If I book A FLIGHT with an airline and then don’t show up, I forfeit the fare. If I book a flight and then have to change it later, I pay a fee. But if I am a shipper and book passage for a container with a carrier and then don’t provide the actual shipment, there are no consequences whatsoever.
As a shipper, I know I won’t be penalized, so, figuring space overall may be a bit tight, I’d better protect myself by booking my 50 containers with five carriers leaving Shanghai for Los Angeles. I may have just booked 250 containers worth of space, but I still only have 50 containers to actually ship. This means, of course, most of the carriers I book with will see no actual cargo show up by the cutoff time.
But that doesn’t mean the carrier didn’t act on my booking. Vessel allocations were calculated, and the carrier prepared to receive my cargo. But it would never arrive. No bill of lading would be issued. And no regulations would have been violated.
This seems wrong. As a shipper, or just as likely an NVOCC, ideally I should not have been allowed to make a booking and then not deliver without consequences. And the carrier, of course, should not have to accept phantom bookings. But it happens every day, and it’s one of the more sloppy practices that prevail in this industry.
Carriers have been unwilling to force penalties on shippers, fearing other lines won’t follow and potentially good customers will take their business elsewhere. And shippers, facing no penalties, feel free to book with abandon, especially in periods when space is tight, thus maximizing the chances they’ll actually get their containers on a ship.
NVOCCs are notoriously booking-happy because it’s their cargo that gets left behind most frequently. The situation is madness, yet it’s been going on for years and shows no signs of improving. Indeed, it likely was exacerbated in recent months when space out of Asia was especially tight.
But this is a reality in all export trades, regardless of origin. In U.S. export trades, it’s long been a reality because of the lack of penalties, combined with shippers’ knowledge that vessels loaded primarily with heavy scrap metal, paint or fertilizer will reach maximum capacity quickly, and that carriers may restrict loadings in favor of their own empty containers that need to repositioned back to Asia.
But the result is the same: chaos. Whereas an airline might overbook by a few seats, as they are allowed to do, some carrier executives say they have accepted bookings amounting to 140 percent of the capacity of the ship, knowing much of the cargo booked won’t actually show up. You have to wonder, how can anyone run a business that way?
But can the practice be reformed? We’ll soon get a chance to find out. Maersk Line, a major export carrier, says it will charge a $10-per-container fee for no-show cargo on certain U.S. export sailings from Los Angeles and Oakland. It’s “a shot over the bow saying there is way too much overbooking, double or triple booking going on in the export trades,” one former carrier executive said.
Reflecting how delicate an issue this is, a Maersk representative described the fee as “a very small micro-project” — the fee applies to only one of Maersk’s strings and even then to only certain commodities — and the company simultaneously announced a $10 rebate on any box that gets rolled.
The pilot program comes as carrier services, particularly on the U.S. exports side, are under a microscope in Washington. Entrenched practices in any industry, as bad as they may be, are not easily changed, and this is no exception.
But it’s possible. As the world’s largest carrier, Maersk can play a leadership role on an issue like this, and other carriers may follow if they see an opening to do so and to protect market share. If they do, progress will be made.
It’s not as if problems in this industry can’t be solved, but when competitive issues are at stake, the odds are long. At a very basic level, the vigorous price competition among carriers that takes hold whenever supply exceeds demand is evidence of the highly competitive nature of the industry.
It wasn’t easy, for example, for port authorities and terminals to persuade carriers to restrict their customers’ free storage time at terminals to alleviate congestion. Although that situation is different, it got done, and excess dwell time of containers on terminal grounds is less of a problem today, even given reduced volumes because of the recession.
Perhaps that experience can rub off here.
Peter Tirschwell is senior vice president for strategy at UBM Global Trade. Contact him at firstname.lastname@example.org.