Author Archives: just2bruce

‘Insult to injury’: Record rail demurrage adds to shipper costs

Posted on February 5, 2022 | 1 comment

This article spells out some of the issues in demurrage charges rail lines are charging for cargoes that are not being removed from their premises.

Demurrage is charged, say the rail lines, when cargo is left at a rail terminal beyond a specified number of days. Charges vary by railroad. The chart they provide, reproduced below from Supply Chain Dive, shows how the seven Class I rails charge demurrage rates.

How individual railroads charge for demurrage varies
RailroadRange of daily demurrage fees
BNSF$150 to $500, depending on container dwell time and facility
CN$100 to $450, depending on container dwell time and facility
CP$75 to $350, depending on container dwell time, facility and who owns the equipment
CSX$100 to $500, depending on container dwell time, facility and whether the equipment is for domestic or international use
KCS$100 per day after free time expires, in all cases
NS$100 to $300, depending on container dwell time and facility
UP$100 to $225, depending on container dwell time, facility and whether the equipment is for domestic or international use

SOURCE: Letters in response to the STB, as linked. Union Pacific did not disclose its specific fees in the letter, but its rates are available online.

Shippers complain that sometimes the demurrage is due to the fact that rail lines have canceled trains that they previously were running. The shift by all of the Class I rails to some form of Precision Scheduled Railroading (PSR), a system of lean operations in which only the movements required are made, is responsible. If a shipper delivers a cargo, but then the train is canceled, who is to blame?

And it’s understood that regardless of what they say, all of these rail lines have adjusted capacity in line with the principles of PSR, even if they won’t call it that. But setting capacity based on experience is not easy when we are experiencing not only a surge in customers, but also many abnormal conditions throughout supply chains that disrupt the standard patterns. Decisions about PSR, such as reducing the number of locomotives or yard staff or engineers, are based on forecasts, and forecasts are always wrong; so it’s a question of whether the rails have left enough slack in the system to handle the variation in the rest of the system. The answer appears not.

One particularly vexing problem with the current system is being addressed by the Surface Transportation Board (STB) which governs rail operation in the US. In the past, demurrage was viewed as something infrequent that did not matter much, and railroads did not develop systems to capture and bill for it in a regularized way. But now, it’s essential that the accounting for it be accurate and transparent, and that bills be sent in a way that shippers can handle digitally and determine the facts from their side about each incident. More accurate and standardized billing is key. That’s what the STB wants to achieve by regulating the nature of demurrage charges by rails.

Already in place at the end of 2020 are new rules requiring bills to be sent to shippers rather than intermediaries, and

“provide machine-readable access to minimum information on billing, including details on the billing cycle covered by the invoice, the car involved, the commodity being shipped, and railroads’ original estimated time of arrival for the cargo in question”

Supply Chain Dive, ‘Insult to injury’: Record rail demurrage adds to shipper costs | Supply Chain Dive, Jan 12, 2020.

As expected, some rails complain this will lead to more litigation and questioning. Of course! But in fact no one wants the delays that cause demurrage, and it’s in everyone’s interest to understand exactly what happened to cause the problem. The new billing standard will clarify a lot, and get into shippers’ hands so they can do something about the problem.

I think it is a big step forward in the rail arena. I wish it were as clear in ocean shipping, in the port and terminal arena.

Published Jan. 12, 2022

Sarah Zimmerman Associate Editor

Edwin Lopez Lead Editor

‘Insult to injury’: Record rail demurrage adds to shipper costs | Supply Chain Dive
Like our remarks? We don’t take ads, and don’t just publish press releases. We try to curate articles of significance to maritime trade and logistics both domestic and international. Please donate to our blog!

1 Comment

Posted in Logistics, Rail, Shipping

Tagged , , , , , ,

Feeder ship frenzy putting even more pressure on supply chains

Posted on February 4, 2022 | 1 comment

Feeder ships are smaller container vessels used to transport to and from large ports and other locations, inland or along a coast. There are many feeder ship operators, mainly clustered around larger ports. In Europe they frequently ply rivers as well as coastal routes.

Feeder operators have in the past been ‘asset-light’. In other words, they have not owned their ships– they have chartered them from shipowners.

But now, with major congestion at major ports, shippers who have large well-defined needs for container transport have been scrambling to charter these smaller vessels for their own account. The feeder operators face a bidding war for the vessels they need.

An example of the competition for ships is the recent charter by Pasha Hawaii, a US-flagged carrier, of a 2756 TEU ship on behalf of Costco. The charter rate was $1875K per day for 60 days. This astonishing rate cannot be afforded by feeder lines. It turns their economic model topsy-turvy.

Nobody ever said shipping was an easy business.

By Mike Wackett 03/02/2022

Feeder ship frenzy putting even more pressure on supply chains – The Loadstar
Like our remarks? We don’t take ads, and don’t just publish press releases. We try to curate articles of significance to maritime trade and logistics both domestic and international. Please donate to our blog!

1 Comment

Posted in Logistics, Shipping

Tagged , , , , ,

The Hidden Costs of Containerization

Posted on February 4, 2022 | Leave a comment

This article stresses the awful situation seafarers find themselves in, as a result of ships being stranded offshore unable to unload or load, and national COVID rules about flying and debarking, which prevent them from getting home when their time at sea ends. It’s a terrible situation, and countries have not done enough to make it better. International organizations such as the ILS don’t really have much influence in the face of the pandemic.

That’s not the only cost of containerization. Just like Amazon packaging, empty containers are overwhelming America’s ports, and large ports elsewhere. Countries that import more than they export are at risk of a buildup of empty containers. The original idea was that they would go back cheaply to exporting countries, kind of like HP empty printer cartridges, to be refilled and sent again, an example of a reverse supply chain.

Enter the Chinese steel industry, and Chinese nationally-backed container manufacturers. Cheap steel in China and a huge demand for containers has conspired to let these firms make new containers for just about the cost of bringing the empties back. One could argue that it’s better to use a new container because it’s less likely to have hidden damage that might affect the cargo, and that might offset the small price difference. Also eliminated is the coordination overhead of managing the shipment of empties, and then matching the empty used container with a shipper that needs it, and getting it to the loading spot.

The article also points out that the very large container ships of today have caused enormous capital investments at ports around the world. Their draft of around 50 feet meant that harbors needed to be deepened, bridges raised (New York); and their length meant that extra-long quay space is required, cutting out space for smaller barges and feeder ships (Rotterdam, Antwerp) which meant that inland transport of goods (and return of empties) could not be as efficient and timely.

The huge capital investments at ports also created winners and losers. Ports that invested reaped the benefits of increased traffic. A port is an economic engine in its neighborhood, providing jobs and business flow. Ports that did not or could not invest can no longer count on ships coming.

It’s interesting that now, in the midst of the congestion panic, a few larger shippers are forsaking the world of the megaships and alliances. They are chartering smaller container vessels themselves, buying their own containers, and seeking ports that don’t have the same level of congestion. IKEA, Amazon, Wal-mart, and others have sufficient cargo flow that they can invest in this bypass to the ocean carrier-dominated shipping scene. This could prove a boon to smaller ports who did not invest before, but who can handle the smaller ships.

It’s an old adage of operations management that a lean system will reduce batch size. In terms of our supply chains, that would mean smaller ships, more frequent sailings, and use of a wide variety of ports. And it would spread the wealth and the environmental issues shipping brings over a wider landscape.

BY AMIR KHAFAGY FEBRUARY 2, 2022

The Hidden Costs of Containerization – The American Prospect
Like our remarks? We don’t take ads, and don’t just publish press releases. We try to curate articles of significance to maritime trade and logistics both domestic and international. Please donate to our blog!

Leave a comment

Posted in Logistics, Supply Chains, Sustainability

Tagged , , , , , ,