Lesser Known Surcharges in Container Shipping10/01/2022
In our previous article, we looked at some of the common surcharges and accessorials charged by container carriers and understood why they were charged, the costs they are intended to cover, the basis of calculation and application etc.
In this article, we will cover some little-known surcharges, which are quite interesting and applied only at certain times or under certain circumstances.
Low Sulphur Surcharge
In light of growing concerns about the carbon footprint of the global shipping industry, plans are afoot to curb vessel emissions by inter alia regulating the quality of fuel.
Mandatory requirements regarding the reduction of the sulphur content in fuel have been scheduled on a staggering scale basis, with the latest round of legislation restricting the sulphur content to 0.5% (down from the earlier limit of 3.5%).
While Carriers have at their disposal multiple methods to ensure compliance (ranging from using low sulphur fuel to installing scrubbers to vessels running on LNG), the costs thus incurred add significantly to the fuel bills of Carriers, which will be passed on to customers in the form of a Low Sulphur Fuel surcharge.
Similar in nature to the Low Sulphur Surcharge is the ECA (Emission Control Area) surcharge, where certain sections of global trade routes, located in proximity to ecologically sensitive zones, were designated as Emission Control Areas, where the permissible limit for sulphur content in fuel was 0.1%.
Low Water Surcharge / Fresh Water Fee
Adequate draught (or draft) at any port or waterway is a prerequisite to ensure that vessels can safely ply the waters. The draught depends on water levels at the port, canal or waterway.
At times, it so happens that water levels at the port or the waterway drop due to causes like drought, poor rainfall, summer etc, as a result of which the draught levels are insufficient to accommodate the vessels that they usually would have been capable of handling.
In such cases, the vessels overall weight will have to be lessened, so that the vessel requires less draught and can call the port even if the draught is lower than usual. Carriers can decrease the weight of the vessel only by carrying lower quantities of containers/ cargo, which results in loss of revenue. It is to cover for this lost overall revenue that Carriers impose a Low Water Surcharge on the containers they do carry.
A variation of this surcharge was the Freshwater Fee that was introduced by the Panama Canal in 2020, applicable to certain vessels. The Panama Canal Authority justified the fee as being necessitated by low water levels caused by increased global temperatures and decreasing precipitation.
War Risk Surcharge (WRS)
The scope of this charge is broader than the name would indicate. The War Risk Surcharge is applied in all cases or circumstances when Carriers have to bear increased risks on account of wars or civil unrest or piracy etc. This surcharge is applied when marine insurance companies designate a certain geographical region as being subject to war risks, in which case Carriers will levy the War Risk Surcharge for all voyages passing through the designated War Zone.
The surcharge is intended to cover diverse costs related to increased insurance premiums, additional security, faster sailing through the War Zone (resulting in higher bunker consumption), rescheduling the vessel route across a longer (but safer) route etc.
Perhaps the most well-known example in the recent past is the imposition of the WRS announced by most Carriers in the wake of numerous piracy-related incidents off the West coast of Africa.
The WRS is applied on a per-container basis.
Equipment Imbalance Surcharge (EIS) or Repositioning Charge (Repo)
One of the characteristics of international trade is that the balance of trade between countries is almost always inequitable. The flow of goods between any two countries will be uneven, resulting in a disequilibrium between the volume of exports and imports.
The implications for Container Carriers, especially when using their own containers (which is the case in the majority of shipments), are an inability to balance container flows and match the quantity of containers required for import with the quantity of containers required for exports.
To explain with the help of an example, countries in Far East Asia, with a large manufacturing base, export massive quantities of finished goods to other countries, while those other countries might not have sufficient export volumes to fill all these imported containers on return leg back to Asia.
Even in such cases, Container Carriers will nonetheless be forced to move containers back to the Asian origins, to cater to the export trade.
In case of extreme manifestations of this trend, Carriers will impose an Equipment Imbalance Surcharge, to recover the costs of the empty return leg (put in other words – to reposition the containers back to the origin, so that they are again available for exports, wherefore it is sometimes also referred to as Repositioning charge).
This surcharge is applied on a per-container basis, at a country or trade level and can also be applied only for a certain container size or type (depending on cargo and equipment flows).
Container Cleaning Fee (CCF)
Considering the nature of commodities transported in containers and the fact that the commodities are securely packed, containers generally do not need to be cleaned.
However, it may sometimes happen that the container does get dirty due to the commodity, spillage, spoilage etc.
Since the Carrier will have to ensure that the container is clean when it is handed over to the next customer for stuffing, it will have to arrange cleaning of the container to make it export-worthy.
Such additional cleaning might involve processes like a chemical wash, in which case the Carrier will impose a Container Cleaning Fee, recoverable from the customer responsible for soiling the container.
This charge is applied only as warranted by the situation (i.e container too dirty for the next trip).
Congestion Surcharge (CON)
This hitherto uncommon surcharge has in current times when most ports globally have been afflicted by congestion-related woes, been frequently applied by container carriers.
The background to the Congestion charge is this – when Container Carriers plan their services and schedules, they assume a certain number of days and times for each rotation and port stay, costs for which are built into the business case for that service. These fixed schedules also help shippers in planning their exports and arranging deliveries.
If ports are congested (for any reason, be it at the port/ quayside or in terms of storage or evacuation), containers pile up and ports need more time to handle vessels calling the port. This has a cascading impact on vessels coming in subsequently, with the net result that vessels are often lined up outside the port, awaiting berth space, which is allocated as and when containers from the previous vessels are discharged and the vessel departs the port.
These factors cause a significant increase in costs, on account of increased bunker consumption while at anchor, increased berthing times at the port, delayed schedules, delayed container pick-up’s and returns, higher storage times, missed inland connections, customer complaints etc.
It is on account of these factors that Container Carriers impose a Congestion Surcharge for certain ports when congestion induced delays to exceed the norm.
The Congestion surcharge is generally billed in USD and is levied per container.
General Rate Increase (GRI) or Emergency Rate Restorations (ERR)
In times of exceptional economic volatility and hyperinflation, Carriers often see a drastic increase in operating costs, which erode their margins. This increase in operating costs adversely impacts cash flows and impedes the ability of Container carriers to provide satisfactory levels of service to their customers.
On other occasions, it might happen that costs increase steadily over a span of time, ultimately culminating at a level where the Container Carriers OPEX is considerably higher than before, without a corresponding increase in freight rates.
To mitigate the impact of such increases in costs on the bottom line and to continue providing services, as usual, Carriers levy a General Rate Increase (GRI) or Emergency Rate Restoration (ERR) charge, applied across the board for the particular trade lane in question, applicable to all customers.
While contractual customers are subject to such GRI/ ERR within the covenants of their contracts with the Carrier, spot market customers generally experience a relative increase in freight rates.
GRI is charged in USD and on a per-container basis.
Peak Season Surcharge (PSS)
There are certain times of the year when cargo volumes are far higher than usual, driving Carriers to deploy additional capacity to cater to the increased volumes. This typically happens during the months before Christmas when retailers front end cargo bookings fill their shelves to cater to Christmas shoppers or during the months prior to the Chinese New Year when importers in the USA and Europe rush to stock up inventory before Chinese factories close to celebrating the Chinese New Year.
Other cases might include times when seasonal commodities are exported from a country at a particular time of the year, causing higher than average container volumes.
In these situations, Carriers impose a Peak Season Surcharge.
The duration that the PSS will be applied for is not uniform and might vary from Carrier to Carrier and change year upon year, depending on available capacity, the strength of demand and the routes involved.
The PSS is applied on a per-container basis, in USD.
International Ship and Port Facility Security (ISPS) Surcharge
Post the 9/11 attacks in the US, the IMO and governments globally realised that ships too were similarly vulnerable to the threat of terror attacks. In the aftermath of the attacks, the IMO adopted a series of comprehensive security measures incorporating the shipping and ports sector globally.
These measures were promulgated under the International Ship and Port Facility Code, with the additional costs arising thereof being borne by the shipper/ customer.
The ISPS surcharge can be applied in the form of Carrier Security Fee and/or Terminal Security Charge, charged by Carriers and Terminals respectively.
Source: Marine Insight