No Fast-Track Fees: FMC Rejects Carrier Requests for Immediate War Surcharges

Yesterday (Monday, March 24th), the Federal Maritime Commission (FMC) said no to carriers requesting waiver of the 30-day notice period before hitting shippers with fees related to the Iran War.

Skyrocketing Shipping Costs with Every Crisis

Thank you, FMC.

Every time there’s a crisis or conflict that impacts international shipping, fees and freight rates surge. In recent years, they haven’t just surged, they’ve skyrocketed.

In late 2023 and early 2024, when the Iran-backed Houthi rebels started attacking ships in the Red Sea, freight rates exploded. U.S. shippers thought they had it bad when freight rates quickly more than doubled. They were paying 120%, 150%, sometimes over 180% more for imports from Asia. Yet that was almost nothing compared to many Asia to Europe shipments that soared to increases of over 600% per FEU (forty-foot equivalent unit)!

Shippers were paying through the nose in general rate increases (GRIs), transit disruption surcharges (TDS), and various emergency contingency fees that too often added up to thousands of dollars per shipping container, while any ships and shipments still daring to attempt the waters of the Red Sea and Gulf of Aden faced war risk premium insurance costs as much as 15 times their previous cost.

In January of 2024, the FMC did put out a advisory about how it was scrutinizing rates, fees, and rules carriers were implementing on shippers in relation to the threats on shipping in the Red Sea and Gulf of Aden. However, the FMC still did a little waiving of the 30-day fee notice requirement on some fees relating to diversions from the Red Sea.

Carriers certainly see cost increases from major shipping disruptions. However, they do not tend to be transparent in showing data that details exactly how much cost is accrued from the disruptions. There’s, of course, bias there, but you’d have a hard time finding a shipper who thought carriers weren’t charging a whole more in fees and rate increases than the disruption costs justified.

Criticisms of the fees and justification carriers give for them include carriers only counting costs while ignoring any mitigating factors. Yes, there were definitely cost increases to carriers sailing down and around Africa rather than through the Suez Canal in fuel and number of ships utilized. But what about the mitigating factor of not having to pay the Suez Canal fees? What about the fact that many new ships were already hitting the water that would have been causing an overcapacity problem for carriers, likely forcing freight rates well below comfort for shipping companies, had the rerouting not been needed? It seemed to many, carriers used a crisis to turn a period of possible loss into profit.

The attacks in the Red Sea were hardly an isolated case of shippers accusing carriers of taking financial advantage of a crisis.

Ocean freight carriers were often accused of profiteering off of the pandemic. Before the pandemic hit in 2020, carriers were projected to lose billions. Instead, fees and freight rates skyrocketed, and carriers made billions. In fact, by the summer of 2021, I was writing about the possibility of 12-figure profits for carriers, which they reached! In fact, I’ve seen estimates of over $360 billion in combined profits for carriers in 2021 and 2022 combined.

Denying Waiting-Period Waivers the Right Call

Don’t get me wrong. There’s nothing wrong with ocean freight carriers being successful and making a lot of money. Ideally, they are successful, as that helps create stability in service for international shippers. But if carriers are hitting shippers with fees and rate increases over disruptive events, those fees should properly correlate to the costs of those events on carriers.

Waiving the 30-day notice requirement on those fees removes the time for proper oversight and review of the fees and their justifications as well as taking away the time shippers need to prepare and adjust for shipping cost increases.

There are absolutely costs associated with the Iran War on international shipping and the operations of ocean freight carriers. Shippers will pay fees and higher shipping costs in relation to it. But how high and far-reaching are those costs? Are carriers trying to charge well beyond them?

The FMC refusing requests from several major carriers to waive the notice-period on implementing such fees is absolutely the right move. It doesn’t guarantee shippers won’t get gouged, but it’s a piece in protecting shippers from having that happen.

Mark Szakonyi reported on the commission’s decision in a Journal of Commerce (JOC) article. He quoted the FMC’s chairman, whose words match what shippers want to hear out of the commission:

“In my view, when a carrier seeks special permission to reduce the 30 days’ notice period for a surcharge, the carrier should demonstrate how its increased costs are: linked to the dollar amount of the proposed surcharge,” FMC Chairman Laura DiBella said in a statement. “An assertion that there are increased costs, without any data on what those costs are, how long they may last, and what steps the carrier is taking to mitigate them, is insufficient in demonstrating good cause.”

DiBella recommended that carriers provide data behind the decision to levy the surcharge and specify a duration, so the fee is “reasonably related to the increased costs.”

As reported by Szakonyi, CMA CGM, Hapag-Lloyd, Maersk and Zim Integrated Shipping Services are the carriers that requested the 30-day waiting period be denied and were denied the ability to implement their charges immediately.

Iran-War-Relared Fees

Here are some of the fees carriers have announced relating to the Iran War:

• Maersk – Emergency Contigency Surcharge (ECS) of $1,800 per TEU (twenty-foot equivalent units), $3,000 per FEU, and $3,800 on reefers
• MSC – War Risk Surcharge (WRS) of $2,000 per TEU, $3,000 per FEU, and $4,000 on reefers
• CMA CGM – Emergency Conflict Surcharge (ECS) of 2,000 per TEU, $3,000 per FEU, and $4,000 on reefers
• Hapag-Lloyd – WRS of $1,500 per TEU and FEU, and $3,000 to $3,500 on reefers
• Maersk – Emergency Bunker Surcharge (EBS) $200 to $400 per container to offset fuel price hikes
• MSC – Emergency Fuel Surcharges (EFS) from $30 to $275 per TEU based on route
• OOCL – a global and variable EBS

That’s not an exhaustive list, but it gives an idea of what shippers are looking at. Luckily, maritime regulatory bodies like the FMC are looking at it too, with an eye on preventing profiteering.