SURCHARGES & FORECAST CHANGES

Following the events in the Red Sea and the announcement of the suspension of navigation in the area by major shipping companies, disruptions are multiplying in the entire logistics industry.

In a matter of days, a significant portion of the usual traffic is being diverted towards the Cape of Good Hope.

Major companies are taking extreme measures by piling up surcharges intended to offset additional costs and justify “at-risk” operations.

In addition to the usual PSS (Peak Season Surcharge) ahead of the Chinese New Year, companies are imposing ECS (Emergency Surcharges), ERC (Emergency Fee), and other charges. Maersk, for example, has imposed a TDS (Transit Disruption Surcharge) while other steamship lines are imposing surcharges of several hundred dollars per container, some of which are applicable without any prior notice.

The question arises as to whether it is reasonable for companies to take so many measures or if it is time to restore profitability that has been declining for several months.

Egypt, as collateral damage, has been cut-off from its second source of income. Currently, the freight for a container is approximately $500,000.

All routes have been affected by these surcharges, whether routed through the Suez or Panama.

The long-term consequences on freight rates and logistics operations remain uncertain.

Regarding air transport, freight rates could also react to urgent shipment demands, especially for high-value and/or time-sensitive goods. Warehousing has also been impacted.

WHAT IS GENERAL AVERAGE?

General average is a global maritime industry loss mitigation convention whereby ship owners and cargo interests proportionately contribute to fully reimburse those in the venture who sustained loss or damage in preventing the total loss of a vessel, crew and its cargo.

It requires 4 simultaneous conditions:

1. Sacrifice or expenditure
2. Decided voluntarily
3. Consent to avoid danger
4. Decided for the common good of the vessel and cargo

In this case, all the shippers having cargo on the ship must participate in the expenses, in proportion to the values saved, after a decision of a claim adjuster who will fix the contribution rate of each party.

EMERGENCY AND GLOBAL DISORGANIZATION

As introduced since our 2020 Newsletters, the economic circumstances in global maritime transport remains uncertain and the surge in freight rates in containerized transport sector (multiplied by 10 in the past 18 months) has long been established.

Generally speaking, the weight of demand in the face of increasingly restricted supply causes unavailability of equipment and consequently delays.

Surcharges being imposed on cargo are constantly increasing. However some steamship lines, like CMA CGM and Hapag Lloyd, have announced a first phase freight rate freeze until February 2022 for CMA , with no termination date for Hapag.

Logistics remain severely affected and terminal congestion leads to additional costs.

Due to the unprecedented shortage in drivers, road transport services are also impacted.

It is important to note that these setbacks affect both imports and exports, penalizing international trade through an increase in general costs.

In order to weigh up against the diktat of shipping companies, our professional organization is trying to come together to rebalance trade relations and defend the best interests of their members.