Ocean carriers say plans to impose congestion surcharges if there’s an International Longshoremen’s Association work stoppage are precautionary steps and that the charges could be adjusted downward, if they’re imposed at all.
Michael White, president, North America, at Maersk Line, said Maersk doesn’t see the increases as a way to increase profit. He said the company filed the required 30-day notice of the surcharges merely to ensure it wouldn’t be stuck with unrecoverable costs if East and Gulf Coast ports are closed when the ILA contract expires at the end of the month.
“It’s something that we hope doesn’t come to pass, but to be prudent, we had to file these in advance, and we’ll adjust them as appropriate,” White said during a panel discussion at the annual South Carolina International Trade Conference.
Robert Sappio, a longtime APL executive who this month was named president and CEO of Rickmers America, noted that several carrier filings for surcharges of $1,000 per container or more allow the charges to be lowered.
He said a port shutdown would hit carriers with increased costs for ship charters and other expenses.
“It’s a fact that carriers’ expenses, just like shippers’ expenses, go up when there is that kind of disruption,” he said.
Klaus Schnede, manager, marine, air and facilities procurement, at Eastman Chemical, said the filed surcharges seem excessive. He said his company is paying $2,000 per container extra to reroute some cargo to the West Coast to meet shipper demands.
“To get hit with another $1,000 on top of that doesn’t seem fair to me,” he said. “The carriers will have some more expense, but I think it is an overreaction.”
White said carriers can’t risk being unable to recover costs from congestion likely to accompany a port shutdown. He said that since 2005, container lines’ overall earnings before taxes and interest have averaged only a 2 percent margin, well below their 8 to 10 percent cost of capital. “That’s not sustainable,” he said.
He said that from what he has seen, most shippers that have implemented contingency plans have opted to move cargo early instead of diverting shipments to other coasts. He said early stocking may be at least some of the reason for recent increases in retail inventory-sales ratios.
Terry Bunch, director of logistics and customer service at Rayonier, said geography and cost make it uneconomic for some shipments to be diverted to other coasts, leaving shippers with little choice but to await developments and hope a work stoppage can be avoided or is short-lived. “From what I’ve seen, it’s more of a timing issue than a diversion issue,” he said.
Greg Rake, senior vice president at Pier 1 Imports, said the threatened strike puts shippers in an uncomfortable position. “If you divert to the West Coast and transload, it costs more money. If there’s a work stoppage and you can’t get your inventory in, it costs more money. Who loses is the consumer in the United States,” he said.