New fees to rein in container overbookings

US east coast ferrous and nonferrous scrap exporters shipping to the Middle East and Indian subcontinent may face additional fees for container overbookings, as tighter availability prompts carriers to boost vessel utilization rates.

The combination of an earlier Ramadan this year, as well as reports of stronger shipments of government and military cargoes, is exacerbating capacity strains placed on carriers.

This year Ramadan falls between 23 April-23 May, nearly two weeks earlier than last year, with pre-Ramadan shipping overlapping the first quarter, the seasonally tightest period for shipping availability each year due to year-end holidays, lunar new year and blank sailings by carriers.

Faced with tighter capacity and concerns that the next few months will be overbooked, carriers are taking a firmer stance on achieving shipping utilization rates above 80pc, passing the burden down to freight-forwarders who are now trying to limit and rein in overbooking.

As a result, some freight forwarders have implemented a usage rate to ensure customers are incentivized to not overbook by charging a "no show" fee for utilization below 80pc on bookings of five or more containers.

"We would like all of our clients to get the space they need and to ensure them that they are not being penalized by some clients who over-book or do not properly schedule bookings," one freight-forwarder said.

Scrap market participants surveyed by Argus noted that when shipping availability tightens it is normal for some suppliers to do double or even triple bookings to ensure that if one carrier cancels the shipment the material will still be covered by another shipper.

"We would literally just make bookings to have them because when thing got tight and [carriers] got a government shipment and canceled shipments, we would be covered. Shipping lines are basically passing the cost," one US east coast ferrous scrap trader said.

But this practice compounds shipping tightness and could negatively impact scrap suppliers with actual containers ready to be shipped.

"People take advantage of the system and it hurts those of us making bookings," one east coast nonferrous scrap trader said. "We've been kicked off boats or had bookings rolled out of New York for no other reason. It should make more spots available for real shipments," he said.

The implementation of the "no show" fee is not expected to have an impact on freight rates, though it could add costs to some suppliers sporadically if overbooking occurs.

"This move is not meant to penalize anyone, but push our clients to be more careful in their planning...The process does not change freight rates at all," the freight-forwarder said.

By Brad MacAulay