Maersk taking the lead on surcharges
In a sit-down with American Shipper in March, Maersk Line Chief Executive Eivind Kolding said his company is embracing its role as a market leader.
As the biggest line in the world, Kolding said the company was happy to introduce new measures that it believes will drive the industry forward ' and that it's up to the rest of the chasing pack to decide whether to follow.
Slow steaming was Maersk's big 'pied piper' move in 2009, and now it has laid down another market for the suddenly robust 2010 ' a massive peak season surcharge between Asia and Europe that must have had shippers choking on their morning toast when they read about it.
The Danish line will assess a $600- to $1,200-per-box surcharge from July 15, primarily due to what it called unforeseen demand and a shortage of capacity and equipment.
The surcharges are reportedly the biggest ever sought by a line ' though Maersk defended the levels by saying it won't announce any further surcharges or rate increases during the peak season.
That's probably little comfort for shippers who have seen their rates skyrocket (particularly between Asia and Europe), but it shows that Maersk is determined to press its edge as a leader.
The line has also been at the forefront of trying to affect carrier and shipper behavior ' as reported by American Shipper, Maersk is charging shippers a no-show fee, but also offering shippers a rebate if their cargo gets rolled (For more, access www.AmericanShipper.com/links).
It looks like a case of putting its money where its mouth is. And making competitors do the same. So far, no one has followed suit on the no-show or rolled cargo penalties. But other carriers have been introducing peak season surcharges, though none as individually substantial as Maersk's.
The question now is how shippers react to the increases. If you had told carriers 12 months ago that they'd be overrun by cargo in June 2010, they'd have thought you were crazy. But the situation has presented a unique opportunity for them.
A lack of containers is hitting shippers hard and helping drive up rates for carriers (see story, pages 31-34).
By abstaining from ordering containers last year and early this year, the carriers have parlayed the downturn into a fast recovery. No one blamed them the last 18 months for cutting their bottom lines, but now those decisions are affecting the supply/demand equilibrium outside the usual vessel capacity-cargo volume balance.
One shippers' advocate, however, said the costs of equipment and capacity shortage can't be shoved down shippers' throats.
'Surely investment in equipment would be part of the normal business investments carriers would make, the costs of which would be incorporated into the freight rate, along with other costs such as offices, personnel and ships,' said Andrew Traill, who heads the U.K.-based Shippers' Voice Web site. 'If Maersk imposes this surcharge increase then others will follow suit. And of course, the (peak season surcharges) for most lines continue to increase, so I suspect it will be a vehicle for covering any costs of repositioning during the peak season.
'Try as I might, I cannot find a convincing answer as to why more hefty surcharges are required to add to the peak season surcharges, which themselves still baffle me. Think of it: a charge on your customers because you are getting more business, all paying the going rate which should be covering the cost of the service. Extra costs there may be, but all covered by the revenue, surely?'
With Maersk at the head of the pack on these increases, it will be tough for shippers to have any more say than they did on the issue of slow steaming.
A lack of sharing of demand forecast information between shippers and carriers cost the carriers big time last year, to the tune of billions of dollars worth of losses.
This year, that lack of fundamental communication is coming back to hurt shippers. Carriers were evidently caught unaware by the depth of the recovery this year, with Chinese ports handling a record number of containers in May. The volume even surpassed May 2008 totals.
If the 'carriers were caught unaware' phrase seems familiar, it's because it was used so often during the crisis in late 2008 and early 2009. At that time it described how carriers had brought in too much capacity and were caught unaware by the depth of recession.
The lesson here is that carriers shouldn't be caught unaware again. Shippers should be sharing as much forward demand information as they have available (with the requisite confidentiality clauses) so that carriers can't use the excuse anymore that they were 'caught unaware.'
Wouldn't that be a persuasive argument for shippers to make if carriers continued to assess peak season surcharges?
Major changes afoot?
It may all come to nothing, but it seems significant that powerful members of Congress are proposing two pieces of legislation that would end liner antitrust immunity and repeal the U.S. Jones Act.
In June, Rep. James Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee, said he plans to introduce a bill that would reform maritime shipping laws ' including eliminating antitrust immunity, tightening regulation of surcharges, and penalties for carriers who roll cargo, among other issues.
Then three days later, Sen. John McCain, R-Ariz., said he had introduced a bill to overturn the Jones Act, which requires domestic shipping to be undertaken by U.S.-flagged vessels and manned by U.S. crew.
It's not like these ideas are new or unusual. But the fact that there is movement ' and at coinciding times ' is news. McCain is clearly taking the opportunity provided by the BP oil disaster to push the anti-Jones Act agenda, saying the act 'hinders free trade and favors labor unions over consumers.'
But a potential end to liner antitrust immunity would be more sweeping and significant. It would change the entire relationship between U.S. shippers and exporters, wipe away nearly a century of maritime cargo protocol and affect the way foreign carriers view the U.S. market.
Again, no one should hold their breath that either change will occur, but it's notable all the same that these topics are even being mooted.