Audiovox Electronics’ Pat Moffett is willing to stand behind his commitment to deliver cargo to his carrier in time to fill the slot he’s reserved. Maersk Line and APL likewise are committed to moving that cargo on the ship on which it’s been booked.
The difference today from a year ago, when shippers complained loudly enough about “rolling” of cargo to get the Federal Maritime Commission to study carrier practices, is that the commitment now goes beyond mere words: Both sides are willing to demonstrate it by paying for their transgressions.
For carriers, that means paying a fee to shippers if they don’t load a container on the vessel it was booked on. For shippers, that means delivering the cargo they promise.
“If you put a little value behind the commitment, it’s good incentive for a carrier not to roll a container, and for a shipper to make sure he gets his container there and completes his booking,” said Moffett, vice president of logistics for Audiovox. “It’s a reason for both sides to get going.”
Audiovox has encountered no problems with rolled containers this year, but it did last year, because of what Moffett called the “extenuating circumstances” of unforeseen demand.
The rolling-vs.-overbooking debate was one of the most contentious among carriers and shippers during the stronger-than-expected 2010 recovery and illustrates the complexities of forecasting supply and demand, especially in a hesitant recovery of seemingly monthly ups and downs.
The contentiousness spurred the FMC to hold a series of meetings with shippers and carriers last summer as part of a high-profile fact-finding study into the supply-demand conundrum.
Now, Maersk Line, which has been conducting pilot tests of reciprocal penalties for missed container commitments, plans to roll out a system of what it calls “loading protection fees” on select trade lanes in the third quarter and all trade lanes by next summer.
“It’s a quid pro quo,” said John Nielsen, Maersk Line’s senior director of charge management, network and product. “We will roll it out in a rifle-shot manner in the trades and geographies that are ready for it, and not just on a big bang rollout.”
The program is likely to be implemented first in trades “where the cargo volumes are very strong and where we have huge problems with no-shows,” he said.
The no-show fee would be $100 per dry container and $500 per reefer container. Maersk would allow a grace period for changes or cancellations by the shipper until seven days before the booked departure from the first load port.
“From then on, changes to a booking start to hurt our planning,” Nielsen said. “Therefore, we will apply a charge on all reductions of bookings or moves or cancellations or no-shows.”
For Maersk’s part, if the carrier fails to load a booked container, it will pay the loading protection fee to a shipper. “If we have given you a booking confirmation, and for some reason we cannot supply a container which prevents you from loading on that vessel or if we have to move your container to another vessel, or if we simply roll you, then we will compensate you in exactly the same amount,” Nielsen said.
Maersk is conducting pilot tests of the new system in Sweden, Germany and a couple of Latin American origins. It ran a pilot last year on exports of waste products from the U.S. Pacific Northwest to Asia and has been conducting a pilot for reefer containers only on its TP-9 service from Seattle and Vancouver, British Columbia, to Asia since March 14.
“We see positive behavioral changes in locations where the concept has been piloted,” Nielsen said.
APL, the world’s seventh-largest container ship operator, has included reciprocal penalties for missed commitments in some of its trans-Pacific contracts for the 2011-12 season. “We wrote service guarantees into the contract where we have a certain on-time performance guarantee and a certain space allotment by customers,” said Bob Sappio, APL’s vice president of pan-American trades. “If a customer fails to meet that space allotment within a window of tolerance, it will pay a penalty, and, likewise, if we fail to meet the service guarantee or the space allotment, we would be required to pay the customer a penalty. The penalty is several hundred dollars per dry container.”
“It wasn’t in my contract, but it certainly will be from now on, especially on my Malaysia cargo, where I need that transit time,” Moffett said. Audiovox imports electronics components from Malaysia for the audio headsets it builds into headrests for automobiles at its new plant in Orlando, Fla. APL carries containers of headsets for the plant from Malaysia to the West Coast and then by landbridge to Indianapolis for trucking to the Orlando plant.
Sappio said the inclusion of reciprocal penalties for missed commitments in this year’s trans-Pacific contracts marks the beginning of writing service and service guarantees into a contract so they become more than just an agreement on rates and volume.
“It requires more effort on behalf of the carrier and the shipper,” he said, “but I think that’s what OSRA (the Ocean Shipping Reform Act) envisioned, that the contracts would mature into a more sophisticated level, and we’re seeing some of that this year.”
Contact Peter T. Leach at email@example.com.