Saturday 17th Nov, 2018

INDUSTRY OPINION: Booking Cancellation Fees – are they fair?

Photo: Jim Wilson
Photo: Jim Wilson

THE Australian Bureau of Agricultural and Resources Economics and Sciences (ABARES) forecasts this year’s grain crop to be at least 31% lower than 2016/2017. The previous had estimated the 2017/2018 crop to be the fifth largest on record, although that figure has since been revised down by 9%.

As industry observers are aware, last year’s record grain crop caused mayhem for international liner shipping, where service and equipment forecasting was revealed as an inexact and unreliable science. Extra fees associated with container repositioning dampened Australia’s economic dividends from what was potentially a once in a generation event. Many shippers couldn’t get space on the berth, bookings were rolled and we had to assure our members that it wasn’t one big shipping line led conspiracy.

While it wasn’t a grand conspiracy, mutual trust had long been eroded. Shipping lines know that shippers scatter their bookings and show very little loyalty in liner services. Shippers know that some shipping lines were exporting empty 20’ food quality containers at the height of the 20’ food quality container deficit and are chasing extra fees and surcharges at every turn to keep their balance sheets buoyant. In this environment, who can you trust?

Coming into next peak season, shippers have been spooked. They need guarantees around space and equipment. Perhaps unfairly, some shippers want those guarantees without paying a premium on the booking. Some have, against our advice, taken forward booking positions with several lines, nervous about a lack of space. It is hedging as an insurance policy. The shipping lines have responded. On Wednesday August 30, 2017, Maersk published an industry notice announcing an increase in Booking Cancellation Fees from AUD100 to AUD250 per 20’/40’ dry container. Since then, another shipping line has raised the stakes, market testing a USD250 cancellation fee. Hapag-Lloyd has a much fairer position – AUD100 per container within three days of ETA at the load port. Let’s hope the grain arrives.

One shipping line has produced data to support the claim that there has been a spike in container “no-shows”. In most cases it is a lot of the usual suspects, shippers or forwarders who have systemised hedged bookings. But, the good guys, the true shippers, with real cargo, are also swept up. In an agri-export economy we are faced with unpredictable events- weather, up country rail issues, packing issues. Things happen. Fortunately, one shipping line has confirmed that they will apply leniency where shippers can demonstrate true and extenuating circumstances.

Hedging bookings does distort the market and it does create a real cost impact for shipping lines. But underlying all of these behaviours is the mutual breakdown of trust between shippers and shipping lines. Peak season issues and rolled bookings have made shippers uneasy, and rightfully so. What happens if a booking or service is rolled? We have been told that the stevedores receive compensation, but shippers wear the cost, and no compensation applies. APSA maintains the position that two-way accountability should exist. If shippers and forwarders are faced with punitive cancellation fees, then they should also be compensated by the shipping lines when bookings or containers are rolled. It is the only reasonable position.

Word on the street is that the outlook for shipping lines is looking rosier. Gone are the bottom-of-the-cycle days where shipping line revenue was anchored down by a vicious rate war. Consulting house Drewry Maritime Research reports that “Annual contracts being renegotiated on the Asia-North Europe and Asia-US West Coast routes are typically seeing container annual freight rate increases of about 50% (although from a low base).”

Perhaps technology will deliver the much-needed governance? Two-way penalties are the foundation of the New York Shipping Exchange (NYSHEX), a technology platform that facilitates enforceable contracts between shipping lines and shippers. There is no doubt that an impartial umpire is needed, and perhaps this is the solution.

We also understand that Booking Cancellation Fees and two-way accountability will be addressed at the upcoming Global Shippers Forum AGM in the Canary Islands, where shippers globally will be looking to form a uniform position on this issue.

In the meantime, it’s important for shipping lines to consider the realities of Australia’s agri-export economy before the introduction of punitive fees. If accountability exists then it should exist for both the shipper and the shipping line.

* Travis Brooks-Garrett is secretariat at Australian Peak Shippers Association

Send this to friend