Freight surcharges due to disruptions in Red Sea poorly controlled

2024/02/26 at 12:40 PM

Container shipping lines operating on the Asia-Europe route, which have received ’emergency’ approval for surcharges ranging from 150 to 2,700 US dollars per container due to the Houthi attacks on ships in the Red Sea, are facing opposition from shippers, New York’s Journal of Commerce reported.

Source: Pixabay

Ocean freight emergency surcharges imposed on shippers receive little, if any, regulatory oversight, the U.S. Federal Maritime Commission (FMC) said. That is the answer to the question about the validity of the subsidies that American importers and exporters asked the FMC. Since Christmas 2023, the FMC has granted seven ’emergency’ waivers to container lines allowing them to add surcharges immediately without the 30-day notice required by U.S. shipping law.

The surcharges are a consequence of higher operating costs faced by ocean carriers as they continue to divert ships from Asia to Europe (and eastern U.S. ports) through the Suez Canal to the long and expensive route around southern Africa. During the meeting at the FMC, shipper representatives emphasised that they are concerned with the exemptions from subsidies, some of which were approved on the same day as applications were submitted and which allow ocean carriers to recover more than they actually incur for the increased costs of longer transit.

Sarah Gilmore, director of the Retail Industry Leaders Association (RILA), said she was concerned that if the crisis lasted for months, additional charges “could result in tens of millions in extra costs for retailers”. Peter Friedmann, executive director of the Agriculture Transportation Coalition (AgTC), said that many U.S. agricultural exporters sell loads with freight costs prepaid. However, ocean carriers impose surcharges on exporters, who cannot recover them from their customers.

According to Jonathan Gold, vice president of the National Retail Federation (NRF), members of the federation are seeing rates increase from 1,500 to 3,000 US dollars per container due to various surcharges. “The burden of these surcharges falls heaviest on smaller shippers who can least absorb the higher costs,” FMC President Daniel Maffei said during the meeting that with the sudden rerouting of ships, ocean carriers need to recover higher operating costs “to avoid a complete cessation of ship services.” At the same time, he stipulated that they should. Despite this, Maffei said that carriers should prove the surcharges are justified.

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