More shipper pain on the way as carriers levy new peak season surcharges
Ocean carriers have continued their flurry of surcharge and rate increase announcements, which “continue to ...
Freight forwarders and shippers using index-linked contracts have been urged to review the terms of their agreements with carriers, to avoid being double-charged on emergency BAF surcharges introduced in response to escalating bunker costs driven by the closure of the Strait of Hormuz.
According to an advisory presciently published by UK law firm HFW in mid-February, shortly before the outbreak of the latest conflict: “Shippers should verify whether the index incorporates fuel surcharges, currency adjustments, or other ancillary cost elements, as these can materially affect how rate changes flow through the contract.
“For example, the SCFI explicitly includes BAF, FAF, and other seaborne surcharges as part of its cumulative rate calculations.
“As not all indices account for these components in the same way, mismatches can create ambiguity or worse, unintended exposure if the index does not reflect the cost structure contemplated by the parties,” it emphasised.
Peter Sand, head analyst at freight rates benchmarking platform Xeneta, which has long supported the use of index-linked contracts, told The Loadstar: “These surcharges are already included in the index, so they shouldn’t be applied on top of the index-linked contracts.
“These will be automatically handled as part of the index rate revision,” he added.
However, it appears that some carriers have largely ignored these provisos, HFW partner Matthew Gore told The Loadstar this week: “I’ve heard that some carriers have been seeking to apply emergency surcharges regardless of whether they have contractual grounds to do so, whether in index-linked or fixed rate agreements.
“Depending on the contractual position of the parties, if the shipper is adequately protected, they can either reject, accept regardless, or negotiate those emergency surcharges,” he said.
One freight forwarder told The Loadstar that she had also noticed carriers in this most recent period of geopolitical tension trying to heap the emergency BAF on top of existing agreements – and nor has it been the first time.
“Within the first Emergency Fuel Surcharge announcements, they advised it was applicable on all NAC/FAK contracts including SCFI-linked contracts.
“How can a shipping line add an EFS to an index-linked contract, when the calculation of the index includes all surcharges, including emergency surcharges for that week. Isn’t that applying the surcharge twice?
“They did this around 2017/2018 and at that time I was in a position to challenge them. They did back down, only after more than a month of charging it. I have given feedback, but whether they are actively applying it to SCFI deals or it’s another ‘oversight’… I’m not sure…”
Mr Gore said the index-linked contract’s fine print ought to cover the range of carriers’ cost recovery mechanisms.
“Assuming the parties have a legally binding written contract, in short it depends on what’s been specifically agreed between them in that contract in relation to freight rates and surcharges.
“In many index-linked contracts, the BAF element of the freight rates (and other surcharges) is covered by the index-linked freight rate itself and therefore there would be no contractual grounds for a carrier to insist on an additional ’emergency fuel surcharge’ or whatever they may want to call it.
“We often include specific wording around this to remove any potential room for argument that such surcharges are outside those contemplated in the contract, with carriers seeking to fall back on their standard terms for carriage which may provide grounds to request further surcharges.
“Shippers are well-advised to scrutinise the terms of their contracts to assess whether such demands are valid or not,” he said.
Meanwhile, a shipper source who does not use index-linked contracts but instead focuses on long-term agreements with its carriers said they were also challenging emergency BAF surcharges.
“We don’t have index-linked contracts, but I’ve made the point to our head of ocean freight: how can they apply an emergency BAF when the BAF in Q2/Q3 will reflect the increases? It’s double-dipping.
“The BAF mechanisms on the normal long-term contracts take the mid-point for the next quarter’s calculation. Therefore, the carrier has the emergency BAF and the higher BAF in the next quarter,” he added.
“However, the index-linked contracts do include all surcharges, or should,” he said.
Meanwhile, the US Federal Maritime Commission (FMC) yesterday refused a request from a group of shipping lines for it to temporarily suspend the 30-day notice period under which carriers are required to file surcharges and other price changes.
The group – comprising CMA CGM, Maersk, Hapag-Lloyd and ZIM – had filed submissions on 4 March for the 30-day period to waived for a special “Maritime Operations Disruption Surcharge”.
In Maersk’s case it has proposed a surcharge of $1,800 per 20ft container and $3,000 per 40ft on shipments from the US to the Gulf countries, which is due to be implemented on 3 April.
In its submission to the FMC, its legal representatives argued: “Unless the effective date of this new surcharge is advanced, Maersk will be unable to begin recovering the increased costs it is presently experiencing for almost a full month.”
The response from the FMC yesterday, however, was unequivocal: “The commission has determined that Maersk has failed to establish good cause and, therefore, the request to approve the application for special permission to depart from the statutory notice period requirements has been denied,” it said.
CMA CGM, Hapag-Lloyd and Zim were all similarly denied the waiver.
Comment on this article