Hapag-Lloyd ending forwarder compensation
Hapag-Lloyd said it will eliminate payment of commissions to freight forwarders on U.S. exports, effective April 1.
A note sent by the German carrier to forwarders on Tuesday said it was making the change “due to the current overall economic developments. It has become necessary for Hapag-Lloyd to further streamline its process of cargo bookings and providing various services to its customers.”
Klaus Heims, a spokesman at the company’s headquarters in Hamburg, said Wednesday that managing forwarding agent commissions “is a significant administrative burden on Hapag-Lloyd, which entails additional costs/resources which could no longer be justified in the current overall economic downturn and the prevalent freight rates.”
He also said forwarder agent commissions would be eliminated in other trades, including exports from northern Europe.
Some forwarders said that other steamship lines are eliminating or reducing commissions, or are expected to eliminate commissions, at least on some trades. But American Shipper was unable to confirm those reports immediately.
Reaction to the announcement by different forwarders ran the gamut — from apathy, to resignation to anger.
An executive at one of the largest forwarders said that for his company, the Hapag-Lloyd announcement was largely a non-event. Most of the shipments that his company handles are as a non-vessel-operating common carrier, he explained, and Federal Maritime Commission rules prohibit NVOs from also collecting freight forwarding commissions (or “brokerage” as it is often called) that they handle as NVO. Instead, like most NVOs, most of its income is derived on the difference between the wholesale price it pays for freight and what it charges shippers, plus various fees.
But at the other end of the spectrum, an executive at a small forwarder that does not act as an NVO said, “this couldn’t come at a worse time,” explaining that her company’s fees were structured to reflect the compensation that it receives from steamship lines. Now the company would be forced to go back and renegotiate terms with customers in the midst of an economic downturn.
“This is happening pretty frequently,” said William S. App Jr., chief executive officer of J. W. Allen & Co. Inc. in Kenner, La. He said that 30 or 40 years ago, when common carriage prevailed and nearly every item moved at a tariff rate, such commissions — typically 1.25 percent of freight, but sometimes 2.5 percent — were one of the major income streams for forwarders.
Since the Shipping Act of 1984 and the rise of contract carriage, forwarders have had to rely more heavily on other fees for compensation.
“I think it is going to go away completely, there will be no more brokerage compensation for forwarders and ocean transportation intermediaries,” App said. “If we are going to be successful in the future we will have to look to other sources of revenue” either by acting as an NVO or by charging fees.
“The situation with forwarder compensation has always been carrier specific — some go up and some go down,” said Ed Greenberg, general counsel for the National Customs Brokers and Forwarders Association of America. If carriers are not acting collectively, he said there has been no legal barrier to their eliminating or reducing compensation.
But, he noted, forwarders may chose to ship cargo with other carriers.
“I think it reflects badly on the steamship lines — on their image of what the freight forwarder is,” said Jeffrey C. Coppersmith, president of Coppersmith Inc. in El Segundo.
“They are totally discounting the freight forwarder, saying we don’t care about you anymore, when we are doing their job for them and they are running on minimal staff,” saying that forwarders are now doing much of the documentation and administrative work that was formerly done by carriers.
“Now they are saying, 'that is great, you are doing everything and we are not going to compensate you at all.' It is getting to the point where people are picking sides and the carrier is not picking our side,” Coppersmith said.
One forwarding executive complained some carriers have also made it extremely difficult to collect commissions — changing the format in which requests for compensation must be submitted, delaying payment. “It’s almost like a bonus if it actually comes,” he said.
Coppersmith said if carriers eliminate compensation it might influence what carriers forwarders use or recommend to customers.
And he also said that he felt he had strong enough relationships with many of his customers that they would insist that carriers write compensation for forwarders into their confidential contracts. ' Chris Dupin