Shipping liners tweak pricing model to mitigate losses

Malaysia’s shipping companies have defended the move to impose “exorbitant” charges on merchants and freight forwarders, saying the dynamics of the container shipping industry have changed dramatically over the past two decades.

Shipping Association Malaysia (SAM) chairman Ooi Lean Hin said the race by operators to build new and bigger vessels in order to drive costs down and remain competitively relevant had cost the industry huge capital investments and prolonged the oversupply scenario in respect of tonnage and capacity.

This has resulted in continued losses and a lot of consolidation among players, with quite a few companies going bust.

The “higher” charges were actually the evolution of the pricing model where carriers are trying to mitigate their continued losses.

This was through the recovery of more landside charges because of the shipping liners’ inability to stabilise the volatility of ocean freight rates due to the highly competitive nature of the industry, Ooi explained.

Merchants and freight forwarders have criticised the pricing model and said that it was imposed without consulting industry stakeholders and against the grain of best industry practices.

Malaysian National Shippers’ Council early this week argued that shipping liners were profiteering by imposing exorbitant charges on the merchants.

“The landside recovery charges are the evolution of the pricing model for shipping liners, which is a desperate attempt to mitigate their losses. They have been losing money for so many years,” Ooi said at a media briefing here today

“This is already an established model by global shipping players and that importers and exporters would have costed these charge items into their free on board (FOB) and cost, insurance, and freight (CIF) pricing,” he added.

He said the fact remains that carriers were still reporting huge losses since 2016, as stated in the annual Review of Maritime Transport published by the United Nations Conference on Trade and Development (UNCTAD).

“Thus it is not possible how liners are profiteering when they continue to report such losses, particularly during the Covid-19 crisis,” Ooi said.

According to a survey by Blue Alpha Capital founder John McCown, the container shipping industry was expected to post a loss of US$10.6 billion this year.

SAM also refuted allegations by MNSC and Federation of Malaysian Freight Forwarders that it was disrespectful to the law on security deposit instruments and the call to regulate shipping companies.

Ooi said the container security deposit was not against the practices and regulations recommended by the port authorities.

“The proposal from the Ministry of Transport and Port Klang Authority on alternative security instruments to security deposits vis-à-vis Non-Cheque Deposit, Container Ledger Account and iCARGO+ is merely a recommendation in resolving the issue of security deposit collection and not a gazetted law.

“The accusation that shipping lines have been disrespectful of the law on this issue is then totally incorrect because the alternative security instruments are merely proposed recommendations,” he said.

The shipping industry requires a container security deposit as part of its risk-mitigating mechanism to cover post-delivery charges including demurrage and detention charges as well as maintenance or repair of the container.

According to SAM’s members, the deposit ranges between RM300 and RM1,000 per 20-foot container.
Source: New Straits Times

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