Effect of Covid – Container Imbalance Charge (CIC) - R R Padmanabhan, Director - Exim Academy

Effect of Covid – Container Imbalance Charge (CIC) - R R Padmanabhan, Director - Exim Academy

Image Courtesy: https://container-xchange.com/blog/balancing-container-imbalance

Covid continues to throw surprises on all fronts. Logistics is no exception.  Logistics is one domain that closely responds to changes in society. The lock down and consequent shrinking demand is replaced by opening of economy and surge in demand.  This is quite natural.  But unnoticingly, a quite new development is taking place in the availability of containers.

 

Generally, one third of containers retire every year.  New containers replace these.  But last year, prolonged shut down made the replacement of containers impossible.  Not only, that without any business, many container owners sold them to non-logistical uses.  In many places, for example, containers are being used as store yards, site offices, temporary shelters etc.  So, it is double whammy, on the one hand there is no replacement and on the other hand, existing goods ones are being diverted for non-logistical uses. 

Another issue that is being faced by the Liners is positioning of containers.  The positioning of containers in places where they are needed is called Repo.  Containers are being culled out from places nearby to places where they are required.  For example, containers from east coast of India would be moved to reposition at Singapore.  In fact, such repositioning is the reason for freight rate to negative in some cases for shipments from ex chennai, a port in east coast of India. 

According to CNBC.com, causes for container shortage are: 

"The surge in demand worldwide for logistical services at this time has resulted in a global shortage of shipping containers, congested seaports, capacity constraints on vessels, and even lockdown in certain markets, amongst other challenges." 

Liners are left with no option to charge a fee to recover the cost of such positioning.  This will definitely add up to freight cost. 

Now comes, the most important question:  Who is to bear this cost? Inco terms do not provide any guidance on the issue mainly because, the issue is of recent phenomenon and was not part of Inco Terms guidance note released on 1st Jan 2020.  Either the shipper or the customer has to bear the cost.  Or put it straighter, some one the supply chain has to bear it. The question is on whom the responsibility falls? 

In the words of Henry Kissinger, ‘in the absence of alternative, the way is fantastically clear’.  Similarly, the charge has to be paid by the party who is bearing the freight.  So, depending the Inco Terms, whoever pays the freight, it shall be paid by him! Searched in the net, about the charges levied by one of the liners and found the following information; 


Source: www.hapag-lloyd.com




R R Padmanabhan
Director
Exim Academy

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