The rapid, wide-ranging introduction of additional customs tariffs could encourage some importers to refuse goods and ask for them to be returned. This could be a real challenge for the shipping companies.
In shipping company jargon, "return cargo" refers to cargo which needs to be returned to its sender after having been refused by its designated recipient. Theoretically, recipients are obliged to take delivery of the merchandise they have ordered. Refusal to do so is only possible in certain, well-defined circumstances (fraud, damage, poor quality), which must, of course, be justified. As part of commercial negotiations, however, recipients may convince senders to take back their merchandise, even if they suffer from no clear defect. Current conditions, moreover, could favour an increase in operations of this kind.
In the United States, as in Europe, the volatility but, above all, the sudden increase in customs duties on certain products could persuade some recipients to refuse to accept goods they have ordered. These operations are difficult to manage for the shipping companies but can nevertheless be an opportunity if the market crashes or shows signs that it is about to change direction.
1/ Demurrage and detention fee links
After the usual seven days after delivery for dry containers and three days for reefers, charges come into play. The shipping companies charge recipients who do not come to pick up their merchandise. Stocking merchandise at the quayside when it is no longer wanted is, therefore, a bad idea. In terms of responsibility, "playing dead" is always very expensive when the time comes to settle the dispute.
Expert advice: Ideally, if recipients no longer want their merchandise, it is in their interest to ask for it to be returned to the sender before the shipping company has unloaded it on to the quay and to give the shipping company written instructions so that it is involved in the process from start.
As regards the cost of the return, we see that, for dry containers, the price is generally about 50% of the price paid for the outward journey. This price can, however, be negotiated, at least for dry cargo, particularly if there is strong demand for the product.
2/ Reefer returns more sensitive
Refrigerated containers contain higher value merchandise, which is generally subject to a sell-by date. Port charges are a bigger issue for this sort of freight, moreover, since electricity and demurrage and detention costs are charged. The procedures for returning the merchandise to its sender are stricter than for dry merchandise, moreover, since the financial consequences are much more onerous.
Expert advice: My recommendation to shipping companies is to obtain a commitment from recipients to accept the merchandise. This commitment, which should be written and precise, should be obtained when space is reserved, before loading. It could even be a good idea to include a clause of this kind in standard operating procedures.
A shipping company is likely to find its empty reefer management system disrupted if it does not have its equipment available at the time and place initially decided. Shipping companies operating in this market segment tend, therefore, to charge return freight at the same price as outward freight, leaving no room for negotiation. The party asking for goods to be returned must also show proof that the original exporter is ready to take them back.
3/ Provide for the problem in the contract
Managing is anticipating, as the saying goes. It is, therefore, in the interest of international trade operators to prepare in advance for delivery refusals, since they could very well become more common in the months to come.
Expert advice: it is better not to wait until the problem presents itself to settle it, since, then, it will be too late. In the current situation, we recommend amending existing commercial contracts through the addition of a specific additional return clause.
Conclusion
The trade war is taking on such proportions that it could seriously reduce shipping companies' bookings. It could also affect orders already placed, as negotiations get under way to return goods that have become difficult to sell because they have become more expensive. A sharp increase in freight rates cannot be ruled out, moreover. In any case, in current uncertain conditions, all parties could find it extremely useful to prepare for an increase in return cargoes in their transport contracts.
