Businesses that control freight have leverage to keep down additional costs.
Global Shippers’ Forum (GSF), an umbrella organization of shippers groups such as the National Industrial Transportation League (NIT League) in the United States, said it will organize a new global campaign to confront what it says are “unsubstantiated shipping surcharges, terminal charges and more than 20 other non-negotiable local charges” being imposed on shippers worldwide.
GSF decided to start the campaign at its annual meeting in March, and said it will focus on “persuading national competition authorities or other appropriate regulatory bodies to introduce new shipping regulations and laws to prevent these local anti-competitive practices.”
GSF said non-negotiated local charges are being imposed on consignors and shippers who have no control or influence in freight rate negotiations.
“Shippers in Africa, Asia and South America have now called time on these unacceptable shipping practices which long ago disappeared in European, North American and liner shipping trades in other more developed economies,” GSF said in a statement.
“As part of a coordinated global campaign, the GSF will take the matter up with the main political, United Nations and other international agencies,” said Chris Welsh, the forum’s secretary general. “In addition, we will support the implementation of the kind of national legislation introduced in Sri Lanka to deal with this widespread problem.”
Welsh said the charges are a mix of those imposed by carriers, shipping agents that are appointed by carriers to represent their interests, and terminal operators.
He pointed out many importers in Europe and the United States buy and control freight, negotiating the freight rates and the main charges as part of their contractual agreement with the carriers.
But because the foreign supplier or consignor has the responsibility to deliver goods to either the ship agents or terminal, it “picks up a load of charges over which he has no leverage or negotiating or bargaining power. And they’re unavoidable charges and they’re nonnegotiable surcharges in the main,” Welsh said.
He said these charges are prevalent throughout Africa, Asia and South America, but less common in more developed countries such as those in Europe and North America.
“U.S. shippers are not jumping up and down about this kind of practice,” Welsh said.
Bruce Carlton, president of the NIT League, agreed that “it really doesn’t affect U.S. exporters. But in a lot of the developing world, as I understand it, these are sort of surprises that are dropped on the exporters there. Shippers may be told that if they want their container of cargo picked up and put on a ship and delivered they will have to pay additional charges. I can tell you there is a real bitterness in the dialog—these folks really feel badly treated and it has been going on for years and years.”
Much of the problem, Carlton said, comes from the Incoterms through which business is conducted and can leave shippers in developing countries vulnerable to charges.
“Everybody agrees that to some extent that many shippers are still using inappropriate Incoterms,” Welsh said.
Dan Gardner, president of Los Angeles-based Trade Facilitators, noted concerns about surcharges are common among all business sizes and agrees they are driven by Incoterms. Sometimes, he said, the parties to a contract don’t really understand the meaning of an Incoterm or there are charges that neither party contemplated—either at origin, a container yard or terminal or destination.
“I think it is more exacerbated in some of the emerging markets because there is a real conscious approach to managing landed costs,” Gardner said.
If customs duties are paid on the CIF (cost, insurance and freight) value of the goods, an extra $100 to $200 in surcharges may get lumped into value of the merchandise, and in countries with value-added taxes, surcharges can also force up the tax amount.
“I saw this as recently as a week ago where a supplier in Asia was selling on an FCA port basis and there were certain charges at the port that they refused to pay. So there was a big back and forth between the buyer and seller,” said Gardner. (FCA, or "Free Carrier," means the seller fulfills its obligation to deliver when it has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point.)
Without an agreement between the seller and buyer that explicitly says whether surcharges at origin or destination are on the account of the shipper or consignee “I think everybody is trying to push charges back and forth on one another, understandably,” Gardner, who is the author of the book How to Use International Trade Terms for Competitive Advantage & Financial Gain
He said with low base freight rates, surcharges have become an ever more important source of revenue for some companies. It’s analogous, he said, to what has happened in the passenger airline business where airlines are charging for baggage or food instead of rolling it into the cost of a passenger ticket.
Sri Lanka has amended its national legislation so that carriers must use “all-in” rates. This empowers the shipper with the responsibility to negotiate the total transportation charges.
Sri Lanka’s Office of Merchant Shipping said in a notice that bills of lading or forwarder cargo receipts have to specify whether the consignment of goods are on freight prepaid or freight collect basis and that all charges such as terminal handling charges (THCs) “related to transport of goods from origin to destination shall be included in all inclusive freight.” (Freight prepaid requires the carrier to invoice the shipper for the transportation charges, while freight collect means the carrier will bill the consignee for the charges.)
“Such all inclusive freight shall be recovered only from the party who has contracted with the service provider to pay the freight. It is illegal to separate the charges from the freight,” the notice said. “Service providers are not legally permitted to collect any other charges other than all-inclusive freight from exporters and importers either on freight collect or pre-paid basis where containerized cargo is handled on full containerload (FCL) or less than containerload (LCL).”
Addressing the GSF’s annual meeting, Sean Van Dort, vice chairman of the Sri Lankan Shippers' Council (SLSC), said “We are already seeing the benefits of new laws in Sri Lanka that specify that all charges for shipping containerized cargo must be quoted so as to cover the entire cost of the carriage of goods from origin to destination or agreed delivery point. The provision of so-called ‘all-in inclusive freight charges’ to be paid by the shipper, including all local add-on charges and surcharges, has resulted in dramatic reductions in the door-to-door freight costs, reductions that benefit both the seller and buyer of the goods.”
He said in one case a shipper achieved a savings of $1,950 on a 40-foot containerload, representing a 31 percent reduction in logistics surcharges and multiple charges on the bills of lading since the new Sri Lankan regulations enter into force in January 2014 for new shipments. The law took effect from April 30 for existing contracts.
“These new arrangements have increased earnings on sales and the competitiveness of our products in world markets,” Van Dort said.
He acknowledged "the new arrangements do require close collaboration and cooperation between buyers and sellers, and in particular there will need to be a change in business practices including using the new and more appropriate Incoterm for containerized cargo shipments such as ‘free carrier named place’ (FCA). But the prize for both sellers and buyers is the elimination of illegitimate and inflated charges and surcharges and considerable reductions in freight costs which benefit both parties."
GSF said it will initiate a global program to explain how the use of the most appropriate commercial terms can potentially reduce freight costs in the transport and logistics supply chain. “The program will further focus on liability implications, responsibilities of the respective parties and the allocation of risk under modern commercial terms,” the organization said.
The ban on surcharges was originally announced last November by Sri Lanka’s President Mahinda Rajapaksa, who was praised by the Asian Shippers' Council (ASC).
“For too long we have to put up with multiple charges over and above our freight rates. Many were imposed on us without explanation or justification. Often this resulted in confusion,” said John Lu, chairman of the Singapore National Shippers’ Council and honorary advisor to the ASC. He noted Bangladeshi shippers began paying an all-in freight rate six years ago.
“We take our hats off to the Sri Lanka Shippers’ Council for their key role in fighting for the removal of terminal handling charge (THC) and other surcharges,” Lu said.
ASC said SLSC lobbied successive governments since the late 1990s for the removal of the THC and other charges, working with the Exporters Association of Sri Lanka, the Joint Apparel Association Forum and the National Chamber of Exporters.
"We join our member, the SLSC, in expressing our appreciation to the president and we look forward to the day when the rest of us in Asia only have to pay an all-in rate," Lu said.
This article was published in the June 2014 issue of American Shipper.