Every time surcharges are announced it creates nothing but acrimony among shippers and freight forwarders alike. Just look at the reactions recently to the UK port congestion surcharges announced by the FEFC:

"This charge is nothing more than a 'tax' on success. Our members and their clients are immensely successful in serving the needs of UK consumers and businesses. This cartel-type throwback to a bygone age is determined to wring yet more money out of our members pockets, while it still has the chance, ahead of abolition next autumn." Director General, Peter Quantrill, British International Freight Association (BIFA)

"There are huge problems with congestion at Britain's ports, but introducing a charge does nothing to address this. This is a very outdated and inappropriate response by the Conference to a complex problem." Christopher Snelling, Freight Transport Association.

The ESC has weighed in behind these comments suggesting that "the recent imposition of a UK port congestion surcharge represents a classic example of where liner shipping gets it so wrong in the eyes of its customers… there has been no reference to any attempt to improve the situation, to lessen the delays or the impact of the delays on their customers. These would have been the things that would have impressed shippers, rather than receiving a demand (a surcharge) for the alleged added costs being experienced by the shipping lines."

Little, it seems, infuriates shippers and freight forwarding companies more than surcharges, yet the carriers, whether air or sea (for these are the arenas in which surcharges are most visible and contentious) swear by them as the only way they can recover costs that they cannot, it seems, predict.

What then is the solution?

Can someone explain to me why costs associated with fuel price, currency exchange rates, congestion, security and ancillary charges associated with such things as terminal handling, cannot be treated in the same way as labour costs, health and safety compliance costs, financing and tax costs, inspections and audits by regulatory authorities, office overheads etc.? They are all costs of doing business.

Admittedly, fuel prices and currency exchange rates are proving difficult to predict on a monthly basis. But, looking at the annual average for these, the forecasts by the markets are often surprisingly accurate. It would suggest, to me at least, that these things can be covered in the general negotiated contract between the shipper/forwarder and the carrier.

What is to stop a shipper and carrier agreeing what the various fixed and variable costs might be and translating this into a cost for different ships or aircraft that may be used? This could be translated to a cost per TEU or per kilo. If the scope for error in the calculations is greater than either party can bear, for whatever reason, then why not work in some agreement (perhaps using an agreed formula) where the rate can be adjusted at periodic intervals agreed by both parties.

Such detailed negotiations may perhaps not be feasible for everyone but the carrier could build in a safety margin into a published all-in rate that covers the risk of mis-judging the costs during the term of a contract. The shipper can base his or her judgement on the price and standard of service expected or previously experienced: if happy, the shipper will book; if not then the shipper will go elsewhere: that is competition.

Would this not remove the conflicts brought about when surcharges are announced? Why is this so difficult, so unimaginable? Am I missing something? Can any one please explain?

Labels: air freight, sea freight, surcharges