TCC pursues container shortfall penalties
The magnitude of the container “fall down” issue for liner companies, where shippers do not live up to minimum quantity commitments, is being thrown into high relief in the wake of decision by The Containership Co. (TCC) to end its transpacific service.
A “reconstructor” appointed by the Copenhagen Maritime and Commercial Court is seeking to recover about $23 million from 83 shippers who did not meet minimum quantity commitments with TCC, said Franck J. Kayser, chief operations officer of the company.
TCC ended its weekly service a year after it was launched. The company operated a single loop of ships connecting the ports of Taicang, Ningbo and Quingdao with Los Angeles.
The reconstructor is an attorney whose role is to make management decisions “to ensure that all creditors are best protected in this period of financial difficulties,” Kayser said.
He assesses the liabilities and assets of the company including outstanding freight and consequential damages from minimum quantity commitment (MQC) contracts.
Many shippers in the transpacific trade commit to move a minimum quantity of cargo throughout a year in exchange for a volume discount, and if that volume is not met, the carrier is permitted to collect a payment, generally $250 per TEU in the transpacific, Kayser said.
Kayser said the reconstructor, J'rgen Hauschildt with the law firm of Bech-Bruun, is pursuing payments from 83 shippers whose total fall down volume amounts to 90,000 to 100,000 TEUs or 40,000 to 50,000 containers, since most shippers in the transpacific use 40-foot boxes.
“It’s about $23 million,” Kayser said or about 40 percent of its annual lift “It’s definitely a grotesque number.”
American Shipper affiliate ComPair Data estimated the average capacity of the five ships in the TCC’s weekly service at 2,960 TEUs at the end of its service. Most of TCC’s customers were non-vessel-operating common carriers.
“We were pushing them in December asking them to live up to their promises, and also discussing ‘is it the right number that you put down,’ but they maintained positive figures and believed it would all come, but in the end we didn’t make enough money so we had to close down,” Kayser said.
Asked if he thought other carriers were having similar experiences, Kayser said, “I’m pretty sure this is widespread. What is promised in terms of minimum quantities is grossly overstated compared to what is delivered. What happens is in month of April, a lot of the contracts are adjusted because nobody wants to run into problems with the customer for the next season. You don’t want to push your customers away.
“In this instance, it is not a commercial decision. It is the juridical team of the reconstructor appointed by the courts that decided this is a legal claim and this is why it is being pursued.”
To deal with container shortfalls, Kayser said most larger carriers overbook cargo. If all the cargo arrives, he larger carriers can then put in extra loaders or move boxes on other ships. As a small carrier TCC had less flexibility, he said.
“We never tried to attract more cargo than we believed we could carry,” Kayser said, because volumes fluctuated over the year and because most of its contracts were for two-way cargo movements.”
Kayser said there is no legal action involved, but the reconstructor is contacting shippers asking them to pay according to the contacts.
TCC’s last sailing from China was in March, and its last ship sailed from Los Angeles on April 12.
The company continues in the ship chartering business. It returned two of the ships used in its transpacific service, but owns one ship and controls three other vessels all of which it has on charter.
Kayser said the company is continuing to consolidate funds to repay creditors.
“We will meet with the Maritime Court of Copenhagen on May 4, and our plans will be presented by the reconstructor,' he said. 'If the court accepts the plan, it will be carried out; if the court rejects the plan and asks for bankruptcy, that will happen. But we expect the plan will be accepted and carried out.”
He said the company hopes to repay creditors fully. ' Chris Dupin