News / There must be a 'win-win' element in container line service contracts

© Ulrich Mueller

Container carriers and customers need to work together to develop annual contracts that ensure shippers are provided with adequate service levels and lines are protected from cost spikes.

Cosco vice president Howard Finkel told delegates at last week’s TOC Container Supply Chain event in Panama: “Service contracts are basically rate sheets, usually with a one-year time limit, whereas there ought to be a win-win element to contracts – lines get protection, volume and payment guarantees and shippers get excellent service at an agreed price.

“We [Cosco] operate two services between Asia and the US Gulf – a premium service and a second that I call the “slow boat from China”, and unfortunately I cannot seem to get more money for the premium service,” he said.

He believes carriers operating the Asia-US Gulf trade are approaching something of a crossroads as demand on the headhaul route from Asia means vessels are approaching capacity and US importers in the region could struggle to find space.

However, he added, the demand was not enough without some backhaul volumes for lines to consider introducing larger vessels, and a predicted surge in resin exports – a by-product of the surge in US oil and gas production – to Asia had not materialised.

“If this export surge had taken places as predicted, US exports could actually have become the headhaul trade, but current freight rates won’t cover the cost of introducing larger vessels and equipment repositioning,” Mr Finkel explained.

He said a need to cover costs and maintain service levels was behind some of the more contentious issues that existed between carriers and their customers, such as the demurrage and detention fees currently the subject of a Federal Maritime Commission enquiry.

“Most carriers are not looking to make money out of demurrage and detention; we are looking to get our equipment back. And this showing now, when there’s a lot of demand to be fulfilled. Free time is not free, and the longer you hold a line’s equipment the more damage is done to the overall supply chain,” he said.

And he added that, in the hinterland leg of the container supply chain from destination port to shipper premises, lines also faced escalating costs which would need to be addressed.

“There is growing concern among carriers that the intermodal service involving a trucking component is increasingly difficult because of the river shortage and no guarantee of static rates for a year.

“We can start a year’s contract at a given point, but have no protection against truckers increasing their rates, and we re now trying to introduce some kind of escalation clause to mitigate that,” he said.