are lots of new surcharges that are appearing," he said, including inland freight and equipment-repositioning fees for cargo moving beyond the port. He has seen inland charges ranging from $140 to $720 per 40-foot container.
In addition, Devine said some carriers have extended the peak-season surcharge, originally slated to end anywhere from the end of September to the end of November or December.
Devine believes there is another reason why carriers may be imposing surcharges. Many carriers have invoked force majeure clauses in their tariffs and bills of lading that allow them to pass along any expenses associated with the force majeure event. But Devine said that under force majeure, carriers have to fully document what the expenses are in order to pass them along. "That's a very difficult thing to do with all the fixed costs of operating a regular liner service and all your container costs," he said.
By imposing a fixed surcharge, the carrier does not have to document those costs, but can impose a fee the carrier believes will allow it to recover its costs. But the carrier is subject to the 30-day notice requirement of the FMC.
"NVOCCs are in a different position, because for them, if an ocean carrier presents them with a $1,000 invoice for a surcharge, that really is an expense that has been imposed on them by a third party, and some of these NVOCCs are saying, 'Why can't we declare force majeure and pass on this surcharge that we have been hit with.' I don't doubt that some NVOCCs are going to pass this along if they can prove that is what the ocean carrier is charging," Devine said.
Will carriers get these charges?
"The export trade is so weak, it is hard to imagine that carriers are going to get this kind of money on exports," Devine said. But he said that inbound volumes are still strong.