Carriers Ready Surcharges in Case of US West Coast Disruptions

Bill Mongelluzzo, May 5, 2014, Journal of Commerce

Hapag-Lloyd at the weekend informed its customers that it will be prepared to levy what could be large congestion surcharges on shipments to and from the United States in the event that work stoppages occur during West Coast longshore contract negotiations this summer.


Negotiations between the International Longshore and Warehouse Union and the Pacific Maritime Association are scheduled to begin on May 12. The current contract will expire on July 1. Hapag-Lloyd stated in a release that it will be prepared to implement a congestion surcharge beginning June 10, if conditions at North American ports generate additional costs for its operations.


Hapag-Lloyd is one of at least 12 carriers that have filed their tentative plans for congestion surcharges with the Federal Maritime Commission, said Niels Erich, a spokesman for the Transpacific Stabilization Agreement. Two additional carriers have indicated they will also file congestion surcharges, Erich said today.


The TSA is a discussion group representing 15 lines in the eastbound Pacific. Erich said TSA members have had discussions about congestion surcharges, but the TSA does not plan to issue any formal guidelines for its members. Rather, each line posts its surcharges individually, he said.


Hapag-Lloyd announced tentative surcharges that are quite large — $800 per 20-foot container, $1,000 per 40-foot container, and even higher surcharges for containers with larger capacities. The company told the JOC that it is too early to make any further comments on the potential for surcharges at this time.


In fact, some carriers are not filing new surcharges, but are simply informing customers that they have congestion surcharges on file with the FMC and those charges will be activated if congestion problems arise.


For example, Maersk Line has a congestion surcharge in its tariff that was originally filed in August 2012 during contract negotiations between the International Longshoremen’s Association and waterfront employers on the East and Gulf Coasts, Maersk spokesman Tim Simpson said.


Maersk understands the concerns of its customers at this time of uncertainty, so the company is reminding shippers that a congestion surcharge is possible if the carrier incurs significantly higher costs that could result from port congestion associated with the negotiations, he said.


If carriers should implement congestion surcharges, they intend to quantify their additional costs as precisely as possible so that customers will see the charge as reimbursement for actual expenses rather than as an opportunistic attempt to create a new profit center.


During a lengthy work stoppage on the West Coast, for example, vessels could back up at the ports with nowhere to go because most of the vessels calling at West Coast ports are too large to transit the Panama Canal. Also, intermodal trains would back up, and equipment would begin to generate per diem charges.


Although some shipments could be diverted to ports in Canada or Mexico, there is a cost involved in re-routing the cargo. The containers could be held at those ports for pickup by the same carrier in a subsequent voyage, or the beneficial cargo owner could take possession of the cargo in Vancouver and have it trucked to Seattle-Tacoma, or in Mexico and have it trucked to Los Angeles-Long Beach.


It is unlikely that large volumes of cargo would be re-routed via all-water services to the East Coast. The TSA stated last week in a release that vessels in those services were already operating at close to capacity two months before the expiration of the ILWU contract. Prudent shippers who decided earlier this year to re-route some of their cargo to the East Coast made arrangements to do so months in advance.


Hapag-Lloyd stated in its release that if congestion occurs at U.S., Canadian or Mexican ports, and a surcharge is called for, the carrier will give notice to customers. “Congestion charges will be applied upon notice, but not before June 10, 2014,” Hapag-Lloyd stated.


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