Peak season in January?
As visions of sugarplums stopped dancing inside shippers’ heads post Christmas, a new, more unfriendly vision confronted them: surcharges.
One surcharge in particular caught the eye: a ‘peak season’ fee from Asia to North America of $320 to $510 per TEU, as of Jan. 1 and as recommended by the Transpacific Stabilization Agreement.
Now I know global warming is playing havoc with the seasons, but this was a new one. January the beginning of the peak on the eastbound transpacific? As American Shipper wrote in its December issue, transpacific peak season has always occurred in the months between June and November (‘Peak misconception,’ page 29).
Publicly, the only evidence of the surcharge came from press releases by CMA CGM and Mediterranean Shipping Co. stating the specifics (though MSC’s only applied to Canada-bound shipments). Enquiries from American Shipper about the nature of the surcharge were not returned by either line. A note from OOCL Singapore’s Web site also describes the recommended surcharge. But there’s no mention of it on TSA’s Web site, only a nod to the peak season surcharges it is recommending lines seek in June 2011.
One clue about the timing of the surcharge can be found in a Jan. 3 customer notice from DHL’s Global Forwarding division: ‘The peak season surcharge was temporarily suspended on Nov. 1, but the ocean carriers serving the trade maintained that it was likely to be reinstated early in the New Year in anticipation of a surge in bookings driven by the earlier than usual Chinese New Year and strong sales during the holiday season, creating a situation similar to that we experienced early in 2010.’
Interestingly, and as an aside, the peak season charges DHL passed on to customers were exactly half the fees raised by the lines ‘ another way forwarders have been able to actively engage with shippers.
In any case, this column isn’t privy to the internal discussions between TSA lines and its customers, but I’d have to believe a peak season surcharge in the peak of the slack season was a tough sell. Even with an early Chinese New Year. True, demand spiked around the start of 2010, but that was an anomaly based upon the unusually low demand levels of 2009. Carriers admitted to being caught unprepared for the early 2010 surge, but it’s quite a stretch to go from being ‘better prepared for early 2011 volumes’ to classifying January and February as ‘peak season.’
Perhaps lines had been counting on a significant amount of capacity being pulled in the new year, creating a demand dynamic where shippers would have been forced to pay such a surcharge. But let’s also keep the demand side in perspective. Though eastbound transpacific demand was high in early 2010, it still lagged significantly behind what would normally be considered a peak period for a given year.
According to trade intelligence company Zepol Corp., January-March 2010 monthly U.S. inbound volume was 17 percent to 23 percent lower than the peak month of the year (August). Zepol’s figures account for all U.S. imports (including non-transpacific shipments), but with the bulk of U.S. trade originating in Asia, you can draw some pretty definite conclusions. It’s hard to call January through March peak season by any measure.
Maybe we’re only really worried with semantics. If the lines had called it a ‘Chinese New Year surcharge,’ or a ‘first quarter demand surge surcharge,’ it would have been far less notable. But giving it the same name as shippers are accustomed to seeing for surcharges in the second half (and busier part) of the year doesn’t seem right. Coming off a year when shippers and carriers are supposed to be finding some sort of emotional common ground, slapping a ‘peak season’ surcharge on boxes moving in January only adds to the agitation.
Measuring THC cost
From peak season charges to terminal handling charges, Mediterranean Shipping Co. also said in late 2010 it would assess specific THCs for shipments from specific ports in Asia to North America, namely those in Xingang, China and Japan.
The across-the-board Japan THC isn’t too notable, but the Xingang one is because it emphasizes the way lines are becoming more sophisticated in how they measure the true costs of aspects like terminal handling. In Europe, THCs tend to be levied uniformly by country (as MSC has in Japan), but surely there are differences in cost, even if slight, between handling a container in, say, Hamburg and Bremerhaven.
Not that shippers appreciate THCs; most shipper groups argue it should be accounted for in the base rate. But if lines begin assessing different THCs at each port they serve, it would go a long way toward establishing to shippers a reasonableness for such a charge better than a pan-national or regional charge does.
Cost of piracy and terrorism?
In December, COSCO Container Lines said it would increase rates on shipments from Asia to Red Sea ports by $1,100 over a series of six hikes through Nov. 1, 2011.
Turns out the hike is part of a plan by carriers in the Informal Red Sea Agreement, which includes COSCO along with APL, CMA CGM, CSAV, Evergreen, Hapag Lloyd, PIL, UAS and Yang Ming.
It’s a major increase and speaks to a couple different dynamics. One, trade from Asia to emerging markets (be it South America, Africa, the Middle East or other parts of Asia) is going strong. As MOL President Koichi Muto said in a New Year’s address, ‘In the global economy, we are seeing the paths of the developed countries and the emerging countries diverging. While the emerging countries are growing with strong momentum leading to further growth in the distribution of goods, Europe, North America and Japan, which make up 60 percent of world GDP, continue to be burdened by destabilizing factors.’
So it makes sense that rates between Asia and the Middle East would be rising in line with demand. But by such a huge factor? That speaks to the dangers lines face in transiting and calling at ports around the Gulf of Aden due to piracy and terrorism threats.
The issue has been well documented in terms of the nature of the threat, but what’s less clear is the financial toll it has exacted (and could potentially exact in the future) on liner carriers. Carriers must devise plans, train, deploy security teams, sail faster, or risk doing nothing at all. All carry a financial risk or burden.
It’s clear: travelers would expect to pay more to travel into a dangerous location, and shippers should expect to pay more to ship to or through a dangerous region.