The advent of IMO 2020

The most significant regulation for air emissions is the IMO Global Sulphur Cap. SOx emissions are based on the level of sulphur content in the fuel used by vessels. To achieve a reduction of SOx and particulate matter in the environment, the use of low sulfur fuel is now globally mandatory as of January 2020 unless alternative technology such as an Exhaust Gas Cleaning System (scrubber) is being used.

As agreed at the IMO’s Marine Environment Protection Committee (MEPC) 70, the sulphur cap came into effect beginning January 1, 2020.

All vessels that operate outside Emission Control Areas (ECAs) are required to use fuel oil with a maximum sulphur content of 0.5%, while vessels operating within ECAs will be required to use fuel oil with a maximum sulphur content of 0.10%.

Shipowners and operators have various options to meet the IMO sulphur cap requirements. These options include the use of compliant low sulphur fuels or alternative fuels such as liquified natural gas (LNG), liquefied petroleum gas (LPG), compressed natural gas (CNG), biofuel, solar power or fuel cells. SOx also can be controlled by using an alternative technology such as an exhaust gas cleaning system.

Vessel owners and operators will have to consider a wide variety of factors when choosing their compliance solution; including the vessel age, operating and capital costs, fuel availability, technology solution availability and reliability, and the primary trading areas.

Such measures, we all agree, dwell on cost; and this cost will be shared with the shipping community, being shippers and consignees. Shipper/Consignees should expect the introduction of a cost line that would generally be described as a Low Sulphur Surcharge; however, there may be other names/description given by the different shipping lines, but they all point to one and the same thing. This cost will be known at time of booking, as such shippers/Consignees should coordinate and share information among themselves to ensure a stress-free shipping environment.

We should desist from the old practice whereby consignees would most times state that they had no idea of the agreement between a shipper and the shipping line. This cost is legitimate, and it is important for those who have considered and are in the business on international cargo trade to know that without this charge the lines cannot operate to their areas or port of call and destination for imports and exports. As such, we should expect such charges to be rolled out by all shipping lines. This is not a cartel charge, but a legitimate and necessary charge toward saving the environment we all live in.

When we all think of global warming, it goes without question that shippers/consignees should be interested and concerned that lines adhere to this policy for the good of mankind; and as already stated, we share the cost otherwise we all perish earlier than we should while suffering under some harsh weather conditions. Let us do our bit by supporting this noble initiative.

And I am very excited that the majority of commercial vessels plying Ghana’s waters are fully adhering to the agreed regulations without compulsion. Let us thus continue to monitor and dialogue while joining forces to make the environment a better place for all.

Legality of Freight and Related Charges – My two-pence contribution

For many shippers and consignees,freight and related charges or quotations may be an enigma. In this article, Iwill try to demystify the art of shipping in order to help you understand and appreciate your freight and additional freight-related charges and insights.

An Ocean freight charge or quotation is much more than just a sea-shipping service price list. In the simplest terms, a freight quotation/charge is the summary of charges levied/charged  by a carrier for the movement of cargo from Point A to Point B against the cargo being shipped.

In addition, the quotation/charge is typically a combination of multiple costs; such as ocean freight rates, surcharges, fees, various adjustment factors, rules, exceptions and exclusions as per the tariffs set out by the carrier.

 

A freight quotation may be divided into 3 groups as below:

Pre-Carriage, Carriage and On-Carriage – For each group, a list of common fees are provided below. All depending on the mode of transport – such as Door to Door, Port to Port and other associated services involved – a shipper or consignee will end up paying many other charges. But, ultimately, the consignee pays all the charges.

There are many activities that happen in a containerised shipment prior to the container being delivered at the port for export.

 

Pre-Carriage is the term given to any inland movement that takes place prior to the container being loaded at a port of loading onto to a vessel.

Such activity can take place at the same location as the port of loading, or at a location close to the port of loading.

 

Some Common Fees & Charges

 

Chassis Utilisation – A fee charged for the use of a chassis in conjunction with the shipping container to facilitate overland transportation from the shipper’s door to port.

Fuel Surcharge – Fuel Surcharges are applicable for the transport prior to ocean shipment.

Wharfage – A charge assessed by a pier or dock owner against freight handled over the pier or dock, or against a vessel management company using the pier or dock.

Packing charges  – A fee that may be charged by a 3rd party warehouse for packing cargo into the container at their premises.

If cargo is packed directly at the shipper’s premises, then this charge will not be applicable in the contract.

Documentation charges – Charges that may be applicable for the preparation of export documentation such as Certificates of Origin, Export Permits, Licences and such.

 

Customs Clearance – A fee paid to the Customs broker for arranging your Customs clearance.

 

Some pre-carriage activity may be carried out by the carrier using either road or rail modes (Carrier Haulage), or by the merchant using road or rail modes (Merchant Haulage).

 

OTHC – Origin Terminal Handling Charge – This is an additional cost, on top of the sea freight, charged by the shipping company for handling containers at the container terminal before they are loaded on board a vessel. Examples include but are not limited to unloading the container from truck, stacking area; and transport from stacking location to just below the crane for loading onto the vessel.

 

Carriage is the term given to the actual movement of cargo on the sea by shipping lines from the port of load to the port of discharge.

There are literally hundreds of carriers around the world, offering services globally. Depending on the contract of carriage and the service type mutually agreed between the carrier and the shipper, each carrier will have their own applicable charges in their shipping service price-list.

 

Ocean Freight Rate  is for only movement of container from Port A to Port B.

Base Rate – The cost of shipping a container from one point to another. Rates fluctuate frequently based on a number of different factors.

 

BAF – ‘Bunker Adjustment Factor’ is charged to compensate vessel managers or lines for fluctuating fuel costs. Sometimes called ‘Fuel Adjustment Factor’ or FAF.

 

ISPS – International Security Port Surcharge relates to charges for security of the vessel and container while at the port. Some port Authorities/Managers levy this charge against the vessel.

 

Low Sulphur Surcharge – Charged for the use of fuel that has lower emission. Coming out of the IMO 2020

 

Terminal Handling Service – Origin –  THC charged for the export move, being Terminal Charges incurred at the port of origin.

 

BL Fee – Bill of Lading Fee. A fee charged by the shipping line for processing the bill of lading on behalf of the client.

Export Service – Service fees that maybe charged by the Ship agent

On-Carriage – On-Carriage via sea to other inland sea port (if applicable)

Documentation fee – Destination – Delivery Order or Release Fees at destination

 

EBSEmergency Bunker Surcharge

A surcharge added to the cost of freight to cover fuel costs.

EIS Equipment Imbalance Surcharge

A surcharge on an ocean freight rate, levied by shipping lines to recover costs related to removing large quantities of empty containers from a country or countries where there is no or little exports use for those containers that had been previously imported into those places.

The charge is usually a flat rate per container, and it is not necessarily applied in all trades or at all times; rather, it is only applied when such trade imbalances necessitate large expenditure on shifting empty containers from one place to another.

 

Environment Fee Destination

Environmental surcharges imposed by the destination port. Covers various contingencies such as hydrocarbon spill clean-up costs and other mandated fees. In Ghana, however, this could be related to the charge levied Shipping Lines by Ghana Maritime Authority, which is based on the vessel gross tonnage.

 

ERR – Emergency Rate Restoration

A surcharge added to the cost of freight to cover unexpected increases in shipping costs within a window.

 

ERS – Equipment Repositioning Surcharge

A fee imposed when a shipper requests that the carrier make empty containers available that must be moved from one location to another by the carrier.

GAS – Gulf of Aden Surcharge

Used to compensate shipping lines for additional costs incurred when transiting through the Gulf of Aden; tocompensate shippers for additional costs including crew risk compensation, cancellation of economical speed, and redeployment of vessels.

 

GRI – General Rate Increase. Used to describe an across–the–board tariff rate increase implemented by conference members or individual lines based on market forces ( demand/supply)and applied to base rates.

Hazardous Surcharge – A surcharge imposed for shipping hazardous materials or goods.

ISF Importer Security Filing

A US Customs and Border Protection (CBP) regulation requiring importers and vessel carriers to provide data electronically to CBP for in-bound ocean shipments. Also known as 10+2.

BAF – Bunker Charge

An extra charge sometimes added to vessel freight rates; justified by higher or fluctuating fuel costs. Also known as Fuel Adjustment Factor or FAF.

CAF – Currency Adjustment Factor

A charge, expressed as a percentage of a base rate that is applied to compensate ocean carriers of currency fluctuations.

 

Cargo Data Declaration Fee – A surcharge assessed for the additional costs of declaring cargo information in advance to the European Union authorities as required, for authorities to evaluate any potential security and safety threats.

Port Dues – Fees charged by the harbour authority on ships using the port`s facilities.

OWS  Over Weight Surcharge

When cargo exceeds the acceptable weight for carriage Surcharge. However, with the advent of SOLAS on weight this is still relevant but limited. The key is for the shipping line to be made aware of the overweight, all toward safety of the vessel and crew at sea.

Piracy Surcharge – A charge assessed to compensate shipping companies for increased costs associated with avoiding piracy and hijacking.

 

PSS – Peak Season Surcharge is very dependent on demand and supply on a sea trade route. Mostly, when volumes outweigh available vessel space.

 

PCSPort Congestion Surcharge

Applied by shipping lines to cover losses caused by congestion and idle time for vessels serving that port. Lines have the right to impose a surcharge on the freight to recover revenue lost. It is normally calculated as a percentage of the freight. Because each day is a huge cost to the vessel, and waiting beyond three days continuously in a specific port will call for this charge to be implemented to reduce the daily cost burden on the shipping line through no fault of its own.

 

SCS – Suez Canal Surcharge

Used to compensate shipping companies for additional costs incurred when transiting through the Suez Canal.

 

SES – Special Equipment Surcharge

When special equipment such as flat racks etc. are requested for shipment by a shipper/consignee

Detention – A penalty charge against shippers or consignees for delaying carrier’s equipment beyond allowed time.

 

Demurrage applies to cargo; detention applies to equipment. If you store a container at the port beyond free days, then demurrage and detention applies. If you keep a container for too long on any other premises (not on the port’s premises), then only detention applies.

 

Additional charges may include the following:

 

Accessorial Charges – Charges that are applied to the base tariff rate or base contract rate; e.g., bunkers, container, currency, destination/delivery.

 

AI – All Inclusive

Is that the cost of transportation includes all the additional fees provided for under the conditions of carriage. This, all in, relates to only the ocean freight-related cost and does not necessary include origin and destination charges. The erroneous thinking that All-Inclusive implies that all related charges is very wrong. Even in an All-Inclusive rate quotes, there is qualification of that All-Inclusive.

 

DDC – Destination Delivery Charge

A charge, based on container size that is applied in many countries and tariffs to cargo. This charge is considered accessorial, and is either added to the base ocean freight or stands alone. This charge covers crane-lifts off the vessel, drayage of the container within the terminal, and gate fees at the terminal operation.

On-Carriage is the term given to any inland movement that takes place after the container is discharged at a port of discharge.

Such activity can take place at the same location as the port of discharge, or at a location close to the port of discharge.

It may be carried out either by the carrier using road or rail modes (Carrier Haulage) or by the merchant using road or rail modes (Merchant Haulage).

Similar to the pre-carriage, there are a few activities that happen in a containerised shipment after the container has been discharged from the ship. All activities and charges levied or charges at origin during export is also charged at destination and more. Some of these charges are termed accessory charges.

For example, container cleaning fee: note that shipping lines are obliged to deliver clean, empty containers to shippers for shipment; and Shippers through their consignees are equally obliged to return the empty containers to the shipping lines as clean as was delivered to them. Otherwise, there is a charge levied for cleaning Surcharge the returned dirty or soiled empty container.

 

CYRC – Container Yard Receiving Charge

In other jurisdictions, this is a separate charge.

 

DDC – Destination Delivery Charge

A charge, based on container size, that is applied in many tariffs to cargo. This charge is considered accessorial and is added to the base ocean freight or a stand-alone charge, depending on the cost structure of the specific shipping line in charge. This charge covers crane-lifts off the vessel, drayage of the container within the terminal, and gate-fees at the terminal operation.

 

Demurrage/Detention – A penalty charge against shippers or consignees for delaying the carrier’s equipment or vessel beyond the allowed free time. Demurrage applies to cargo; detention applies to equipment. If you store a container at the port beyond free days, then demurrage and detention applies. If you keep a container for too long on any other premises (not on the port’s premises), then only detention applies.

 

DTHC – Destination Terminal Handling Charges. This is an additional cost, on top of the sea freight, charged by the shipping company for handling of containers at the container terminal when the container hangs on the crane ready for discharge or dropping container onto a trailer/truck. Examples include but are not limited to loading the container onto a truck, quayside area and transport from the quay to stacking location from just below the crane.

THC – Terminal Handling Charge

Terminal Handling Charges are made by operators of container terminal facilities at both ends of the journey.   They are not clearly understood by many buyers and sellers, and so are the frequent cause of disputes – especially as the Incoterms 2010 rules offer limited guidance.

Terminal Handling Charges can cover a wide range of services; e.g. weighing or inspection of goods, provision of documents and so on.   However, we will focus here on the charges made for the movement of containers at the destination terminal; i.e. unloading the container from the arriving vessel and its transfer to the consignee’s vehicle.

Container terminals vary in their operating practices and complexity, but a typical procedure involves at least two separate activities:

 

  1. Unloading the container to the holding area from the vessel for imports.
  2. loading the container from stack/holding area to the quayside for loading onto the vessel for exports.
  3. Transfer of the container to the consignee’s vehicle – perhaps many weeks later if the terminal has agreed to store it.

Destination handling

As for the origin, cargo handling is also required at the destination before it can be released to a consignee. In short, destination handling includes transfer of the container from the ship to shore, and from the port to the forwarder’s destination warehouse. It also includes un-stuffing the container and preparing cargo for the consignee to collect.

Handling Fee – A fee for transporting, storing, or packaging goods.

Release Fee – A fee charged by the destination port to release cargo for further movement or action.

TAD – Transit Accompanying Document

A document accompanying uncleared goods during transit from one authorised location to another.

In Conclusion

You may have noticed on your freight quotation/charge that the carrier has indicated quotations are subject to their Terms of Carriage, including its choice of law and jurisdiction, which makes the quotation legal and binding.

The quotation may also come with a plethora of its own terms and conditions.

Once a quotation/charge has been accepted and the cargo has been shipped, there is no room for any dispute on that quotation; because the carrier has been very clear in its offering.

Even if there is no express acceptance of a quotation/charge by a shipper, but shipper books the cargo with the carrier, the carrier will deem the act of booking of cargo to be an acceptance of its quotation/charge.

It is therefore very important for a shipper to read and understand all the terms and conditions clearly and properly before agreeing to ship with that carrier on the basis of that particular quotation.

Some shipping lines also have conditions – such as where there is an existing service contract between the carrier and the shipper and there is a separate quotation with additional charges or requests, in those cases the quotation (incorporating the Carrier’s Terms for Carriage and Service Contract Terms) shall prevail over the service contract. Also, remember that there is always a clause of subject to origin or destination charge as part of the charges/quotations; and if one is serious, you will be able to assess these charges even if not explicitly not stated on a quotation/charge

 

I know by now readers are asking: “So, are shippers/consignees at the mercy of carriers?”

Not at all. If the shipper understands the full scope of the carriage and breakdown of the carrier’s costs down to the last cent, there will be no ambiguity.

It is prudent for you, as the shipper/consignee, to go through each and every item of the freight quotation/charge to understand the costs so there are no grey areas between you and the carrier at the time of payment or cargo release.

Remember that you are choosing the carrier, so you are entitled to ask them to explain all charges in detail. Don’t get ripped-off because you didn’t check and query the charges in advance; and when you do query later, it may be too late.

Disruptions and innovation are changing today’s supply chain at a rapid clip. Charges, especially ocean freight rates and bunker surcharges, can change at a moment’s notice.

You as a shipper/Consignee should take advantage of innovative freight benchmarking companies to compare what rate you should be paying to the carrier, and whether the quotation provided by the carriers are in line with the market.

It is important to note that not all charges have been stated in this article, and also you might see charges under different descriptions. I can assure you that you are not being ripped-off, just enquire and it will be explained. As I have always stated, shipping does not like noise so dialogue is the only way forward. Because the trade is self-regulating, this global business requires technical know-how – so lines guide their brand and will respect laws and regulations in existence. This is not an industry that requires heavy regulation. It is a business of conscience.

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