Banana ships and the hidden costs of a shipload

Shipping companies charge exorbitant, potentially illegal fees for containers stuck in ports. Furniture and coconut water sellers, to name a few, say the fees increase costs, according to gcaptain.com.

Last fall, a company called One Banana loaded 275,000 pounds of bananas from its plantations in Guatemala and Ecuador on ships headed for the port of Long Beach, California. When they arrived, the refrigerated containers were unloaded with cranes so that trucks could transport them to a nearby warehouse, from where the fruit was to be distributed to supermarkets.

But in the midst of a global supply chain crisis, none of the carriers the importer normally worked with were willing to pick up the containers. A One Banana logistics employee contacted more than ten haulage companies. For every hour that passed, the chances of the bananas getting bad grew. “We need to collect 15 containers from the port of Long Beach and send them to their destination,” the logistics employee wrote in an email to a company. “Let me know if you can help me with this.” Finally, a shipping company said it could help, but only if One Banana first paid $ 12,000 per. container, on top of the already higher shipping costs for sea freight.

If One Banana were to accept that rate and pass the full cost on to the consumer, the price of bananas would be from
€ 1.30 pr. kilo to € 2.00 per. kilo. If the price increase was only bananas, people could afford it, but rising prices on many everyday things caused the worst inflation in 40 years. Many of the reasons may seem obvious. Massive consumer spending and lockdowns have put pressure on supply chains. The war in Ukraine is pushing up gas prices. But the extra cost of transporting bananas – and countless other products – is a hidden and confusing source of inflation controlled by shipping companies.

Simply put, families pay for the most profitable period in the recent history of the shipping industry. According to an analysis company, the operating margins of the largest shipping companies reached 57% in the first quarter of this year. Before the pandemic, it was never above 10%.

The carrier, who charged $ 12,000 per container to ship the bananas, told the One Banana logistics employee that he needed the money to cover a series of fees charged by shipping companies. Hapag-Lloyd, the German shipping giant that owns the containers containing the bananas, has become particularly notorious in the industry, leading to several complaints to the Federal Maritime Commission.

In normal times, the fees, known as detention and demurrage, make a lot of sense. Importers who do not pick up their belongings on time will have to pay a surcharge for storage at maritime terminals. Carriers that do not return an empty container on time also pay a fee, called withholding. The purpose of the fees is to encourage the various actors in the supply chain to keep the flow of goods even.

But when supply chains collided last year, the ports of Long Beach and Los Angeles ran out of space and were overloaded with shipping containers that importers, often large supermarket chains and brands, could not pick up. Surrounding truck yards and streets were flooded with empty containers, which were temporarily dumped there by trucking companies that were unable to take measures to return them to the ports.

According to the transport company, Hapag had made it “extremely difficult” to return empty containers. It often had to hold them for a month, while Hapag continued to charge the company $ 400 a day for each container not returned on time. A transport company contacted by the importer said it had to close almost temporarily because the entire chassis – the semi-trailers to be mounted on the trucks – needed to haul new cargo from the ports was among 70 empty containers that Hapag refused to return. to take.

Basically, One Banana and several transport companies say that Hapag itself has created the situation that they are now benefiting from.

“It’s like renting a car at the airport, and when you try to return it, they say to you, ‘No, you’ll keep it for a while, but we’ll keep charging you in the meantime,'” Fred said. Johring, CEO of the transport company Golden State Logistics.

Hapag declined to comment, but in the case filed with the Maritime Commission, it rejected One Banana’s allegations that the fees were unreasonable.

The case is still pending, but on this late October day at Long Beach Harbor, the fate of hundreds of thousands of dollars of bananas was uncertain.

For over a year now, retailers and brands have been complaining about high costs. The rate of transporting a container from China to the west coast rose from less than $ 2,000 before the pandemic to more than $ 20,000 last year. Ninety percent of the goods Americans buy from abroad arrive by ship, and almost everything is carried by a small number of shipping companies working together in three alliances that dominate trade.

The Federal Maritime Commission, which regulates the shipping industry, recently concluded that the increase in sea freight rates was caused by increased spending and congestion in ports, not monopoly power.

But the federal government believes that what happens to the extra withholding and demurrage taxes is not just a matter of supply and demand. The government says shipping companies took advantage of the crisis and “added to the pain” by imposing billions of dollars in “pointless” and illegal fees in violation of shipping law.

Now the sinister question of retention and demurrage has found its way into corporate earnings reports. Companies like Bed Bath & Beyond, Havertys Furniture, Vita Coco or Summer Infant, a company that makes strollers and pots, point the finger at withholding and overhead taxes to lose their profits or to have to raise their prices. “Most people did not even know these fees existed,” Trevor Lang, Floor & Decor’s CFO, said in February.

In comments to federal regulators in April, the Home Furnishings Association wrote: “These overhead and withholding fees have been a significant part of furniture prices over the past 2 years.”

The trade association representing toy manufacturers such as Hasbro and Mattel called the charges “unethical”, while a group representing meat processors such as Tyson Foods and Cargill accused shipping companies of “almost constant predators and unfair behavior” and “a clear abuse of market power.”

One Banana called the charges “unfair and unreasonable” in a complaint to the Maritime Commission. But other fruit importers went even further in their field qualifications.

“Demurrage is one of the ways in which shipping companies abuse their monopoly on maritime transport,” wrote fruit importer William H. Kopke Jr. Inc. to the committee. “Especially if the cargo is perishable, it is as if the cargo is being held hostage. If the recipient does not pay the requested fee immediately, the cargo will start to rot as long as the discussion about the charges is ongoing and meanwhile demurrage charges will continue. increase.”

In an interview, John Butler, chairman of the World Shipping Council, a trade group representing the shipping companies, said that the shipping companies have faced historically high demand and congestion and that with the millions of containers they move, conflicts will inevitably break out.

“Do they always do it right in the eyes of their customers? Of course not,” he said. “Does that make it unreasonable? Sometimes maybe, but other times not. You really have to look at it from case to case. You can’t just generalize.”

Butler said, for example, that many large supermarket chains and other importers have used the ports for storage because their warehouses were full or because they could not get truck drivers to move their cargo.

The controversy over the compensation pits the Maritime Commission with 128 employees and an annual budget of $ 31 million against a global shipping industry that last year brought in $ 214 billion in profits.

In recent months, the Commission has sought to lower tariffs by dealing with complaints such as One Bananas and proposing stricter rules for shipping companies. And on Monday, Congress passed the Ocean Shipping Reform Act, giving the committee more clout.

The Maritime Commission reprimanded Hapag in a case involving Golden State Logistics and proposed the largest fine in the agency’s history: $ 16.5 million.

The proposed fine is still less than the profit Hapag made in one day last year, but the committee hopes it will send a signal. In late April, an administrative judge ruled that Hapag had violated shipping law, and last week the company agreed to settle the case for $ 2 million – roughly what Hapag earns in 98 minutes.

Hapag declined to comment on the Commission’s case, but told the judge that its practice was reasonable and that any compensation was the fault of the airline.

As U.S. regulators clash with the giants that control shipping, the inefficiency of a supply chain that once seemed hugely efficient is becoming more and more apparent.

Kim Cruz, an accountant for Golden State, drove a Toyota pickup truck through the dusty, holey warehouse in Wilmington, California, and stretched his neck out to read the numbers on the back of containers parked there. It was April and she was looking for a container that the transport company had been trying to return to the Chinese shipping giant COSCO since January 26th.

The light gray container had, according to customs records, traveled the world with suitcases from a Cambodian factory to a port in Vietnam, where it was loaded on a ship called the Marco Polo, which is as tall as the Empire State Building is. The container arrived at the Port of Los Angeles in mid-January, where a truck driver from Golden State picked it up and drove it to a warehouse in a major department store.

Now the container was empty, tucked away somewhere among hundreds of blue, green, yellow, pink and rust containers in a place jammed between a railroad and a refinery.

“It’s just insane. You have to search this whole area,” Cruz said. Cruz knew the absurdities of the global supply chain inside and out. She had helped Golden State and the Maritime Commission build the case against Hapag.

source

Leave a Comment