Shipping Price Distorted By High Demurrage

"The reason for the rise of demurrage is the United States." An expert in the shipping industry who did not want to be named disclosed to the 21st century economic report that since the middle of last year, the United States ports continued to be congested due to the epidemic situation, and a large number of containers were overstocked at the terminal of the destination port. The chain reaction aggravated the crisis of shortage of containers in the market. In order to speed up the container turnover rate, shipping companies have recently shortened the free container period or refused to apply for exemption, resulting in a substantial increase in the demurrage and demurrage expenses of many consignors.

Container xchange, an online container leasing and trading platform, shows that in 2021, demurrage charges at the world's top 20 ports have increased by 104%, equivalent to doubling, to an average of $666 per container.

It is this cost that enlarges the "sea freight" at the tip of the storm. However, if we look at it carefully, why is it not distorted that the sea freight prices have reached new highs?

The longer the detention time, the higher the cost, just like the snowball rolling.

Where does demurrage come from

What is the demurrage fee? Demurrage (D & D) refers to demurrage and demurrage.

Shipping experts explained to reporters that the demurrage fee is not only generated now, nor is it a new charge subject during the epidemic period, but has appeared long ago. In order to speed up the circulation of containers and avoid overstocking, shipping companies have set a free use period for containers. During this period, the goods can occupy the container free of charge. If the time limit is exceeded, the fixed fee will be paid, which is the demurrage fee. Different shipping companies have different regulations on this. Generally, the free use period is 7 to 10 days. The demurrage charge is similar to that charged by the port. Containers can be stacked on the wharf for a period of free. Generally, it is 7 days. In some ports, it is about 3 days. It depends on the port regulations.

According to a catalogue of demurrage charges collected by major shipping companies, OOCL, APL, COSCO Shipping and one provide customers with a free use period of 7 days. The first three charge about 190 yuan per day for each 40tue high container from the 8th to the 14th, and 380 yuan / day from the 15th day, and 760 yuan / day for more than 40 days. The charge for one is slightly lower, only 160 yuan / day is charged within 8-14 days, 320 yuan / day for 15-29 days, and 640 yuan / day for more than 29 days. Herbert is free for the first ten days, 400 yuan per day for 11-18 days, and 680 yuan / day for more than 19 days.

Dafei's fee is much more expensive. It only gives four days of free use. It charges 228 yuan / day for 5-11 days, 454.5 yuan / day for 12-15 days, and 909 yuan / day for more than 16 days.

Relevant people from Maersk sent a reply to the 21st century economic report, explaining that Maersk gives standard free container period for China's import and export goods, ranging from 7 days to 11 days in different ports. The part exceeding the free use period will be charged RMB per container daily detention fee from customers in a step-by-step progressive basis. Maersk will provide 10-21 days, or even 30 days free of charge, for some import declaration inspection and quarantine time-consuming or large volume of goods, such as wood, wood pulp, ore, agricultural products, etc., as well as key customers who have close business cooperation with the company.

The person said that Maersk only collects detention fees in Nansha, Yantian and Chiwan ports in South China. The demurrage charges of other ports in East China, North China and South China are settled directly by the customer and the wharf, and the company does not participate in the collection. The free container period and standard rate of demurrage are similar to those of demurrage.

No matter which shipping company is, the longer the detention time, the higher the cost, just like snowballing. The purpose is to return the container as soon as possible and speed up the operation efficiency.

Although there was such a fee before, it rarely caused much controversy. Sometimes customers can apply for relief with the shipping company. But the epidemic has made a difference.

Container xchange, an online platform for container leasing and trading, recently released the benchmark report on demurrage and demurrage charges in 2021, which shows that from March 2020 to March 2021, the average demurrage charges charged by ports and shipping companies to customers in the world's 20 largest container ports more than doubled, up 104%, equivalent to $666 / container, two weeks after the container was unloaded.

Among them, demurrage charges in China are much lower than many other major ports, and seven of the ten cheapest ports are in China. By comparison, the average demurrage after two weeks of unloading at long beach in March this year was $2638, the most expensive in the world. Second place is the neighboring Los Angeles, which costs $2593.

"Demurrage has always been an area of conflict between shippers and carriers, and this tension has reached new levels this year as costs spiral up," said Christian roeloffs, co-founder of container xchange

This is why shippers in Europe and the United States frequently ask the government to investigate.

The source of the distortion is in the United States

"With regard to container demurrage, the FMC's top priority remains to identify and take action against those who flout the FMC's recent interpretation of reasonable rules and practices," FMC chairman Daniel Maffei said in a statement

For a while, the cold wind in the shipping market suddenly rose. On Friday, affected by the news, a large number of shipping stock prices fell. As a matter of fact, this is not the first time that FMC has launched a relevant investigation on demurrage charges. There were precedents around 2007. On March 6, 2020, FMC set up a special team to investigate the causes of high demurrage charges. But it didn't end in the end. According to the above maritime experts, it is because there is no illegal collection of fees.

"We hope to speed up the turnover of containers, reduce the detention time of containers at the clients and improve the efficiency of container utilization. This is particularly important in the case of a large shortage of containers in Chinese ports due to the impact of the global epidemic. " Maersk related people explained to reporters that the container detention fee and detention fee were collected based on this consideration. It is a standard charge item, that is to say, the customer will complete the operation within the reasonable free period provided by the company without any cost. Take imports as an example. In 2021, Maersk provided customers with standard and preferential free use of containers for an average of 14 days and 9.2 days for customers. That is to say, most customers will not incur demurrage charges. Only a small number of customers occupy the equipment for a long time for their own reasons can they have higher costs.

It is understood that "at present, the rental rate of the world's top container leasing companies has reached a record high of more than 99% Bohai leasing staff disclosed to reporters that in the first quarter of 2021, the scale of container fleet owned and managed by the company reached 3.92 million CEU, a year-on-year increase of about 4%, and the average rental rate of containers has reached the historical highest level of 99.1%.

What is the cause of the surge in detention fees“ In fact, the source is still the United States itself. " The maritime experts told reporters that the sharp increase in the round of detention charges was due to the massive congestion of American ports caused by the epidemic.

Affected by factors such as labor shortage caused by the spread of overseas epidemic, ports in Europe and other places in the United States have been seriously congested since the fourth quarter of 2020. For example, Los Angeles port and Long Beach port are the most congested ports in the United States. Currently, there are more than 30 container ships waiting for berthing, and 85% of the vessels need to anchor for at least 8 days to operate; The longest detention time of container cargo at the wharf is 2 months. However, European routes usually call at multiple ports, and the whole voyage time is prolonged due to congestion in all major ports.

Foreign ports are congested, logistics supply chain is disordered and efficiency is reduced, which leads to large-scale delay of container shipping. Xie Xie, a researcher at the Institute of water transportation science of the Ministry of transport, points out that from the perspective of the rate of punctuality of routes, the rate of punctuality in Asia America East Asia is as low as 6.74%, and that of several major routes around the world is about 20%. Before the epidemic, the accurate shift rate of liner companies fluctuated between 60% and 80%. The reason for this low rate is the continuous fermentation of the new epidemic situation in European and American ports, which has seriously affected the operational efficiency of container ships and intensified the contradiction between the transport capacity of container ships and the supply and demand of empty containers.

In this case, shipping companies can only find ways to speed up the transfer of containers. A staff member of a large freight forwarding company, who did not want to be named, told the reporter that in fact, the demurrage and demurrage charges of various shipping companies did not increase, they are still the same as before“ The problem is that the possibility of applying for relief is less and less than before, and there are fewer and fewer contracts with special free period terms. " The freight forwarder staff revealed that the possibility of successful single ticket application is almost zero.

Then, in the case of port congestion and slow container handling efficiency, the container beyond the free use period of seven days will start to charge demurrage charges according to the original standard, resulting in double the cost. Whether shipping companies should charge demurrage due to delayed delivery of goods due to epidemic factors has been debated in the legal field, and this is probably the reason why the US government has checked and re examined.

The world shipping Council (WSC) has warned that shipping companies have "made every effort" to cope with the extreme logistics time of supply chain disruption caused by covid-19, but unfortunately the epidemic has hindered ships from berthing and unloading cargo.

Maersk also said that the "perfect storm" caused by the epidemic led to "the interaction of many factors beyond the control of any one stakeholder".

According to the Baltic Freight Index (FBX), freight rates from Asia to the east coast of the United States are particularly strong, rising nearly $700 to $11045 / feu on Friday, up more than 200% from the same period last year. Freight rates from Asia to the west coast of the United States fell $500 to $6046 / feu, but were still nearly 151% higher than in the same period last year.

As the shipping industry enters the peak season, the situation of shipping companies is likely to worsen in the coming weeks, but representatives of the liner companies say they can't be blamed. Freight rates are distorting, and it is not the shipping company that caused it. A staff member of the liner company pointed out to the reporter that the freight rates of the liner companies operating in China are actually recorded in the Shanghai air exchange. The various fees are clearly listed, and the freight is far less than the market speculation“ We didn't release the freight of more than $10000. " The above-mentioned people believe that the media and the government should investigate who is frying up transportation charges in the market.

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