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Getting to grips with rates and surcharges We live in troubled times


economically. Growth of any significant amount still appears to elude most economies. The financial and economic crisis which continues to plague Europe is dragging others down, such is the size and importance of the European market to the global economy. The US economy is faltering also, according to recent figures and forecasts. Even mighty China appears to be faltering, and India is struggling even to keep the power on. So why are shipping lines


attempting further rate increases? Many shippers would prefer


shipping rates to be far more influenced by service performance. Nevertheless, we are frequently told by the liner operators that shipping remains a commodity. But


lines are this summer in the northern hemisphere is questionable in the light of economic data showing falling demand. The situation is complicated by


By Andrew Traill


commodity prices should therefore reflect market dynamics - the most important of which is supply and demand. Does it make sense to see new rate increases being announced? August GRIs are being attempted


on the Asia-Europe and the Transpacific trades. The lines have been largely successful in previous implementations this year; some


have been eroded but the net effect has been a reasonably stable rate at what is suggested is a profitable level for most lines. Many are also attempting peak season surcharges, supposedly to cover the extra costs incurred when larger volumes require extra equipment, more space, more labour, more fuel, and possibly more port costs. But just how busy the


The electric avenue


It’s easy to be cynical and dismiss it as yet another piece of Government ‘spin’ but the announcement of major investments on rail electrification in July must be seen as a good thing, even if it is currently a statement of intent than a firm commitment. The ‘Electric Spine’ route from Southampton to the Midlands and North would make it possible to switch container freight trains from diesel to electric, which will not only increase capacity but reduce emissions too. And emissions reduction is


something that shippers take really seriously these days; it’s increasingly being written into their policies and environmental statements, and becoming a key factor in their tenders. Equally welcome is the plan


to at last do something about the notorious A14 road between Felixstowe and the Midlands. Some element of the road haulage industry have baulked at the plans to make the improved route a toll road, which is understandable if you’re already paying the Government a king’s ransom in fuel duty and tax. But tolls do have the effect of concentrating peoples’ minds on the supply chain; if you don’t want to pay them, are there other ways of managing the supply chain – perhaps by switching modes of transport, using a more local port or filling trucks more efficiently? Perhaps there are ways to alter the delivery schedules which avoid both the toll charges and the costs of


road congestion. The Green Freight Europe


(www.greenfreighteurope.eu) initiative is of course an excellent starting point for this, in helping firms make informed decisions based


on simple-to-understand


data about just what their current emissions actually are, and to know by how much certain technologies and practices can reduce those emissions further. With the Programme now seeking facilities for cheaper finance and possibly even insurance to help reduce the costs of emission-reducing investments,


many companies,


shippers, logistics service providers and carriers are joining this pan- European Programme.


Fall-out from mid-Atlantic fire


It’s sad to report yet another fatal mishap involving a container ship, in this case the MSC Flaminia, which caught fire en route from Charleston to Antwerp and Felixstowe in mid-July. The loss of two seamen’s lives is the worst aspect of the affair, but there are also important implications from an insurance and operational point of view. With a general average having


been declared, shippers who took out adequate insurance will be relieved that they did so; those who didn’t have got something to worry about. With the investigation barely


under way (experts were unable to board the still smouldering


vessel until about 7 August) It


would be wrong to speculate at this stage on the causes. However it is clear that the fire did start in the cargo area and if it does eventually turn out that dangerous goods were mis-declared, it could lead to more pressure for formal legislation or more punitive action by the International Maritime Organisation compelling shippers to provide adequate information on the cargoes they are shipping. Already, there is pressure on shippers and the industry to get to grips with incorrect container weight declarations - already suggested as a possible factor, though by no means the only one, in the loss of another MSC ship, the


Napoli, off the Devon coast in 2007 - and the two issues may ultimately go hand in hand. Most shippers, I believe


would prefer a voluntary code of conduct for cargo declaration, and more education on the safest and best practices for packing freight securely into containers, rather than yet more rules and regulations which tend to penalise the good shippers along with the bad. Legislation may also lead to further surcharges on shippers if it requires increased measures by the ports or shipping lines. But pressure to legislate may become overwhelming, especially if this latest incident turns out to be the fault of a shipper.


capacity management. The shipping lines do appear to have become much better at this. Lines have trimmed their services, skipped ports, and increased the number of idle ships. This can keep the price of shipping up, and if it is not coordinated with competing lines, then it is a genuine and fair way of managing profitability. Of course, it does little for the shippers that rely on those services, have planned for them and have customers waiting for the goods to arrive. But we do need a profitable liner shipping sector or else we will see fewer ships and choice of services and operators. It is not surprising that shippers


look on in despair at the situation and we all struggle to know what the trend in rates will be, which services are stable and reliable and which are not. Planning remains a complete nightmare under


such


circumstances. Shippers want stability of services;


lines want profitability. But, the shipping lines’ needs are outweighing those of shippers.


But we can have it both ways. Rates


linked to performance are the most obvious way forward: lines get paid according to achievement of pre- agreed performance; the rates are less affected by supply and demand. Add the use of derivatives and index linked contracts, and stability with profitability is achieved. However in the face of continued opposition to this model or a reluctance to change practice and behaviour, among the lines and indeed some shippers who like to play the markets, we need another approach. That approach is to have


greater transparency of the factors affecting rates and services, to allow better predictions of what is going to happen and when. If shippers knew at what level vessel utilisation needed to fall on a given trade lane to trigger service reductions, removing ships, services and port calls, this might help them prepare alternative strategies. Just as many shippers agree in advance with the lines about fuel surcharge trigger points, would it not be helpful also to set utilisation levels that trigger peak season surcharges? Such transparency would remove the sense of bewilderment among


shippers when surcharges and GRIs are introduced. Liner shipping is not the only


freight sector which could do with greater transparency. The air freight market is also dogged by inexplicable surcharges. Why have security charges not changed since they were introduced? Why have fuel surcharges not changed in line with the price of oil? In both shipping and air


freight there are few carriers who are willing to discuss their policies towards setting rates and surcharges; they believe that open discussion of such matters could be construed as sending deliberate signals to competitors to follow suit and might be in breach of competition rules. This is not about setting the


rate and surcharge levels; that is something only for the carrier and their customers. Transparency is about better understanding what triggers changes to rates and surcharges and by what percentage. Yes, it will be complex, but surely, this has to be an improvement on the present volatile, unpredictable and oſten incomprehensible situation we have at present?


Brussels steps into TNT takeover


It’s not too surprising that the European Commission has decided to call in the proposed takeover of TNT Express by UPS for closer scrutiny. Clearly, Brussels has been influenced by lobbying from shippers and competitors to have an in-depth review of the planned merger and its implications for competition in the parcels sector. It is not publicly known how


long the Commission will spend on its deliberations, nor what the outcome will be, but I suspect there is a good chance that it will not accept the merger in its entirety. (There are precedents, notably Maersk’s takeover of P&O Nedlloyd which led to the ports and ferries part of that business going instead to DP World.) It’s hard to know at this stage


which bits of TNT might be sold separately (or retained by the existing owners). Shippers have perhaps mixed feelings. On the one hand, it’s good that competition in the express parcels market is being taken seriously. On the other, there is a risk that, if TNT is broken up too much, some of the efficiency gains from the takeover might end up being lost or diluted.


Air security – an early warning


Many issues still need to be resolved over airfreight security processes and their independent verification in third countries. Without being alarmist, there is the prospect of queues building up as consignments from uncertified shippers and forwarders wait


to pass through


whatever scanning facilities are available. It’s encouraging that the US and EU


have signed agreements to mutually recognise each other’s security regimes but similar agreements are needed elsewhere, preferably before the new EU regulations come into force next Spring. With many countries still lacking


recognised, properly-policed security regimes, the EU is inevitably putting the onus on the airlines to ensure that any airfreight shipments are properly screened, but there is a concern among some in the industry as to what happens further back down the logistics chain. Airlines are not going to lay themselves open to charges of failing to ensure the safety of their aircraft and passengers. Inevitably, many forwarders and shippers are not going to bother with certification unless they have, for example, very large flows of traffic on specific trade lanes to Europe. Yes, we are well aware that there have been dire predictions


of chaos over new security rules and screening requirements in the past that have fortunately come to nothing (apart from adding to the costs within the supply chain from initial implementation of security procedures and systems, and extra security charges for the freight forwarders and shippers who pass freight on to be screened) but it remains an important one to watch. And the prospect of adding further costs and potential delays to air freight entering Europe from third countries will do little to calm the nerves of an industry already struggling in the current economic climate.


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