Cargo Issue: Container Shortages

Barring any further market surprises and a possible double dip recession, the current recession which commenced in September 2008 appears to be waning.

The marine carriers in their rush to adjust to the recession made some very major changes in their operations in 2008 and 2009 to combat the massive losses they were incurring. These included parking their vessels, reducing vessel capacity, moving to slower transit times, adjusting trade lanes and transship points, and finally an overall reduction in the number of containers in their inventory.

The last item noted, the reduction of the number of containers in service, has come back to haunt the marine industry in a not so great way. Currently, global production of marine containers requires the manufacturing of 6,000,000 TEUs’ to meet growing needs, mostly from China. Chinese manufacturers currently do not have enough manufacturing capacity to produce this number of containers within the immediate time frame. As the recession hit, many of the producing plants were either shutdown or substantially scaled back with the corresponding workforce moving on. By all accounts it will take approximately 2 years to get production back to a level which would satisfy the marine carriers’ needs.

What drives containers and their production or retirement of service is an issue that could be and has been written about at great length. However, in a nutshell, the life span of a container is determined by the conditions under which the containers operate and the ability of the marine carrier to generate as much revenue from an in-service container as possible. The manufacturing cost, which is rising, runs between $2000.00 to $4000.00 USD depending on the size of the container, other specialty containers such as reefers and oversize containers do run higher manufacturing costs.

Marine carriers for the most part, prefer not to re-position empty containers to meet market condition changes as the cost can be prohibitive. There is virtually no difference in the freight cost of moving an empty container versus a full container. With that in mind, when imbalances occur it can be cheaper for the marine carrier to dispose of the empty container rather than pay to reposition, repair or store the container pending trade level corrections.

In order for the carriers to maximize their revenue on containers they implement equipment demurrage charges, to offset revenue losses and costs associated with leased equipment, which can be quite costly if cargo is not delivered in timely manners at destinations. In years gone by, it was possible to mitigate this cost, but with the advent of computer tracking and better record keeping the carriers have become resistant to these requests. A container not in service is not generating new revenue for the carrier.

The other point, which the industry is now addressing with some trials being done by Maersk and by CMA CGM relates to damages to containers, generally occurring at destination. In both cases, they have implemented a new fee to offset damages to containers. In the case of CMA CGM, this appears to be restricted to Vietnam whereby they assess a container insurance fee across the whole number of containers going to Vietnam which would represent coverage for minor damages. For Maersk, they have taken a larger approach with their OOS (Out of Service) Fee. As an aside, it should be noted that for some destinations, there has been a system in place for some time, Container Deposits, which covers likely demurrage and possible damage expenses, of which a portion or all would be returned to the consignee if the container is returned within the allotted time frames and without damages.

What does this all mean for shippers? Shippers will have to expect the new marine cargo realities to include:

1. Increased freight rates on most traffic lanes.
2. Sporadic and lengthy delays in equipment and space availability, dependent upon the local market conditions and seasonal conditions.
3. Longer transit times to some destinations.
4. Container repositioning charges or equipment imbalance fees.
5. Increased vigilance on equipment demurrage charges.

Container Abandonment

Container Abandonment is without question one of the hardest issues affecting Aid shipments.  Organizations with the best of intentions raise funds to cover shipments to deserving groups overseas only to find that something has gone amiss with the shipment and it cannot be cleared customs and delivered.  In the past, organizations have reluctantly in many cases abandoned the cargo which is then seized by the officials at the destination and generally auctioned off to cover expenses.  This is a major concern for the marine carriers as they lose revenue from accruing equipment storage charges as well as their equipment is not available for use for other revenue generating cargo.

Be very aware that as a named shipper on the carriers bill of lading, you can be held accountable for all costs incurred up to and including the date of seizure by customs officials at destination. To compound this even further, the carriers can refuse to handle any further shipments for your organization going anywhere in the world through their service. 

There are some carriers who will no longer handle aid cargo due to the abandonment issue.  In many instances, we are seeing requests for the full consignee contact details prior to acceptance of bookings in order that they can check with their destination offices to confirm any prior problems with the clearances. 

As an organization providing humanitarian aid, you need to protect yourself by ensuring that:

1. The organization you are shipping to has a destination country tax identification number.
2. The receiving organization has any and all applicable licenses, permits or exemptions in place at the time of shipment.
3. You have a clear understanding of what charges your organization is prepared to pay and what charges are to be paid at the destination.
4. The goods you are sending are not in contravention of any rules or regulations at the destination country.
5. You, as the name shipper, on the bills of lading are and can be held responsible for any and all additional costs incurred prior to the recipient taking final delivery unless they are paid at destination by the recipient.
6. You and your organization are aware that regulations in many countries change frequently and that you have a mechanism in place to monitor these changes.

Charitable organizations work very hard to raise funds to commit to projects overseas, it is encumbent upon you as a charity to be aware of the pitfalls and problems which can arise. You need to ensure that you have done all that you can possibly do to make sure that those funds are spent on what you desire and are not wasted on storage costs or other bureaucratic costs.

Cargo News 04.15.10 Pacific Trade Lanes

As we start to see some recovery in the Canadian and U.S. economies, we note that while exports have risen dramatically, imports have not risen sufficiently enough to offset equipment and space issues for export cargo.  Most will recall that at the beginning of the recession, the marine carriers substantially reduced their fleet operation in North America due in most part to the declining import volumes.  This has particularly hit the Pacific Trades extremely hard and most particularly cargo originating from the Pacific Northwest Ports. 

Where space is available the pricing has risen, however, most carriers are reporting lack of available space on the above trade lanes until late June or early July.  They are recommending that shippers book as early as possible to ensure they have space available.

How this affects Aid cargo is another matter altogether.  Much of the Aid cargo is not easily placed with the carriers for a variety of reasons and generally most of this type of cargo is close to last minute for shipping. 

We would remind shippers that with the current situation, they will either have to be patient in securing equipment and vessel space and plan further out calendar wise for shipping than they have in the past or alternatively where space is available be prepared to pay higher rates to secure the space.

Global Cargo Services Ltd.