Impact of Coronavirus on Reefer Containers
Novel Coronavirus (COVID-19) the newest strain of coronavirus has been causing severe disruption particularly in China, the world’s second largest economy and a trade powerhouse for most of the countries around the world.. This in turn has caused severe disruption to trade and ship’s schedules around the world..
Many container lines announced blank sailings on many liner service routes into China to avoid the spread of coronavirus to other ports.
These blank sailings alongwith the shutdown in China also means that in a lot of the cases, containers meant for the Chinese markets are either stranded on board ships, off loaded in alternate locations or sitting in various ports and terminals incurring port storage, demurrage and detention..
Among the containers that are exposed to potentially huge losses, the biggest would be Reefer Containers carrying perishable cargo..
Perishable cargo may be defined as goods that can deteriorate if not stored or transported under ideal circumstances or if exposed to adverse temperature, humidity and other environmental conditions..
Examples of perishable cargo are Fruits, Vegetables, Meat, Dairy etc..
Perishable cargoes are shipped in Reefer Containers (refrigerated containers) which are specialised containers that have been made for the purpose of carriage of perishable cargo..
Reefer containers have an operating range between -30°C to +30°C (-22°F -86°F) and are designed to maintain these temperatures, irrespective of the outside temperatures..
In this day and age, the superior technology in the reefer containers allows for the perishable cargo to stay fresh for longer and be delivered at the best quality to the destination..
But however strong or good a reefer container is, it cannot be plugged in, maintained and monitored over long periods of time because the goods themselves have a shipping/shelf life..
The COVID-19 has severely impacted some of the Chinese ports like Shanghai, Ningbo and Xingang which are highly congested and due to this, there is a massive shortage of electrical plug points in the ports to plug in the reefer containers..
The situation is so severe that many shipping lines are unable to discharge reefer containers at the designated ports due to lack of power resources..
Lines are giving customers the option of diverting the reefers to an alternate port in China or other countries in the region or to return the reefer container back to origin at the customer’s cost..
MSC for example is invoking Clause 19 of their Bill of Lading terms and conditions which means that they are invoking their right to discharge the reefer containers at an intermediate or alternative port and hold it there until it is possible to forward them to the designated port of discharge..
19. MATTERS ADVERSELY AFFECTING CARRIER’S PERFORMANCE
19.1 If at any time the carriage is or is likely to be affected by any hindrance, risk, danger, delay, difficulty or disadvantage of whatsoever kind and howsoever arising which cannot be avoided by the Carrier by the exercise of reasonable endeavours, (even though the circumstances giving rise to such hindrance, risk, danger, delay, difficulty or disadvantage existed at the time this contract was entered into or the Goods were received for the carriage) the Carrier may at its sole discretion and without notice to the Merchant and whether or not the carriage is commenced either:
(a) carry the Goods to the contracted Port of Discharge or Place of Delivery, whichever is applicable, by an alternative route to that indicated in this Sea Waybill or that which is usual for Goods consigned to that Port of Discharge or Place of Delivery; or
(b) suspend the carriage of the Goods and store them ashore or afloat upon the terms and conditions of this Sea Waybill and endeavour to forward them as soon as possible, but the Carrier makes no representations as to the maximum period of suspension; or
(c) abandon the carriage of the Goods and place them at the Merchant’s disposal at any place or port which the Carrier may deem safe and convenient, or from which the Carrier is unable by the exercise of reasonable endeavours to continue the carriage, whereupon the responsibility of the Carrier in respect of such Goods shall cease. The Carrier shall nevertheless be entitled to full Freight on the Goods received for the carriage, and the Merchant shall pay any additional costs incurred by reason of the abandonment of the Goods. If the Carrier elects to use an alternative route under clause 19.1 (a) or to suspend the carriage under clause 19.1 (b) this shall not prejudice its right subsequently to abandon the carriage.
19.2 If the Carrier elects to invoke the terms of this clause 19, then notwithstanding the provisions of clause 9, the Carrier shall be entitled to such additional Freight and costs as the Carrier may determine.
Many other lines could also end up invoking such clauses..
MSC has also announced that in the event that the situation remains unchanged it may be necessary for them to abandon vessel calls into these congested ports and the reefer containers may need to be picked up from alternate ports at additional cost to the customer including freight, storage, demurrage and plugging charges..
Maersk Line has recommended that customers with cargoes to congested ports like Shanghai and Xingang divert it to other Chinese destinations where plugs are available or to other markets in the region to avoid congestion..
Customers who are insistent on shipping to Shanghai and Xingang have to accept that the routing, transit and delivery time to these ports are not guaranteed and also that they will pay a congestion surcharge of USD1000/reefer container..
CMA CGM has also implemented congestion surcharge of USD1250/reefer container for cargoes to Shanghai, Ningbo and Tianjin/Xingang..
Other lines like ONE, ZIM Lines have also implemented USD1000/- congestion surcharges due to the ongoing terminal reefer plug shortage in ports of Shanghai, Ningbo and Xingang caused by the COVID-19..
For all the above options, all additional costs, risks and liabilities of storage or movement of the cargo is for the account of the cargo owner..
Blank sailings are being announced continuously by shipping lines and with as much as 35 blank sailings on the TP trades (excluding the structural blanks due to CNY) container lines are set to loose in excess of $350 million due to the Coronavirus..
You can also read the legal implications of Coronavirus to the industry in one of my previous posts..
This comes at a time when global perishable trade volumes has been reported to have grown by 7% in 2019 on the back of strong demand for fresh and frozen foods into China and more than 60,000 TEUs of frozen meat being imported into China in 2019.. China accounts for 25% of the world’s containerised trade in beef..
Shippers would do well to discuss specific covers, policies etc with their insurers till this issue blows over.. No doubt, all the financial and cost implications will come once everyone is back at work and starts counting the losses..
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