China’s crackdown on surcharges squeezes container lines

China’s crackdown on ocean carrier surcharges, seen by government officials as hurting exporters, is forcing container lines to lower certain charges at a time when their own profits are declining because ofovercapacity and rate competition. 

The crackdown on surcharges is understood by carriers as an effort to reduce the costs of exporting at a time when the China and global economies are slowing and its exports are less competitive due to higher labor costs and low-cost competition from Southeast Asia. China’s exports contracted 3.7 percent in September compared to a year earlier after dropping 5.5 percent in August and 8.3 percent in July, according to the General Administration of Customs. China devalued its currency in August in a move to boost exports. Some see the government’s action as predictable given the economic climate.

In parallel with the crackdown on surcharges, government officials are targeting fees charged by ports and marine terminals such as pilotage and security fees; a security fee at Shanghai was recently scrapped, one source told Surcharges have come into the crosshairs of China regulators because, with ocean freight rates plummeting due to overcapacity and slowing trade growth, surcharges now account for a much larger percent of the total freight cost as compared to prior years, and it’s often the Chinese exporter versus the overseas buyer that pays them. According to one carrier, surcharges five to seven years ago accounted for 20 to 25 percent of their total revenue but now it can be 40 to 45 percent on certain routes.