CHANGEOVER: (From left) New Fonasba president John Foord, outgoing president Glen Gordon Findlay and general manager Jonathan C Williams at the federation’s annual meeting in London.
Ship agents are ready to shake up the way they are paid by replacing the existing commission-based system with a flat fee.
The proposal won the backing of several key figures at the annual meeting of the Federation of National Associations of Ship Brokers and Agents (Fonasba) in London last Friday, including newly instated president John Foord.
But it may ruffle feathers with several lines, which are reverting to third-party ship agents in a bid to cut costs, with agents warning that operators cannot expect to be treated on the same terms as during the boom times.
Liner agency commissions traditionally have been charged at around 10 cents in every dollar — about half paid for export cargoes.
That commission-based structure worked fine in a booming market with rates at $2,500 per container but, with rates sinking to their present lows, Foord says a flat-rate fee system had to be considered. Some shipments from Asia to South America had seen 2.5% commission on a $50-per-feu (40-foot) container.
Foord suggests low returns were the reason several lines closed their in-house operations and returned to third-party agencies.
He adds that the agency market they went back into was “severely diminished” because the lines were representing themselves and many agents had shut down. It meant looking at different sources of revenue, he says. Concerns were raised about the implementation by lines of “accessorial charges”, such as terminal handling charges (THC), currency adjustment factors (CAF) and bunker adjustment factors (BAF).
Lines had separated sea freight — on which commission is payable — from other charges, where agents received no commission, Foord says.
The sea freight was only a fraction of the total shipping cost, as lines piled on other charges including THCs, CAFs and BAFs.
“That’s not an accidental move by the carrriers,” Foord said. “They’re protecting their core revenue by introducing these and other charges.”
Some carriers to the UK still include load-on, load-off (lo-lo) surcharges, even though the practice is obsolete since cargoes are no longer loaded into depots, he says. “The carriers have this habit now of protecting their revenue through additional charges,” he said. “Sadly, we as the liner agents don’t gain any revenue from that.”
These issues should be borne in mind by carriers that are returning business to the ship agents, he says. “They’re not going back to the same scenario that they left us,” he claimed. “They’re coming back to us now because they’re not making the revenue. “So if you’re coming back to expect us to earn 5% of $200 and perform exactly the same function as we used to perform before, that’s not going to cut the mustard.”
He says agents should look at a different way of charging principals on a fixed flat-fee basis. “So at least we can budget knowing what revenue we’re going to make from it,” he said. “We, of course, have to be very careful what we discuss and how we do it. “But the general synopsis is that we are fighting for our survival, and our survival will be guaranteed through our own creativity.” Some agents appear to be moving in that direction.
“We are negotiating a different way,” Andy Thorne, chairman of UK-based Kestrel Group, told the meeting. “We no longer talk to principals about 5% commission. “I want a fee. I don’t care what [freight] rate you agree. I want $50 for handling a container. I want $150 for handling a piece of project cargo. So we’ve got a fixed income.” Kestrel has picked up agency business in recent months as Orient Overseas Container Lines (OOCL) and Hoegh Autoliners returned part of their in-house European business back to ship agents. “The opportunities have gone full circle,” Thorne said. “The shipping lines have seen their costs go up, their revenue streams go down and now their offices become cost centres.”
While a dog fight between shipping lines had resulted in contracts being shipped at ridiculous rates, there were some “very attractive times ahead for agents”. “As much as freight rates are low, I think there are opportunities to be back where we should have been as the principal’s friend — rather than this person who sat on the side and just cost them money,” he said.