Playing pass the parcel is fun when you’re a little kid. It’s less so when the parcel is a great big bill that you’re being stiffed with as a side effect of a fight between longshoremen and their employer.
FreightWaves has been led to believe the owners and operators of trucking fleets may be hit with demands to pay “container detention charges,” as parties in the supply chain try to avoid being hit with the charges as a side effect of the dispute between the local longshoreman’s union and their employing stevedore company.
Local freight experts have identified trucking operators as being the parties with the least commercial power to resist demands for payment. If trucking operators are hit with high container detention charges, it will be as an incidental effect of the rolling industrial action at the Hutchison Ports Australia terminals in Sydney and Port Botany. To find out more, keep reading below the banner.
Container detention fees are used by maritime box-shipping lines to encourage the speedy return of their boxes.
The cost of sending an international shipping container to a consignee located overseas is included in the cost of freight. From shipper to consignee, boxes go from door to door. Ships themselves, obviously, don’t. But freight is only charged on the ocean part of the journey. So there’s a bit of the supply chain journey where the costs of a box aren’t fully covered by associated revenues.
Maritime carriers have a legitimate interest in receiving revenue as compensation for the use of the container during this time. Shipping lines also have a real incentive to get their boxes back from shippers, consignees and freight forwarders so they can be re-used to carry more cargo. However, shippers and consignees don’t necessarily have the same motivations as maritime carriers and they may not have the same sense of urgency in getting a box packed/unpacked and back to the port, terminal or empty container park.
And so ocean carriers charge container detention fees for delays in returning a box.
A well-known but intensely disliked practice
There’s nothing inherently dubious or dodgy about this practice – it is well known and understood (albeit intensely disliked by some parties) in international trade. Fiata, the international trade body for national associations of freight forwarders, recognises that maritime carriers have legitimate interests in charging container detention fees. The body recently declared that container detention fees are “an important tool for shipping lines to ensure the efficient use of their container stock which represents a substantial investment. For shipping lines, it is essential to turn around their containers as fast as possible, consequently merchants who use containers for longer periods should be discouraged from this practice.”
Rates will vary from shipping line to shipping line, from container type to container type, and with the degree of lateness in returning the box. By way of example, the maritime carrier Pacific Asia Express currently grants ten days of free time for a general purpose container. It then charges A$70 day (plus a $10 charge for goods and services tax) for the next 11 to 20 days if the box is not returned. Rates rise to A$120 thereafter. Rates for a forty-foot open top box start at A$180 and rise to A$280 a day.
Pacific Asia Express is neither unique nor the most expensive. Cosco Shipping Lines (Oceania), for instance, is also a maritime box-shipping line that charges container detention fees for the late return of its boxes. It’s also a lot more expensive.
A non-normal course of business
There should be few problems in the normal course of business if shippers and consignees are alert to the fees and turn their boxes around promptly. But there are many situations that are not the normal course of business that involve delays in the return of boxes. Strikes at marine terminals are a good example. FreightWaves readers may be aware that a vicious brew of industrial unrest is in the early stage of bubbling over in Australia right now.
Fiata argues that, in such circumstances, container detention fees cannot achieve their purpose. “These issues lead to … charges for merchants who are unable to obtain release of laden containers or return empty containers through no fault of their own… There is no logic insisting on a charge that is supposed to motivate [a] merchant to pick up or return a container quickly if the terminal is not able to comply with this request,” Fiata argues.
Container detention fees can be huge. In the English case of MSC v Cottonex Anstalt there was extensive delay (caused by the Bangladeshi customs authorities) and the fees totalled over US$1m… more than ten times the value of the boxes themselves.
When there is delay then a particularly unhappy game of commercial pass-the-parcel may begin. And the prize for the unlucky ‘winner’ is to be stiffed with the container detention fees.
How truck operators might be hit
One landside logistics executive, who declined to be identified, explained how truck operators might be hit.
“With empties for export, you have to get the box back to a container line otherwise you have to pay a container detention fee. If the importer or freight forwarder says to the transport operator ‘you’ve got to pay,’ can they resist paying? You can try to call force majeure but then it’s a commercial
argy-bargy as to who pays.”
“Shipping lines don’t play nice and give extra time. Shipping lines don’t care. They don’t give a rat’s arse about the trucking operator”
– landside logistics executive
The landside executive also pointed out that the shipping lines always immediately begin the clock on the amount of free time they will allow for the return of the shipping container before charging late fees. Free time, which typically runs for ten days (seven days in some cases) is said to begin from the first day that the box is made available on the wharf.
But it might not be so easy to get the box from the wharf if there are rolling stoppages and four-hour turnaround times, and consequently huge
cargo backlogs.
And the shipper or consignee has then got to actually physically get hold of the box (Australia is a big empty country and distances between a port and a customer’s premises can be quite large), pack it/unstuff it and then get it back to a terminal that might still be in chaos because of industrial action.
Fiata recommends that commercial parties partners negotiate terms to extend free time to a period equal to the duration of the disruption to operations whereby terminals and depots cannot release full or receive empty boxes.
However, the landside logistics executive was somewhat sceptical that the maritime carriers would increase the duration of free time.
“Shipping lines don’t play nice and give extra time. Shipping lines don’t care. They don’t give a rat’s arse about the trucking operator,” he said.
Ocean carriers unlikely to extend free time
FreightWaves phoned a well-known maritime carrier executive, who, reflecting the sensitivity of this topic, spoke only on condition of anonymity. FreightWaves asked whether shipping lines would be likely to increase the period of free time.
“I would say ‘no’,” the maritime executive said, somewhat cautiously.
“Free time was 14 days, now it’s dropped to ten or seven days, reefers are definitely seven days. There’s no scope for an increase in free time by any of the carriers because it was abused in the past. The other reason is the turnover of equipment. The faster you can turn over the boxes, the cheaper and more efficient it is.
“Shipping lines are all organised around conferences and consortia these days with everyone putting boxes on a few ships. Although it reduces the operational expenses but you still have to maintain it and its proportionally more expensive as a cost of the ship compared to years past.
“The importer / forwarder can put the hard word on the trucker and say ‘you have to get the boxes back on time, and, if you can’t, it’s on your account’. It can be a humongous cost if you have a big customer… or if you lose the account. I feel for the trucking operators. But we as [maritime carriers] cannot control it unless we want to do landside logistics. It’s controlled by agents.
“I would not see an extension of free time in the near future,” he concluded.