Global News Shippers balk at new ocean carrier surcharges levied amid global network strain

Ocean carriers are selectively imposing surcharges and higher freight rates due to ongoing issues at the Suez and Panama canals, with the cost burden falling hardest on small volume shippers, forwarders and cargo owners say.

And while shippers are using terms in their contracts to push back against those higher costs, carriers are also looking at ways to void those terms altogether.

Since major liner operators began rerouting container ships via southern Africa’s Cape of Good Hope in mid-December, spot container rates have, on average, doubled globally, according to Drewry. The world container index from the maritime consultancy has risen from $1,661 per FEU on Dec. 18 to $3,824 per FEU by Jan. 29.

The sudden and sharp rise in ocean freight costs comes as many shippers expected normalized demand and an overabundance of new ships entering the fleet to keep a lid on costs during 2024. The Federal Maritime Commission (FMC) plans to hold a hearing next week about the spate of surcharges now hitting US shippers.

Still, how wide an impact the current rate surge is having among shippers is unclear. Rate benchmarking firm Xeneta said last week that an online poll of approximately 700 respondents showed only 35% of them were seeing their container shipments accepted under their original terms with carriers. The remainder said they were “being pushed to FAK [freight-all-kinds] market” rates, which include added surcharges.

“We are seeing opportunistic behavior in the market, and so should there be — it’s a very competitive environment,” Xeneta Chief Analyst Peter Sand said in a statement about the poll.

Surcharges not in contract Three ocean forwarders and four beneficial cargo owners (BCOs) that spoke to the Journal of Commerce about their contract of carriage terms agreed that ocean carriers have been opportunistically targeting certain customers for higher rates and surcharges.

An US agent for a Hong Kong-based ocean freight consolidator said ocean carriers were pushing FAK rates on ocean forwarders of $5,000 per FEU to the US West Coast and $7,000 per FEU to the East Coast for cargo loading in the second half of January.

However, he said major BCOs with contract commitments that move upward of 60,000 FEUs annually are still paying their contracted rates of $1,250 per FEU to the West Coast and $2,350 per FEU to the East Coast.

“Only the non-vessel-operating common carrier [NVO] is taking the big increases,” the agent said. The source said other generous contract terms for higher-volume shippers, such as 15 days of free time for containers and chassis, also remain intact, indicating an unwillingness by ocean carriers to upset larger customers.

“They don’t want to rip off the big boys for short-term gain since the market is still soft,” the agent added. “But many small importers who use NVOCCs can’t ship anymore.”

A Massachusetts-based ocean forwarder said larger shippers had asked for more container slot allocations under their existing contracts before factories in China shut down for Lunar New Year that begins on Feb. 10. He said shippers are looking to delay cargo loading until after Lunar New Year because “it will be harder for the carrier to keep spot rates high.”

An import manager for a personal care and beauty goods importer that ships about 10,000 FEUs per year said that during previous supply-chain snarls, only two or three ocean carriers might approach her to pay surcharges. But since the unfolding of the Red Sea crisis, in addition to the drought impacting ship transits on the Panama Canal, six of the 10 carriers she works with have tried to levy surcharges.

The source has been able to push back against these emergency and operational surcharges because her contracts with ocean carriers only include monthly bunker price surcharges. She is waiting until after Lunar New Year to ship goods outside of her contracted volumes in anticipation that rates will decrease.

“I am only paying surcharges that were mutually agreed upon,” the source said. “You are not taking surcharges unless you are looking to urgently move freight.”

The logistics director for a Houston-based resins shipper that exports about 20,000 FEUs annually said that contract terms with an ocean carrier limit how much of a surcharge can be applied to a shipment. She said that her contracts outlined a Panama Canal surcharge of up to $50 per FEU, but ocean carriers have lately come asking for surcharges of $300 per FEU.

In the absence of an already agreed-to surcharge, the source said that ocean carriers might try to impose a wholly new surcharge to offset higher operational costs.

“The specific surcharge may not apply but maybe the client is subject to another charge and the carrier will then increase such charge to compensate,” she said. “This is, I believe, why we’ve seen so much peak season surcharges, general rate increases, etc. One way or the other the liners are trying to pass on increases.”

The ocean logistics manager for a Belgium-based chemicals distributor that moves about 40,000 FEUs said he’s only had to pay surcharges in a few instances due to the risk of having his cargo rolled. But the surcharges are not being widely applied, he added.

“We have protections in our contracts, and mostly carriers are honoring those protections,” he said. Emergency clauses invoked But ocean carriers are also looking for ways around those protections. In January, the FMC granted waivers to its 30-day notice period for adding new surcharges, allowing carriers to immediately add the charges due to the urgency of the Red Sea security situation.

Ocean carriers including Maersk, Hapag-Lloyd and CMA CGM are also using emergency clauses to say they cannot fulfill their contracts under current terms, requiring shippers to pay surcharges to move their freight.

Lori Fellmer, logistics manager for chemicals distributor BassTech International, said that it’s typical for ocean carriers to protect themselves against unforeseen cost increases. However, she says that these new surcharges are not clearly defined.

A bunker fuel surcharge, for example, will refer to a commodity price index or other third-party source to settle on the specific cost, Fellmer said. But many recent surcharges appear arbitrary without referencing any direct costs or other assessment benchmark, she said, adding that even peak season surcharges are being increasingly levied well outside of traditional peak season periods.

“It’s unclear under what circumstances they apply or what the criteria is,” Fellmer said. “All these new charges people are up in arms about because they are very excessive and seemingly unrelated to the exact thing. Ocean carriers are essentially saying, ‘the whole network is screwed up, so we have to charge everybody for everything.’”