The Impact of China’s terrestrial AIS ban

The Impact of China’s terrestrial AIS ban

The passing of China’s terrestrial AIS ban is a huge blow to the shipping industry that tries to evolve forward in terms of shipment visibility and sustainability. With the country’s two stringent data protection laws, the Data Security Law (DSL) and Personal Information Protection Law (PIPL) which was passed in recent months, collecting Chinese onshore data needs government intervention now more than ever before! The manufacturing hub is the second-largest economy and home to six out of ten of the world’s largest shipping ports. This definitely has an impact on everyday Chinese goods that we import.

About China's Personal Information Protection Law 

Personal Information Protection Law (PIPL) was passed on November 1st and comes with some pretty strict rules about how companies process your personal data, as well as what they can do once it leaves Chinese soil. The law does not specifically state anything on the lines of shipping data but still Chinese data providers are withholding terrestrial AIS data as a precaution which was visible in the drop of these data reducing from 300,000 terrestrial positions to almost 90% from the period of Oct 28th to Nov 15th.

Data Security Law 

Under Data Security Law (DSL) which was passed on Dec 1st, the Chinese government has ordered a data classification system that dictates which information is considered important and requires closer scrutiny. While both the laws do not have any mentions on how shipping data can be processed, why do companies hesitate to provide these Chinese data points? Any breach of the above laws has penalities that could potentially cost millions of USD which both the Chinese data providers and US companies that handle these data are afraid of, until a clear vision on how these laws are implemented on shipping data.

The Impact of China’s terrestrial AIS ban and the way forward.

Not all data is good data!

It is important to understand that China did not go on a complete blackout of AIS data as the assertion from news headlines claims them to be. It can be misleading at its best. In fact, we receive AIS data for the same amount of vessels that we received even before the new law came into effect. What has changed is the precision of data that we receive.

Terrestrial vs Satellite AIS 

For maritime traffic monitoring, AIS is an essential tool that provides collision avoidance between ships by real-time tracking of their locations. The system can be used by companies in order to predict the movements of vessels with the signals that are received from AIS transponders installed onboard. What China has blocked is the data sharing of AIS reports received via terrestrial receiver stations located on-shore. Still, Satellite AIS is available for the public that can fill this missing puzzle to an extend. Terrestrial AIS reports have accurate real-time visibility for vessels that are near anchorage and ports with signals processed every 30-45 seconds against satellite signals that can range from minutes to hours depending upon the multiple macro factors.

What is the Impact of this missing data?

Port congestion: AIS data providers that solely depend on AIS information to forecast and pinpoint port congestion will have challenges in providing real-time visibility over the time at port and anchorage data. Port congestion is a dynamic dataset that needs real-time visibility backed by multiple data sources and not just solely satellite AIS, in this case.

Green shipping:  From a sustainability standpoint now that countries and major carriers are partnering to promote green shipping, the lack of such real-time data can be a hindrance to promoting these sustainable efforts.

ETA calculation: Real-time ETA calculation can be a hurdle which can have a domino effect on how the rail and truck planning happens with respect to container discharge. The current systems that are alternatively based on historical routes can’t keep up with current traffic patterns and will cost us inefficiency.

How can we overcome these Challenges?

Reducing dependency on a single source: End of the day, the problem is not whether we have terrestrial AIS data but rather it is about the inadequacy of relevant data and intelligent data crunching systems to make any data-backed decision. For an instance to calculate port congestion and ETAs, here at GoComet we use multiple data sources and variations such as geo-fence signals from ports backed by data from server integration with more than 250 carriers and 50,000 containers that are tracked on monthly basis to calculate accurate port delay and milestones till vessel discharge.

With the intelligent combination of available resources, strategic partnership with carrier lines, and proper data crunching of existing data shippers can always take actions to streamline any shipment planning from point A to point B.

Shipping Giants on a buying spree : Aim to offer total logistics

Shipping Giants on a buying spree :  Aim to offer total logistics

The pandemic and related challenges have benefitted the shipping industry. U.S Government support especially payments/cheques to U.S. households, fuelled a consumer spending spree. Freight rates have soared. In September 2021, a container from China to New York cost $22,000, eight times its 2019 price. That has boosted shipping firms’ bottom lines. Market leader Maersk’s EBITDA will nearly treble in 2021 to over $23 billion. The firm, which the market valued at $59 billion in mid-December, is likely to be carrying over $17 billion of net cash in 2022.

A Smart Move  

The normal response for CEOs like Maersk’s Soren Skou would be to buy ever bigger ships. Yet March’s blockage of the Suez Canal shows the dangers of excessive bulk. And the arrival of lots of new vessels in 3 or 4 years may create an excess supply of container space, sending freight prices downwards and also the shipping company margins.

A smarter move may be to invest in getting containers seamlessly from port to customer. Danish shipping and freight specialist DSV bought the logistics unit of Kuwait’s Agility Public Warehousing in April for $4.1 billion for just such a reason. France’s CMA CGM and Maersk both pulled similar moves in December. At $51 billion, DSV is too big even for Maersk. Switzerland’s Kuehne und Nagel, at $34 billion, would also be a challenge. However, its shares shed 25% in September and October as freight rates eased. If those trends continue, the company could come into play in 2022. U.S. land-transport specialist CH Robinson Worldwide, now worth $13 billion, would be another option.

Bringing sea and land services under one roof would allow for cost savings. It would also make it easier for operators to plot a course through future supply-chain bottlenecks and charge a premium for speedier delivery. Danish wind turbine giant Vestas Wind Systems, which has struggled to get parts throughout 2021, signed just such a deal with Maersk in November.  

 

Maersk is on a buying spree

Maersk owns more container ships and containers than anyone on earth, but it would be a mistake to think of the company as just a cargo shipping line. It’s also an airline, a trucking company, a port terminal operator, and a freight forwarder. Maersk has been steadily purchasing a piece of virtually every stage of the global supply chain as part of its ambition to become a one-stop shop for logistics.

Maersk struck a deal that offers a glimpse at the future of its business—and the future of global shipping. Starting next year, Maersk will effectively run the logistics operations of Unilever, one of the world’s largest consumer goods companies. Maersk announced in a press release that it “will be providing operational management of international ocean and air transport” for Unilever from 2022 to 2026.

International Control Tower Solution  

Come 2o22, Maersk will develop and help run a piece of in-house software, dubbed the “International Control Tower Solution,” to manage Unilever’s supply chains. “It’s a strong indicator that Maersk’s expertise extends well beyond sailing ships,” said Eytan Buchman, CMO at the cargo booking platform Freightos, who has written about Maersk’s acquisitions and expansion. “Combined with their other assets and what they’ve been building towards, it’s not a stretch to assume that this is another rung in the ladder towards full end-to-end global supply chain ownership.”

 Other developments in context

A.P. Moller-Maersk and wind turbine maker Vestas Wind Systems said on Nov. 10 that they had signed a long-term strategic partnership, including door-to-door transport from Vestas’s suppliers to its factories.

French shipping group CMA CGM said on Dec. 8 that it had agreed to pay $3 billion for the logistics arm of privately owned U.S. services firm Ingram Micro’s Commerce  & Lifecycle Services.

Maersk’s well-publicised acquisition of Senator, two 777Fs and leases on three 767-300Fs for its Star Air subsidiary, as well as its move into forwarding, could well disrupt the market. Then, of course, there is CMA CGM’s decision to set up its own airline, having acquired four A350Fs, two 777Fs and four A330Fs. As owner of Ceva Logistics, like Maersk, the line is looking to become a one-stop shop.

India’s Rice Exports Jump 33% On Year In FY22

In the first seven months of the current financial year (2021-22), India’s rice exports rose by more than 33 per cent to 11.79 MT from 8.91 MT achieved during April-October, 2020-21. It is anticipated that India’s rice exports in 2021-22 would likely surpass the record feet of 17.72 MT achieved in 2020-21.

In 2020-21, India shipped non-basmati rice to nine countries – Timor-Leste, Puerto Rico, Brazil, Papua New Guinea, Zimbabwe, Burundi, Eswatini, Myanmar and Nicaragua, where exports were carried out for the first time or earlier the shipment was smaller in volume. India’s Non-Basmati rice exports was valued at USD 4796 million (Rs 35448 crore) in 2020- 21, with Basmati Rice exports a close second at USD 4018 million (Rs 29,849 crore). In terms of volume of Basmati rice exports in 2020-21, top ten countries – Saudi Arabia, Iran, Iraq, Yemen, United Arab Emirates, United States of America, Kuwait, United Kingdom, Qatar and Oman have a share of close to 80 per cent in total shipments of aromatic long grained rice from India.

“India continues to supply rice to the global market thus ensuring food security in many countries while many countries are stockpiling in anticipation of logistical disruption because of Covid-19 pandemic,” said M Angamuthu, Chairman, Agricultural and Processed Food Products Exports Development Authority (APEDA).

Four key disrupters to the supply chain guaranteeing another challenging year for shippers

Four key disrupters to the supply chain 

1. The changing relationship between Shipping Line and NVOCCC. forwarders

Carriers are withdrawing from NVOCC relationships and others making it difficult for NVOs to offer carrier-like fixed-contract rates to shippers under preferential ‘named account’ terms agreed in advance with ocean carriers,” it said.

Several forwarding contacts have NOT been able to secure rate agreements from the lines for January on the Asia-North Europe and transatlantic routes. “Our account manager seems to have gone to ground – 18 months ago we couldn’t get rid of him, now he’s constantly unavailable and doesn’t reply to our e-mails,” said a director of one UK-based NVOCC.

Another forwarder said all he got back from his account manager was “excuses” for not quoting January rates, and that the stock answer from carriers was: “Let’s wait until after CNY.” As a consequence, small, and even some mid-sized, forwarders and NVOCCs are unable to offer any guidance on next year’s freight charges to their shipper customers.

The fear from this situation is that it will force many smaller shippers to, at best, defer their orders or, in some cases, abandon their product orderbooks altogether, given the uncertainty in the market and the risk that lower-value imports will become unsustainable.

2. Risk of contract disputes involving bigger shippers 

A ‘second threat’ to the supply chain in 2022, Drewry also sees the risk of contract disputes involving bigger shippers that have sufficient volume to negotiate long-term deals with carriers.

“More BCOs – even the largest ones – will have to accept the new reality of the market: you cannot expect to ship 10 containers one week, 50 containers the next and hope to get 100% capacity for both weekly volumes,” said Drewry.

“Carriers are already telling BOs that their capacity in 2022 will be the contractual MQC [minimum quantity commitment] a year ‘divided by 52’,” said the consultant.

As a result, disputes about carrier ‘dead freight’ charges for slots not used – more often only seen on the charter market – will arise, as they will when weekly volumes are in excess of the MQC.

“Disputes will spread in 2022 about how to deal with excess volume above weekly MQC, and deficit volume below weekly MQC, and about associated penalty clauses,” said Drewry.

3. Disruptions around the longshoremen contract renewal negotiations in the Q1 2022.

Meanwhile, the consultant warned shippers on the transpacific using US west coast ports, to be prepared for possible supply chain disruptions around the longshoremen contract renewal negotiations in the first quarter.

“For BCOs with long memories of earlier disputes, now is the time to look at alternative routes to avoid US west coast ports,” said Drewry.

4. Uncertainty caused by COVID : Possible lockdowns and disruptions in terminals and shipping operations 

The fourth – and constant – threat to the supply chain next year listed by the consultant is, of course, the pandemic.

“China’s current zero-tolerance Covid policy makes it particularly likely to shut down – and without prior warning – more secondary ports, more barge operations and more feeder operations, as new cases arise,” said Drewry.

“Further lockdown measures in other countries, triggered by new Covid variants cannot be ruled out!

Realising the true potential of a fast growing Bangladesh automobile market

 

Realising the true potential of a fast growing Bangladesh automobile market  

 

Even though the affluent middle-class in Bangladesh is growing rapidly and increasing its purchasing power, the demand for passenger cars are still low compared to India and Thailand.

According to a LightCastle study, the size of the country's automobile industry, in particular the passenger vehicle segment, remains modest compared to other Asian peers with only 2.5 cars per 1,000 population.

The market has grown multiple fold over the years and has become an industry worth USD 1 billion. However, the industry experts believe that the market size of passenger cars is not bigger than Tk 5000 crore. According to the Bangladesh Road Transport Authority (BRTA), only 20,093 passenger vehicles were registered in 2020, covering a mere 5.3 percent of the automobile industry volume.

Passenger vehicles include sedans or private cars, sport utility vehicles (SUVs), and microbus or multi-purpose vehicles (MPVs). Within the passenger vehicle segment, sedans (also referred to as private cars) accounted for almost 55 percent of vehicles, with 12,403 units registered in 2020.  The remainder of the passenger vehicles segment was captured by SUVs and microbuses with 4,911 units and 2,779 units respectively. These numbers have also changed over the last few years, where SUVs and MPVs have mostly recorded a gradual increase in demand, while the registration of sedans have at times been stagnant or even decreased.

  

The fast growing automobile market in Bangladesh

The automobile market in Bangladesh has seen significant growth in the last decade, especially between 2015 and 2017. At the peak of its trajectory, BRTA had reported 32,942 registered passenger vehicles in 2017 that has since been in decline. Between 2018 and 2020, the number of registered passenger vehicles has declined by almost 39 percent.

Moreover, the automobile industry is still heavily import dependent. Currently, Pragoti locally assembles cars made by Japan's Mitsubishi Motors while PHP Motors, a sister concern of the PHP Family based in Chattogram, assembles cars designed by Malaysia's Proton Holdings Berhad.

 

Tata Motors, Mahindra & Mahindra keen on setting units in Bangladesh 

Indian automotive giants Tata Motors and Mahindra & Mahindra recently showed interest in setting up similar partnerships with local manufacturers to grab a bigger slice of the growing Bangladesh automobile market. At present, about 60 to 65 vehicles are sold across the country each day.

When the market had just started to take off in 2012, the daily figure was 29, indicating a 117 percent increase in the last eight years according to Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA). In 2019, car sales amounted to Tk 5,000 crore, which was more or less the same the year before.

 

Automobile Industry Development Policy 2021 to boost the four-wheeler industry

Bangladesh's thriving automobile sector has grown 8 percent on average annually since 2012, according to industry insiders. According to the Automobile Industry Development Policy 2021, the local automobile industry has been considered a potentially major industrial sector for the last two decades as it has registered impressive annual compound growth and contributes greatly to the national economy.

Bangladesh will cut its over-reliance on imported vehicles, switch to electric modes of transportation and become a regional hub for automobile manufacturing by 2030 as the government unveiled the country's first-ever policy to develop the sector.  The policy promises to offer tax and export incentives to encourage entrepreneurs to establish automobile plants in the country.

The market is growing annually at a rate of 8 percent with an increasing purchasing capacity of the growing middle class of the country. The middle class are the main customers for passenger cars. As per the policy, investors will get the opportunity to import capital machinery and equipment to make cars at zero duty.

Besides, commercial vehicle manufacturers will get duty-free access for the import of auto parts for four years. Investors will get concessional loans to market locally manufactured commercial vehicles, according to the policy issued by the industry's ministry on Tuesday.

A 15 percent cash incentive will be given for the exports of locally assembled or CKD (completely knocked down) cars. The local automobile industry is nearing critical mass thanks to its ability to adopt new technologies and increased efficiency in human resource management.

"Bangladesh's automobile industry could even become a part of the global supply chain in the future," the policy states. Growing demand for cars and motorcycles is a result of the rise in purchasing power among the general public, it added.  The policy aims to provide a clear roadmap on how to take the country's evolving automotive ecosystem forward.

On the other hand, the policy discourages the import of completely built-up units of used vehicles as locally assembled cars are more affordable than the imported ones.

The government will attract both local and foreign investment, the policy said. The authorities will set standards for locally manufactured vehicles in keeping with global benchmarks, and help local manufacturers to enter new markets.

"Progressive leasing policy will be pursued to help locally-made automobiles expand their markets," said the policy.

Abdul Matlub Ahmad, chairman of Nitol-Niloy Group, said the policy would help Bangladesh become an automobile manufacturing nation. "Customers will benefit as they will get vehicles at affordable prices," he said.

Thanks to the policy, local manufacturers will be able to sell a sedan car within Tk 10 lakh as customers would not have to pay import duties, according to the entrepreneur.

The government will draw up a reconditioned car management guideline to support the firms involved in running reconditioned car businesses and local manufacturers.  An automobile scrapping policy will also be formulated. The government will impose anti-dumping taxes to prevent dumping and unfair trade practices.

A one-time 100 percent duty and tax waiver will be extended for the imports of machinery to set up CKD factories.

The total tax incidence will be 25 to 35 percent for CKD level manufacturers for imports of parts. It will not be more than 10 percent if parts are sourced locally, the policy mentioned.

Factories will be entitled to a 1 percent tax rebate if they spend 1 percent of their annual income on research and development. The policy will look to transform a majority of the vehicles, particularly passenger cars, buses, trucks and three-wheelers, into electric vehicles (EVs) by 2030. A 10-year tax holiday will be provided to EV assemblers or manufacturers.

In order to ensure higher production of EVs and keep the emission levels to a minimum level, the government will offer financial incentives, waiver of road tax and reduced registration fee for a certain period.

  

Challenges of automobile sector in Bangladesh

According to the market players, the market size of passenger cars is still infant.

Mannan Khan, chairman of Bangladesh Auto Industries Ltd (BAIL), said, "In our country, the lower-middle and middle class dream of buying vehicles but they cannot afford it as the prices are excessive."'

Industry insiders said the government imposed the duty on import of car in early nineties when only the rich would buy cars for their own use or commercial purposes.

However, after 30 years, the economy of the country has changed a lot –so now the car has become necessary for the urban-middle and higher-middle class. Due to high tax, the price of a car is very costly in Bangladesh, and for this reason, the market for four wheelers is yet to boom like India and Thailand.

According to car importers, when a car is imported at USD 5,000 from Japan, the retail price becomes around Tk 22 lakh in Bangladesh due to high tax. The middle-class citizen cannot afford a car of his own due to the high price of car. And the market size will not increase without reducing tax on local manufacture.

All about The Ocean Shipping Reform Act

The House of Representatives in Washington DC passed legislation on 8th December providing for the first major update of U.S. International ocean-shipping laws in more than two decades. That comes as the nation continues to grapple with bottlenecks at its ports that are crippling supply chains.

The bipartisan bill designed to strengthen shipping supply chains. The Ocean Shipping Reform Act (OSRA) was passed in the house in a 364-60 vote. The bill requires shipping companies to adhere to “minimum service standards that meet the public interest” and blocks them from unreasonably declining cargo.

Improved data collection and reporting practices will also be put in place under the bill, through the creation of a shipping exchange registry. It will also increase Federal Maritime Commission (FMC) funding by 10% and directs the FMC to release an annual report on shipping operators and marine terminal operators filing false certifications.

OSRA21 will reduce or eliminate carrier price gouging, epic freight costs, record delays.

“This legislation works to address unfair shipping practices by tackling the worst instances of abuse from bad actors in the shipping industry in an effort to boost our country’s global competitiveness,” Democrat representative Kurt Schrader said in a statement.

The Ocean Shipping Reform Act of 2021 was introduced by U.S. Congressmen John Garamendi (D-CA) and Dusty Johnson (R-SD) and was approved by the House with a vote of 364 to 60. The bill now goes before the Senate for further consideration.

The Act would help agricultural exporters by improving the Federal Maritime Commission’s ability to enforce its interpretive rule on predatory detention and demurrage fees as well as prohibiting ocean carriers from continuing to unreasonably decline export bookings.  The bill would help place guardrails on the ocean carriers’ actions. 

Other parts of the American supply chain welcomed the bill’s passing. It now needs to get the approval by the Senate to pass into law.

“Once passed, OSRA21 will reduce or eliminate carrier price gouging, epic freight costs, record delays – and other unfair and excessive punitive fees that only fuel inflationary pressures,” said Steve Lamar, president and CEO of the American Apparel & Footwear Association.

John Butler, president and CEO of the World Shipping Council, a liner lobbying group, said he was disappointed the bill had been passed without proper debate or committee process. “The bill is a political statement of frustration with supply chain challenges – frustrations that ocean carriers share. The problem is that the bill is not designed to fix the end-to-end supply chain congestion that the world is experiencing, and it will not and cannot fix that congestion,” Butler said.

The Global Supply Chain Crisis Is Creating Opportunities For Innovation In Sustainability

The Global Supply Chain Crisis Is Creating Opportunities For Innovation In Sustainability

 

The current supply chain crisis due to the Covid-19 pandemic has created a sense of urgency for companies to rethink their supply chains and the way they work with their factories and vendors.

How does this global disruption create opportunities for sustainability? The short answer is that it creates opportunities through simplification, such as simplification in raw materials, packaging, local manufacturing, inventions in new material, circular consumption and so on. As we shift from brick-and-mortar to e-commerce, sustainability has important implications for the upcoming holiday season. Let's explore these areas in detail.

 

Ctrl + Shift To E-Commerce

In retail, the pandemic forced many companies to shut down operations for weeks or months. These disruptions created a significant opportunity for e-commerce companies that were able to quickly operate warehouses and replenish stock. Efficient operations will be especially important when supply chains get strained from Black Friday through Cyber Monday and beyond.

The growth of e-commerce and the move to online retail has actually helped companies that handle their own distribution, such as Amazon. Traditional retailers have been forced to adapt by becoming more efficient with their operations and leveraging technology in order to compete. At my company, we've seen tremendous growth in e-commerce across nearly all market segments, and we expect this trend to continue.

Another advantage for large e-commerce companies, like Amazon, is that they can use their size and scale to improve efficiencies and provide added services, including supply chain management, customer service, returns processing, payments processing and so on. All of this helps them gain further competitive advantages over traditional retailers.

Global disruption and its big impact on sustainability.

Companies are dealing with labor shortages, material constraints, equipment issues and shipping capacity constraints. If retailers can't manage their existing inventories effectively or adjust their product offerings quickly enough — or if there is a disruption in production or shipping — they risk losing customers permanently.

This disruption is directly impacting consumers, and increasing their awareness of the supply chain. At the same time, sustainability is becoming a bigger part of the conversation, whether it's about local manufacturing or slower and more efficient deliveries. Consumers are voting with their wallets for companies that prioritize sustainability and transparency.

One obvious benefit of the shift to e-commerce is that digital companies don’t need as much shelf space to stock inventory. Since consumers are buying directly online, packages no longer need to be designed with the shelf in mind. Instead, the focus can be on getting the product to customers as efficiently as possible.

That said, increasing demand and deliveries is highly carbon-intensive. To mitigate these issues, brands need to invest in smarter software and more efficient supply chains. They need to also look at their product design and packaging and think about how they can reduce waste and use less packaging. All of these things add up.

Some brands are also offering slower deliveries to offset carbon footprint and waste. Brands can include their sustainability measures in their descriptions, packaging, ads and so on to inform customers about the impact of their choices.

Brands can also educate consumers about the carbon effects of their purchases. For instance, companies can provide customers with information on how to offset the impact of their purchase (such as by funding reforestation projects).

As McKinsey reports, packaging-related sustainability initiatives include eliminating unnecessary packaging, increasing the use of recycled content, using more mono-materials and more.

The end result is that companies can reduce the carbon footprint of their operations by using fewer materials and less energy per package. This is becoming increasingly important, given that companies are strengthening their sustainability initiatives. Amazon, for instance, has announced that it aims for 50% of shipments to be net-zero carbon by 2040.

 

Sustainability In The Holiday Season

Companies are also realizing that sustainability is important for their brand. Many have created sustainability reports to demonstrate how they are improving the environmental impact of their operations over time. This creates an opportunity to highlight those improvements in the lead-up to the holiday season.

Another way to achieve greater sustainability is the reduction of SKUs, which also addresses supply chain shortages and minimizes out-of-stock items. Instead of selling every possible combination of features, companies can emphasize multiple use cases to maximize the sell-through of an SKU. For example, a consumer goods brand could market a blender for the purpose of making juices, soups and smoothies, helping to maximize sell-through.

Additionally, companies can bundle multiple orders to reduce the number of shipments. Similarly, as an example of the circular economy, brands can reuse and recycle package materials where possible.\

Consumers have become much savvier about where products come from and who makes them — especially when buying gifts for family members or close friends who care about these topics. And retail consumers are increasingly looking for brands with a strong social and environmental commitment, which can help boost sales as well as reputation among other customers.

Ultimately, while global disruption is creating some uncertainty in the short-term, the long-term trend is toward more sustainability. This is creating opportunities for companies that are willing to embrace change and lead by example.

All about the Catastrophic & Crazy California Port fees

All about the Catastrophic & Crazy California Port fees

On 29^th October, two days after the ports of Los Angeles and Long Beach announced a surprise emergency fee for containers dwelling too long at terminals, the National Shippers Advisory Council (NSAC) held its inaugural meeting. NSAC, created to advise the Federal Maritime Commission, is composed of 12 U.S. importers and 12 exporters. Members include heavy hitters like Amazon (NYSE: AMZN), Walmart (NYSE: WMT), Target (NYSE: TGT), Office Depot (NASDAQ: ODP) and IKEA. Council members had a lot to say about the California port fees — none of it good.

Starting November 1st, the ports of Los Angeles and Long Beach will charge $100 per container for boxes dwelling nine or more days that move by truck and those dwelling six days or more that move by rail. The fee will increase $100 every day. It will be charged to carriers, which will then almost certainly pass the fee along to shippers, meaning it will be the equivalent of an escalating demurrage charge.

“As far as the ‘hyper-demurrage’ announced in Los Angeles/Long Beach, I think it will be catastrophic,” said Rich Roche, vice president of international transportation at Mohawk Global Logistics, during the NSAC meeting.

“Chassis are already in short supply and this will artificially suck out the rest of the containers that may be sitting in there [at terminals] that didn’t need to be on a chassis and now they’re going to be parked somewhere. It’s probably going to wipe out whatever’s left in terms of chassis,” predicted Roche. According to Steve Hughes, representing the Motor Equipment & Manufacturing Association, “I’m concerned that this new fee is going to cause even more problems than it’s going to solve. I understand the logic behind it and it makes some sense, but unfortunately, because we don’t have the throughput at the front gate, I think this can cause us more problems than we have already.”

Bob Connor, executive vice president of global transportation at Mallory Alexander International Logistics, said, “This absolutely came out of left field. I don’t see this charge doing anything but adding more cost, and freight rates being what they are, this is the last thing we need.”

 

 

Carriers to pass along fees to shippers/BCOs

NSAC members speaking during Wednesday’s meeting emphasized that the Los Angeles/Long Beach charges will ultimately be paid by shippers.

Daniel Miller, global container lead at Cargill, dubbed California’s emergency charges “crazy fees” and said, “We know this is all going to come back to us. I had a couple of calls with carriers yesterday and they have already admitted that yes, they are going to come back to us.”

Rick DiMaio, senior vice president of supply chain operations for Office Depot, said, “All fines and fees flow to us, to the BCOs / beneficial cargo owner.”

According to Ken O’Brien, president of Gemini Shippers Group, “What was done this week at the ports of Los Angeles and Long Beach is effectively an indirect tax on the American consumer.”

 

Connor said that it was his understanding that the ports could implement the charge without that notice, but carriers would have to give 30-day notice to shippers. However, that’s not the case if carriers already have language in tariffs allowing them to pass along port charges immediately. Ocean carrier HMM’s current tariff includes a clause that states, “The shipper shall be liable for payment of any charges or surcharges imposed on the carrier by any marine terminal, port authority, government authorities or other third party.”

In an online post explaining the clause, Stephen Nothdurft, vice president of the Midwest region at HMM, said, “This new charge [by Los Angeles/Long Beach] is going to be a pass-through for all of the ocean carriers. The carriers will hit the mark with the invoices. As it relates to HMM specifically, this was created based on the strong chance of such surcharges. Such fees have been blowing in the wind for quite some time, so any carrier would be astute to protect their interests.”

 

 

Do Port Demurrage fees incentivize faster moves?

The point of the “Hail Mary” Los Angeles/Long Beach fee plan is to forcibly unclog the terminals and get containers moving faster. The members of NSAC argued that these emergency port fees — as with traditional demurrage and detention fees — are not increasing container velocity given the current supply chain situation.

According to Miller, “I don’t think anybody on this committee would admit to using the port to let containers sit there because they want to. Everybody has the full intention to get these containers out, but they physically can’t.”

Adnan Qadri, director of global imports at Amazon, said, “In the past, the whole idea of detention and demurrage was incentivizing faster turns, returning of equipment and bringing fluidity into the network and the supply chain. But in its current state, the way supply chains are moving right now, I don’t think detention and demurrage are incentivizing anything.

 

“Folks are not sitting on returns because they want to. They’re sitting on them because they can’t get those containers returned. It is very difficult for us [Amazon] to wrap our heads around the idea of these detention and demurrage charges, which don’t drive any kind of positive behavior [given] the way the supply chain is currently set up.  “What concerns me is that these charges aren’t driving any benefit to the current state we’re in,” said the Amazon executive.

Carriers’ demurrage and detention fees have faced heavy criticism over the past year. They are a focus of FMC regulators as well as proposed legislation to reform the Ocean Shipping Act. And yet, the Los Angeles/Long Beach plan, with the explicit blessing of the Biden administration, will have the same effect as demurrage. It’s ironic that the international community has been pleading to the government about the absurdity of demurrage/detention charges only to have said government administer more of the same.

 

#Amazon #containershipping #FederalMaritimeCommission #IKEA #ocean #containershipping #Walmart

Do you have cargo on board the MV ZIM Kingston?

The MV ZIM Kingston suffered a large fire on the 23 October 2021 when approaching the Strait of Juan de Fuca.  Apparently, the vessel from South Korea suffered damage from a heavy storm and some combustible powder from containers ignited.

 Luckily the fire was eventually brought under control without any loss of life, but it is still unknown the number of containers damaged or the subsequent knock on effects. A number of containers fell overboard and the fire is still smouldering.

 

In times of high freight charges, container shortages and international trade shortages these types of incidents are most unwelcome.  The vessel will not be going anywhere for the foreseeable future or at least until the bad weather recedes but what does it really mean for forwarders? 

 

If your containers are directly involved this would mean the usual claims for damage, delay or loss.  There is a strong possibility where General Average will be declared which will require Cargo Insurance Securities or cash deposits to be placed to retrieve the containers. No doubt this will place unnecessary strain on the forwarder’s relationships in the absence of cargo insurance.

 

Furthermore, the incident will also cause considerable delays on future shipments if the Zim Kingston must be repaired and other vessels requiring repositioning. This is likely to have a disruption to the Holidays trade and delay related claims against forwarders.

 

From an insurance point of view, the most concern will be with the containers responsible for the fire.  Whether you are the exporter from Korea or the booking agent, the carrier will hold them responsible and pursue for what they can. This will be costly especially as it seems the carrier has already identified the persons responsible.

 

If you have any cargo on-board this vessel, it is recommended that you immediately notify your cargo insurers in order to assist with any General Average or damage related matter.  Your liability insurers should be notified in respect to any potential claims against you but especially if any of your containers could been responsible for the fire.

Dive into the Basics of Shipping

Dive into the Basics of Shipping  

We share some of the fundamentals of shipping, like key players, terminology, documentation, incoterms, and how they can affect the shipment & your markup.

The Key Players

Carriers

Freight is moved by ocean carriers and airlines. Carriers are the companies that own the ships, planes, like Maersk MSC CMA CGM ONE  and American Airlines, KLM, Cathay Pacific. They typically don’t arrange the movement of freight beyond the port to port (or airport to airport) segment of the shipment.

Carriers sell bookings on their vessels, typically through third-parties (although they will offer services directly to very large companies). 

NVOCCs

Some non-carriers also sell bookings through a legal arrangement called NVOCC (non-vessel owning common carrier). Non-Vessel Operating Common Carriers (NVOCC) does not own or operate ocean transport vessels. Instead, they make arrangements with ship owners, charterers, or shipping lines for transportation of cargo under their own Bill of Lading known as the House Bill of Lading (HBL).

Freight Forwarders 

Freight Forwarders could be described as travel agents for freight. They are  the experts who understand how the end to end shipment process works. Some forwarders do sometimes also act as carriers, most commonly by also operating a truck fleet. Similarly, the big international couriers also own and fly cargo planes.

Customs Brokers

Customs brokers specialize in customs filing and clearing, as explained in the Customs Process chapter. Freight forwarders either work with a customs broker as an agent or handle customs broking in-house. See more in the Freight Forwarders chapter.

3PL : Third-Party Logistics Providers

Third-party logistics providers (3PLs) take on some or all of a company’s distribution and fulfillment services. Many larger forwarders also provide this service. This form of outsourcing is covered in the Third-Party Fulfillment chapter.

Shippers

The only key player left is a shipper. For outsiders, this seems rather confusing but as forwarders and carriers set it, you are the person wanting to “ship” the goods.

Key Freight Terminology

Door To Door & Port To Port

This basically describes whether the shipment service provided is between ports or from/to another destination that requires trucking or railing services. The shipment leg between the export country and the import country is called the main transit or main leg. If the forwarder responsible for arranging this leg is also picking up the shipment at the factory, the shipment is called door to port. Similarly, port to door covers the main transit from the foreign port to final delivery. In door to door, the forwarder is handling the entire shipment.

Multimodal

The humble shipping container not only revolutionized international freight, it also revolutionized international trade and global economic growth. Multimodal simply means shipping by container. Once a container is “stuffed” with a shipment, it moves by road, ocean and/or rail until it is finally opened somewhere in the USA ( or Asia). The whole process is so streamlined that inland cities like Denver or Chicago in USA (and ICD locations like Delhi, Bangalore, Coimbatore in India or Chaoyang dry port in China) can act as ports, complete with customs clearance, deconsolidation (we get to that soon) and as the named place for some incoterms (ditto). These “inland ports” are usually referred to as inland freight interchanges.

Key multimodal terms that you should know are:

FCL (full container load). This means that you are paying for a whole container which, depending on your load size, may be cheaper than a less than container load The load doesn’t have to fill the container, as for, say ¾ loads booking FCL is cheaper than booking LCL.

LCL (less than container load). Booking LCL means that your shipment is taking up only a part of the container and will almost certainly be shared with other shipments in that container.

Consolidation/Deconsolidation. Consolidation is the process managed by the forwarder or carrier whereby the LCL shipments sharing a container are “stuffed” together. Deconsolidation is the opposite, that happens near a port at the end of the port to port leg.

Intermodal. This term is often used interchangeably with multimodal, but there is a difference. With intermodal more than one forwarder is used, meaning there will be more than one bill of lading, and more communication required.

Trucking

FTL and LTL are the trucking equivalents of FCL and LCL, namely a full truckload shipment and a less than truckload shipment. US regulations require truckloads to be charged by a complicated method called freight class. Most products get classified by density. This freight class calculator estimates the freight class for density products. It also goes into detail about how freight class works.

Dimensional Weight

Freight class may be complicated, but other modes of transport can get that way too. Very light shipments that take up much more space than their weight would indicate are charged by dimensional weight, that is the weight at which your shipment’s dimensions would be reasonably profitable to carry. Each mode, ocean, air, trucking in other countries, have their own formula. In fact, every shipment is charged at the greater of actual weight or dimensional weight. That weight is called the chargeable (or billable) weight. Dimensional weight is also called dim weight, volumetric weight or cubed weight.

You don’t need to understand how it works, but don’t be perturbed if your shipment is very light and your requested freight quotes come back charged at a very different weight than you requested. Use this chargeable weight calculator to find out the freight class for density products, and to learn more about how freight class works.

The Key Freight Documents You Should Know

Commercial Invoice. This is the normal proof of sale, provided by the supplier to the importer, and in itself is not a freight document. It becomes one because Customs requires it for clearance. The Ordering chapter covers where this document fits in with negotiation.

Certificate of Origin (COO). Your supplier will prepare this in conjunction with their chamber of commerce. This document is also required by Customs for clearance because it helps identify banned items and duty payable. Your forwarder will require this when the Shipper’s Letter Of Instruction document (below) is prepared.

Material Data Safety Sheet (MSDS). This document only applies to hazardous goods and is usually provided by the supplier. Again, your forwarder will require this when the Shipper’s Letter Of Instruction (below) is prepared. This document is covered in more detail in the Product Research chapter.

Fumigation Certificate. This document is only required if wood, and some other natural products, are included in the shipment. This most often applies to pallets and crates. Your supplier must arrange for this. Again, it required for customs clearance, and your forwarder will need it when the Shipper’s Letter Of Instruction (below) is prepared.

Freight Forwarder Contract (“T&Cs”). Like any other agreement that you sign with a service provider, you are required to sign off on their standard terms and conditions before they work on your shipment.

Power Of Attorney (POA). Like the commercial invoice, this is a widely used document outside the freight industry. By your signing one of these, your forwarder can deal with Customs on your behalf. You’ll sign a POA at the same time you do the T&Cs.

Shipper’s Letter of Instruction (SLI). With the above forms ready to go, this document kicks off the shipping process. It is your order form, proof that you are purchasing from the forwarder. This document is covered in more detail in the Request For Freight Quote chapter.

Booking Confirmation. This is your receipt for the main transit, whether ocean or air. The carrier provides it to your forwarder, who should forward it on to you. In some cases, the booking confirmation number is also the shipment tracking number.

Bill of Lading/Air Waybill. These very similar documents used for ocean freight and air freight respectively, are the contract of carriage for the main transit leg. Like any other contract, it has terms and conditions which limit forwarder and carrier liability. Your forwarder prepares the bill of lading. This document also provides proof of ownership of the goods in case of damage, theft or loss. Some forwarders add the shipment tracking number on this document.

There usually isn’t the same formality with booking pickup and drop-off. There’s a lot more flexibility in making arrangements with a local trucking company than with container ship or airline carriers. Emails are usually the only documentation required.

Packing List. This is your receipt of goods at delivery. It is attached as a pouch on the goods and also emailed ahead. It is only required when shipped goods are packed into larger units, like a container or an aircraft console. The supplier completes this form, although the forwarder will also complete one if the goods are re-packed at their warehouse.

Buy Price vs Landed Cost

Landed Cost

When you are negotiating a price with your supplier (covered in the Negotiating Strategy chapter), it’s tempting to get fixated on the buy price. The lower the buy price the better the markup. Right? But, there are two other costs to take into account before those goods are safely in your inventory. They are customs charges and freight costs.

LANDED COST = BUY PRICE + FREIGHT COSTS + CUSTOMS CHARGES

The Customs Duties chapter goes over how to get estimates for duty costs. And, getting reliable freight cost estimates from a freight rate calculator is covered in the Mode Selection chapter. But your freight charges will vary depending on how much responsibility you are willing to take.

Your supplier will probably only arrange all the freight if they can make up for it with a higher buy price. Similarly, you will only pay all the freight if you can make up for it in a lower buy price. But it’s not uncommon for inexperienced buyers to squeeze a better deal out of a supplier, but fail to realize the consequences when the supplier accepts a lower buy price, in exchange for switching incoterms. That might seem harmless, but, switching from FOB to EXW, for instance, might have wiped out all the gains made by the cheaper buy price. So what are Incoterms?

Incoterms

Incoterms are standardized freight terms that are used in international sales agreements. There are eleven of them in all, each differing in where, during the shipment, the responsibility (arranging and paying) and liability (for resolving any problems) transfers from the seller to the buyer.

Most suppliers have a preferred combination of incoterm and selling price. Often, that’s CIF (Cost, Insurance and Freight), which means their responsibility for the goods ends at the US port. It is commonly used, however, for smaller buyers this incoterm (and the three other incoterms starting with the letter “C”) are disasters waiting to happen. This is explained in the Freight Forwarders chapter.

The safe and more common incoterms that you should be negotiating, are:

EXW (Ex Works), where you take full responsibility and liability from factory pickup.

FCA (Free To Carrier), where you take responsibility and liability once the shipment is handed over to the carrier, typically for consolidation at carrier’s premises near the port.

FOB (Free On Board), where you take responsibility and liability once the shipment “crosses the ship’s rail.” Technically FOB wasn’t designed for freight that goes into containers or airplanes, but it does work well for full container loads. However, it shouldn’t be used for LCL or air freight, because they need to be consolidated before they are handed over to the carrier. Also, for air freight, there is no “ship’s rail.”

 

Stick to this advice, and you probably won’t need to know much more about incoterms. They do get complicated. The following table brings the main points together. For more detail, turn to the Incoterms In Plain English guide.

Calculating Landed Cost

Now that you get landed cost and incoterms, you can bring it all together to calculate landed cost. Say you want to know what your target buy price would be with EXW and with FOB:

Use this freight rate calculator to quickly find this out. Work out the door-to-door freight rate (for EXW) and the port-to-door freight rate (for FOB) to get the two different freight costs.

Then, simply add your customs duty estimates to calculate landed cost for both freight terms.

Now you have your target buy prices for negotiating either incoterm.