The Union Customs Code - a useful overview without industry jargon!

For those of you who import or export, the Union Customs Code takes effect on 1st May, less than 6 weeks from now and in the spirit of our motto, "logistics simplified" we decided to distill all of the information we'd gathered into a no- nonsense, practical and concise overview and write to all our customers so they were fully abreast of the changes...we also thought it may be useful to the wider supply chain community hence our post today.

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You may have heard about the changes taking place on 1st May 2016 with the arrival of the Union Customs Code. You may also have heard the term Authorized Economic Operator being used in the same conversation and naturally, you may then be wondering, what do these terms mean – and how will they affect our business?

As you can imagine, we have been monitoring the developments closely, have attended a dedicated UCC/AEO seminar and have since had written and verbal discussions with one of the leading Customs officers in the UCC team here in the UK.

It’s fair to say that Customs have not been very forthcoming with information on exactly how importers/exporters (referred to as traders by HMRC) will be affected and in fact, the officer we communicated with advised us that they are still to release more detailed guidance on 31st March 2016 (only 1 month prior to the launch date of the UCC!). To be fair to HMRC, the finer points of the UCC were only ratified in late 2015 which prevented them releasing more details.

Firstly, I should explain in more detail what both of the above terms mean.

Union Customs Code

Since the 1990s, within the EU, we have operated under the Community Customs Code, however after almost 10 years of discussion and a failure to agree on the Modernised Customs Code (MCC), the UCC was ratified in 2013 and will bring about the following changes from 1st May 2016:- 

• More streamlined Customs legislation and procedures
• Greater legal certainty and uniformity to businesses
• Increased clarity for customs officials throughout the EU
• Simplification of Customs rules and procedures to facilitate more efficient customs transactions in line with modern-day needs
• Complete the move by Customs to a paperless and fully electronic environment
• Reinforce swifter customs procedures for compliant and trustworthy economic operators (Authorised Economic Operators)

Authorized Economic Operator

AEO is an internationally recognised quality mark which was introduced by the European Commission in 2008 and indicates that a business operates within a secure supply chain and that their internal controls and procedures are efficient and compliant. The Union Customs Code, as you can imagine, is a pretty detailed piece of legislation, and some would say (quite justifiably) that it is quite daunting and confusing, however what most customers really want to know is, should I be concerned about it, and do I need to do anything? Each customer’s situation is different of course but I will try to summarise the situation for the majority of importers below.

Importers

If you are a typical UK importer and you import the goods into Free Circulation – that is, you pay the import duty & VAT when the goods are cleared and either retain the goods within the UK, or you sell them on to UK or EU customers, then you are unlikely to be affected by the UCC unless you operate your own Customs deferment account, where you defer any duties payable at the time of clearance and reimburse Customs once per month.

If you do, the UCC introduces the concept of financial guarantees for most actual and potential Customs debts in the form of the new Customs Comprehensive Guarantee (CCG)- however, as long as you do not make any changes to your deferment account (for example, making changes to the deferment account limit or the bank which guarantees the deferment account, the deferment account won’t be reassessed under the new terms and so you should not be affected.

If you operate any other Customs procedures such as Inward Processing, End Use, Outward Processing, Customs Warehousing, Temporary Admissions or claim 0% Preferential Import Duty, then the new Customs Comprehensive Guarantees will be required.

Let me just put something into context here, as many customers will be feeling a lot of pressure to now become an AEO. With AEO, there are 3 levels of certification, AEOC, AEOS and AEOF however there are presently only 399 AEOs in the UK, as the take up over the past few years has been very poor. Given that almost 50% of these are freight forwarders and there are 220,000 registered UK importers it is clear that the benefits of AEO have not been seen as worthwhile when compared to the time and effort involved in applying and maintaining AEO status. HMRC are also unlikely to be able to even process applications should large numbers of importers/exporters feel they must act however they have seen a rise in applications in the last 3 months.

Exporters

You will notice that I haven’t covered exporters in this summary and this is because, generally speaking, there is much less interest by HMRC generally in exports (as there’s less revenue/duty/VAT attached to exports, and in turn a lesser need for CCGs) and therefore the UCC is likely to have a limited impact on exports. Should you be a user of Inward Processing, then by default, you would be affected as an importer as you would process goods and then re-export and be covered as an importer in this article.

 So to summarise, for the majority of importers.

1. Importing goods to Home Use and do not have their own deferment account

Unless HMRC interfere with clearances for non-AEO companies (which is highly unlikely given that 99.9% of UK importers/exporters are non AEO status), they should see no change to the way their imports are processed however if they use Straightforward Consultancy (SCL) services for Customs compliance, this will be a great asset should they decide to opt for AEO status, as HMRC will want to see evidence of a proper process of Customs compliance, preferably for 3 years

2. Importing goods to Home Use and have their own deferment account

Again, unless HMRC interfere with clearances for non-AEO companies, they should see no change to the way their imports are processed however if they make any changes to their deferment guarantee, they will need to set up a Customs Comprehensive Guarantee (CCG). If they use Straightforward Consultancy (SCL) services for Customs compliance, this will be a great asset should they decide to opt for AEO status, as HMRC will want to see evidence of a proper process of Customs compliance, preferably for 3 years. Customs are also saying that if a customer becomes an AEO, they will benefit from a 70% reduction in the guarantee amount.

nb - If you operate SIVA (Simplified Import VAT Accounting), where you use this system to reduce the amount of the guarantee you have lodged with HMRC (just to cover the duty) then you can continue to use SIVA in its current guise until your term expires.

3. Importing goods to other Customs regimes, such as Inward Processing, End Use, Outward Processing, Customs Warehousing, Temporary Admissions or claim 0% Preferential Import Duty 

The arrival of the UCC will definitely affect you, as the new Customs Comprehensive Guarantees will be required and for example, if you already have an IP Undertaking which is due to expire after 1st May 2016, then this will be valid until expiry unless you make any changes to it.

 I hope that this has been useful and gives you a pretty concise overview on what is happening with the Union Customs Code, and more importantly, how it may affect you. Of course, this is a concise summary and reflects our personal opinion of the changes and far more detail sits within the Customs notices and, we hope, within the update on 31st March. I also attach a link to the last official update from HMRC in October 2015.

https://www.gov.uk/guidance/introduction-of-the-union-customs-code-ucc

Please do contact me if you require any guidance or clarification.

 Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. Andy was part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 

Did you notice what happened on February 29th?

Did you notice? On 29th Feb, sterling fell to a one year low against the USD and dropped below the critical 1.40 level - bad news if you're importing from overseas where your product costs are often agreed in USD and, you may not realise, your freight costs are probably in USD - that's a 10% cost hike in 3 months. Time to take a look at your logistics costs and try and claw back some lost margin! But if you do review it, do it professionally and ensure the reliability of your supply chain is not placed at risk.

Article on USD strength

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. Andy was part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 

UK Exporters, are you ready for SOLAS container weighing regulations (which becomes law Jul 1st?)

On July 1st 2016, the International Maritime Organization SOLAS (Safety Of Life At Sea) regulations come into effect globally, which will mean that all exporters across the world shipping full containers, will by law need to provide a verified gross mass (VGM) declaration for every container prior to loading onto a vessel.

Why the change? Well the fact is that until now, a shipper could under-declare the weight to avoid overweight surcharges, be they road or shipping line related, and many unscrupulous and irresponsible exporters have been doing this - and it has led to some tragic outcomes with vessels inexplicably sinking in heavy weather, when they were well within their ocean going limits.

Perhaps the most high profile loss in the last decade was that of MSC Napoli, which ran aground off the UK coast in 2007. Investigators found that of the 660 containers stowed on deck that remained dry, 137 were overweight by more than three tonnes each. The biggest difference was 20 tonnes, and the total weight of those containers was 312 tonnes heavier than declared on the cargo manifest.

It has also been calculated that 20% of the 130 million containers shipped globally are mis-declared in their weight, a huge number, and clearly a major cause for concern.

The new SOLAS rules are a response to this, however they present quite a challenge as they mean that exporters are now legally liable for an accurate declaration and they may need to need to ensure they have accurate on-site weighing equipment prior to the container being sealed and sent off to the port.

It isn't necessary that the exporter has to weigh the complete container on site which would in any case make for quite a complicated process - they can actually weigh all the product which is loaded and then add on the "tare" or empty weight of the container to arrive at the VGM.

Here's some useful advice from BIFA on the process.

http://www.bifa.org/media/3820205/solas_vgm__industry_faqs_dec_2015.pdf

There is also the possibility that ports themselves may step in and offer to weigh the containers (for a fee of course) prior to loading and this may indeed be the best and most cost effective solution although of course it means that the exporter doesn't actually weigh the container and would they want to be held legally accountable for any mistakes?

To this end, one port operator, DP World which manages both London Gateway and Southampton have offered to provide this service and I think it's likely that other ports may follow.

http://www.multimodal.org.uk/news/dp-world-weighs-too?dm_i=2J31,NEQO,33BZZU,1ITL9,1

Overnight, we have seen this report from the US which seems they are in a state of disarray, where shippers are pushing for a delay of upto 1 year with implementation. The US Coastguard have said, after Jul 1, they will not levy fines on US exporters who fail to declare a VGM (Verified Gross Mass) although the shipping lines and terminals will not be able to load a container unless they have a VGM. Seems very confusing US side!

http://www.joc.com/regulation-policy/transportation-regulations/international-transportation-regulations/us-won%E2%80%99t-delay-solas-won%E2%80%99t-penalize-shippers_20160218.html?utm_source=email&utm_medium=content&utm_campaign=containerweights&mgs1=b099mcVgeM

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. Andy was part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 

UK importers, how to deal with a strong USD and the effect on your margins!

Firstly, a Happy New Year to you all, I hope that 2016 is a healthy and prosperous year for you.

Now, time to get down to business. Sometimes, when things happen very gradually, you often don't notice, so I thought it was worth flagging up the exchange rate between the USD and Sterling as we've now dropped below the crucial USD 1.50 mark and have been below this level since 18th December 2015 (yesterday, the exchange rate was 1.4689). Just over a year ago, the USD was at 1.60 so there's an 8% cost hike if you're a UK importer and transact in USD.

This slide in the pound was no doubt triggered by the US Federal Reserve raising US interest rates in late 2015 and also the fairly weak outlook for our UK economy in 2016.

New York Times report on Fed raising rates

Our area of expertise is global logistics and one thing monitor every single day is the rate of exchange between Sterling and the USD - why, you may ask? Well, UK importers pay their freight costs to logistics providers/freight forwarders in Sterling and so it's really important that the costs are converted at a fair and correct rate of exchange. We manage the inbound freight models for many UK importers and use the published exchange rate as a benchmark to check that their freight costs have been correctly billed.

Freight rates are often charged in USD, so this means that if you import by air freight from the USA, your freight rates will be in USD, and even if you import by ocean freight from Asia, again your freight rates will be in USD. Why? Well the USD is a very stable currency and also one which everyone in the supply chain is familiar with.

Of course there are UK clearance and delivery charges which apply after arrival and they're set in Sterling but the lion's share of the cost is usually the freight rate from supplier to arrival UK port/airport.

To add to this, selling prices are often set in USD and so when the dollar strengthens against sterling, it has a big impact on importers in particular squeezing their often slim margins even further. Many importers have to set a USD median for them to work out selling prices and that is often set at USD 1.60 or sometimes USD 1.50 so when the dollar drops below 1.50 it's a real concern.

One thing which can certainly help to counteract the strengthening dollar is to take a close look at your inbound supply chain, and in particular your air and ocean freight costs (not to mention import duty costs) which is our area of expertise. 

Every time we take on a new customer, we always find that their freight costs can be improved (our average freight cost reduction since 2010 is around 35%). We do this by using our expertise, industry contacts and knowledge to not only deliver significant and sustainable savings, we also refresh their logistics model at the same time to make it far more responsive, customer-focused and compliant.

Some of our clients are in their 6th year with Straightforward Consultancy Ltd (SCL) after initially appointing us to carry out a Freight Review, and we're now totally managing this area for them every day, keeping them competitive and compliant.

If you're interested or need any help or guidance, just call or drop us an email, we'd be glad to help you too!

Kind Regards


Andy Cliff

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. In 2015, SCL celebrated its 5th birthday after a record year in 2014. Andy also became part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

UPS healthcare & life sciences international logistics report - truly surprising statistics!

Living in the world of logistics, I receive industry bulletins every day and my company, Straightforward Consultancy manages the freight models for many customers so I feel pretty connected to the real world, and I have lot of industry experience gained by working for companies such as DHL and Kuehne & Nagel, but this article caught my eye, and shocked me.

Here is a report conducted on the medical and life sciences sector by UPS and the headline is as follows:-

"Only 50% of healthcare and life science companies feel they are successfully managing logistics, warehousing and transport costs"

We have experience in the life sciences sector and took on a client in Liverpool in 2012 who imported perishable laboratory product by air freight from Asia, mixture of -20C, 2-8C and ambient. Their issues were that they were concerned about their air freight costs and they couldn't rely on their (valuable) product arriving in a 4 day window (otherwise it perished and was unusable). They also had several logistics providers across their Asia supplier base which complicated matters.

We made a really positive impact on this customer by putting in place a solid service level agreement (SLA) which mapped out every step in a timeline from date of pick up covering every day of the week through to UK Customs clearance and delivery on dedicated vehicles. The outcomes were dramatic - we shortened the transit times to as little as 72 hours, reduced their air freight costs by 60% and put in place a failsafe, monitoring each shipment and the forwarder's performance closely. From that point they never had any product delivered outside the 4 day window.

I think, that like a lot of companies, they wanted to make changes but were fearful of making things even worse, which is understandable.

But when I read this report I think to myself, how can this be, how can 50% of companies in this sector have so little control over their logistics, warehousing and transport costs - and do they also have equally low confidence in the reliability of their international logistics model?

I just find it to be remarkable, but if this rings a bell in your organization, please seek some outside expertise, you will provide a better service to your customers and become more competitive on your landed costs - and you will achieve that wonderful feeling - peace of mind. If you're not sure where to start, then contact us, we'd be happy to help you.

http://theloadstar.co.uk/weak-links-healthcare-life-science-supply-chains-revealed-new-ups-research/?utm_source=The+Loadstar+daily+email&utm_campaign=eabb2f99e8-Loadstar_19_November11_19_2015&utm_medium=email&utm_term=0_c4570e43d4-eabb2f99e8-125883633

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. In 2015, SCL celebrated its 5th birthday after a record year in 2014. Andy also became part of the  judging panel for the 2015 Global Freight Awards, which recognize quality, innovation and performance in the field of international logistics. 

You're importing from the USA - but are you aware of this?

Are you one of the thousands of UK importers who aren’t aware of this? Are you in finance, logistics or one of the directors? If so, read on - this article is well worth a few minutes of your time. 

As an importer, whether you import by ocean freight from China, air freight from the USA or use DHL Express / UPS for your small parcel shipments from Japan, you should know that you have legal responsibilities to HMRC / HM Customs under the Customs & Excise Management Act 1979.

So why should you be concerned?  You actually leave all that work to your freight forwarder / logistics provider / Customs broker, they charge you for their services and you take delivery of the shipments. You certainly don’t make any Customs declarations to HMRC so surely, if anyone makes a mistake, it’s certainly not your responsibility – right?

Actually, no.

When you use a freight forwarder, logistics provider or Customs clearance agent or Customs broker to carry out the Customs clearance for you, 99 % of the time, they’re acting as your Direct Representative, even if they haven’t always formalised that arrangement with you. So what does that mean? It means that although they declare the goods to Customs for Customs Clearance purposes and sign the Customs Entry / C88 (albeit electronically), they’re doing it on your behalf and you're actually liable for any mistakes or incorrect declarations on that entry.

All this might come as a surprise to you but it’s most definitely in your interest, from a legal, risk, commercial and financial perspective to find out exactly how this process is being managed right now as it raises some fundamental questions as below:-

1 – How are all the different products we import being classified for Customs purposes and who actually classified them?

2 – What duty rates are we paying and are they correct?

3 – Are we paying too much duty, in which case money is being wasted?

4 – Are we paying too little duty, in which case we leave the company exposed to fines and time-consuming Customs investigations?

5 – Are the correct values being declared to Customs?

6 – Are we as the importer keeping full and accurate records as required?

7 – As the importer, can we demonstrate to Customs that we have a robust Customs Compliance process?

8 – If we had a Customs inspection, would we be able to prepare for it and would Customs find us to be compliant?

If you read these questions and then start to feel uncomfortable, then you’re probably not alone – in our experience, very few importers take Customs Compliance seriously, mainly because with so many companies these days, they don’t have a dedicated department for logistics or shipping and the responsibility for logistics falls across several departments, so no one manages this area at all - and that is a real concern.

 If they ever do get a visit from their local Customs officer, they often find it to be a very unpleasant experience, as Customs will expect them to have kept detailed records of their import consignments and they’ll also take great interest in the Customs commodity codes, duty rates and the Customs Procedure Codes being used by their Customs agent.

If they discover any errors, you can be assured that they will start digging and if there are any errors in your declarations, compliance processes or procedures, they will most likely find them. This process is very unpleasant and worrying for importers as Customs can be relentless in their search of lost revenues connected to underpaid Customs duty and VAT, can levy fines and insist that underpaid duties going back 6 years are repaid. This can not only cause a lot of disruption to your business, it can mean you are presented with a large bill (and possibly a fine).

As an example, a healthcare company in Warrington we visited were importing from Asia and had been using an incorrect commodity code for many years. HMRC visited, then did the analysis of all the affected Customs entries and presented them with a bill for £ 45,000 which they consulted us upon. Although we tried to help, we told them that unfortunately, HMRC were correct and we couldn’t find any Customs rulings in the UK or EC to justify their use of that commodity code.  They struggled to pay this huge figure and I think they wish they had taken their Customs responsibilities seriously years earlier. 

So how do you fix this? In our opinion, it’s all about doing some basic research, finding out how everything works today, ensuring any grey areas are dealt with and then putting in place robust procedures. After that, just as importantly, carrying out compliance checks each month to ensure that the commodity codes and Customs procedures are being followed (and correcting any errors quickly). This way, when Customs do visit, you can demonstrate a really solid process and even if they don’t, you have complete peace of mind that you are paying the right amount of duty and you’re able to respond with confidence should a Customs visit or inspection raise its head.

Some of the main things you should be checking if you decide to carry this out yourself are:- 

1 - Correct tariff classification (which affects the duty rate payable)

2 - Value declaration (is the value on suppliers invoice correct)

3 - Correct currency code

4 - Declaration of marine insurance (dutiable)

5- Declaration of correct freight charges (dutiable)

6 - Correct/appropriate Customs regime (home use/IPR/OPR)

7 - Application of any duty concession which may be applicable

 (There are over 54 fields on a Customs C88 but these are the main ones).

HMRC have issued guidance to remind customers of their responsibilities in this area which are “IT 03 – What International Trade Records Should I Keep” and “IT04 – Recommended Management Checks For Importers”
 however they're not well-publicised and the wording inside may be confusing to the average UK importer (who has most likely never completed a Customs entry in their life!).

We carry out Customs Compliance work for almost all of our import customers so they know they're compliant, they're paying the right amount of duty, the correct tariff codes are being applied for the different products they import and they're taking advantage of any Customs duty reliefs which are available. The other big benefit is the obvious one - peace of mind, it's being managed, and if they get a Customs visit, we can show they carry out a solid compliance process to ensure any errors are picked up and corrected.

This was how we uncovered a £ 26,000 duty overpayment for a Warrington customer in 2012 who import from the USA. The mistake involved over 127 Customs entries and took several months but we succeeded and they not only appreciated the large refund, they now also enjoy duty rates 25% lower on all their current shipments which helps them be more competitive, all with HMRCs blessing!. We’d already reviewed their import air freight and ocean freight in 2011 and made significant impacts on their landed cost and transit times and we continue to manage their international logistics to this day.

As you will see from our website, Customs compliance is just one of the core services we provide to customers alongside our Freight Reviews, Freight Management and Consultancy.

Please follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk  and our blog http://straightforwardconsultancy.blogspot.co.uk/

Andy Cliff is an industry professional who launched his own logistics consultancy, Straightforward Consultancy Ltd (SCL) after a 30 year career in international logistics, working for companies such as DB Schenker, Kuehne & Nagel and DHL Global Forwarding in operational, sales and management roles. 

Andy felt that in an increasingly complex and confusing world of logistics, small-medium sized UK importers and exporters needed a company alongside them which could help them to reduce costs, lessen their workload and provide expert advice and support day-to-day. In 2015, SCL celebrated its 5th birthday after a record year in 2014. Andy also became part of the  judging panel for the 2015 Global Freight Awards, which recognise quality, innovation and performance in the field of international logistics. 

30 days is a long time in logistics!

If you import from Asia, and if you're concerned about keeping a lid on your landed freight costs, then now would be a good time to take a close look at what rates you are actually paying, as we've seem some historic lows in rate terms over the last few weeks in the freight indexes from Asia (USD 205 per 20 foot container from Shanghai to UK).

That sounds like an amazingly low freight cost, especially as your after arrival costs would probably be in the region of GBP 600-700 (depending on your location in the UK. However these low rates are now a distant memory, hence the title of this post, and rates are climbing sharply. 

As we approach the start of the Peak Season as it's called in logistics (typically August-November) when retailers in particular need their Christmas stock on the shelves from September onwards, volumes increase and in turn, so do freight rates.

Despite their investment in huge container ships which reduce their cost per container, the shipping lines can't make money at rates as low as USD 205 so they've instigated General Rate Increases (GRIs) from 1-July and they have had a dramatic effect, with rates bouncing by over 300 percent in 2 weeks (from USD 205 to USD 879!).

Last Friday they eased back a little, but this is the calm before the storm in my opinion as the shipping lines have announced further massive increases from August 1st of USD 1000/TEU/20 foot so even though some commentators are saying the rate increases won't stick, I'm not so sure as lines are also withdrawing capacity by either reducing the number of vessels in service or just cutting back their sailing schedules. Just take a look at the below report from Mike Wackett at Loadstar.

http://theloadstar.co.uk/ckyhe-follows-asia-europe-peak-season-capacity-cut-trend-but-2m-remains-firm/

Some customers, particularly large ones with +1000 TEU of volume may have done fixed term deals (say 6 months, 12 months) however the index was USD 1085/TEU on 2-Jan-15 so they may have regretted the decision to fix their rates especially as the rates have been generally weak since Chinese New Year. Other customers may be on a monthly rate update and many just pay whatever rate they're charged as they have no time to spare and have no way of knowing what the market is doing, quite understandable and very common.

Just in case you're unsure what a TEU is, it's a Twenty Foot Equivalent Unit, so a 20 foot container is 1 TEU and a 40 foot is 2 TEU so it's really a measure of volume in ocean freight terms used by lines, forwarders and customers.

Just imagine having a fixed rate of say USD 900-1000/TEU/20 foot and hearing that the market rates have fallen down as low as USD 205! I suppose that's a risk you take but maybe what I'd really suggest you do is to seek out some independent expert advice so that you can put some controls in place , keep your landed costs as low as possible and preserve your margins in these testing times.

Until the next time.

Andy Cliff
http://www.straightforwardconsultancy.co.uk/about-us.php