With shipping capacity under pressure, ensuring that your containers are loaded aboard ship is not a small matter. FAK rates can be a very useful option in the current climate.
Although it is generally acknowledged that the shipping company and shipper have a shared interest in loading the right cargo aboard the right ship, some factors can put this consensus under pressure. The shipping company's objective when it calls at a port is clearly to fill the allocated space and obtain maximum revenue from each container. When there is no pressure on space and the container to be loaded has customs clearance, there is no real obstacle to loading. But in instances of overbooking, things are more complicated. Let us consider here how priorities are managed and what strategies are available to shippers.
1/ The nature of the goods
Refrigerated containers and dangerous materials are normally speaking given priority loading, more for operational and security reasons than commercial ones. This segment, which represents about 20% of loadings in Europe, is normally catered for, therefore.
2/ Long contracts
Regarding goods covered by long-term contracts, over and above the price paid per unit, the quality of the commercial relationship plays a major role in the likelihood of the container being loaded or not. The equation generally takes account of the value of the merchandise and the duration of the customer-client relationship. In Europe, for example, wines and spirits are generally given unofficial priority by the shipping companies.
3/ Freight All Kinds (FAK) rates
In this instance, cargo is charged a "spot" price. The shipping companies publish a monthly update of FAK rates. This option has been little used in recent years but should be looked at again in current market conditions by those who need to move containers for genuinely urgent reasons. For a slight surcharge and with minimum disruption to negotiated rates, the sender can present a strong claim to priority loading and in most cases obtain it, given that shipping companies are keen to prioritise operations presenting the best returns. For the shipper, this approach offers greater flexibility at a lower price than the premium programmes offered today by certain shipping companies.
4/ Premium programmes
Helped by a balance of power which currently favours the shipping companies, these VIP programmes are starting to become more common. Be careful, nevertheless: the guarantee of loading on the first available ship is linked to commitments in terms of volume and duration. This constraint really needs to be taken into account in making one's calculation, given that there is not a great deal of visibility just now regarding cargo flows. In the event that there is a shortage of equipment in any given port, however, these programmes undeniably offer greater security.
Conclusion: give preference to FAK rates
Overbooking is a market reality, which, in general, is well managed on a day-to-day basis by shipping company personnel and, with a few exceptions, is fundamentally justified, given that the shipping companies do not charge their clients for late cancellations of their reservations. It is worth recalling that 15-20% of bookings are cancelled or postponed less than eight days prior to departure. For the shipping companies, these last-minute cancellations have a direct and immediate impact on port call revenues. Shipping companies' port booking managers undergo continual evaluation on the basis of this key profitability ratio, moreover.
In the current environment, to protect yourself from the risk of seeing your container left on the quay, I recommend shippers to opt for FAK rates, to be used as required and only for containers which really need them. In my opinion, this form of micro-management offers the performance/risk management ratio so long as space is "artificially" kept under pressure.
Captain Upply
