Maersk Line to charge fee for "phantom bookings"

In an effort to discourage the practice of "phantom bookings"—container bookings that never materialize and leave the carrier with empty and non-revenue producing boxes and vessel slots—Danish shipping giant Maersk Line will charge a fee to shippers that do not cancel or reschedule their bookings within a specified time period.

Maersk said it will assess a fee of $100 per dry container and $500 per refrigerated container for no-show bookings that are not canceled or revised within a specified period, usually seven days before a vessel's arrival. However, if in that same time period, Maersk is unable to supply containers or has to roll cargo to an alternate sailing because it overbooked or changed a sailing, then it will compensate affected customers by the same amounts, according to John Neilsen, Maersk's senior director of charge management. Neilsen said Maersk recognizes that a no-show occurs sometimes through no fault of the shipper.

The program will be rolled out over the next one to two years, Maersk said.

Phantom bookings have several causes. When capacity is tight, shippers, freight forwarders, and ocean consolidators often book with multiple carriers to make sure they'll have space when they need it. In other cases, those that don't have a good handle on forecasting may book large numbers of containers far in advance and fail to revise their bookings once they know their actual shipping requirements. Others will pick up containers but arrive too late for the scheduled sailing.

Globally, about 20 percent of container reservations turn out to be phantom bookings. But a 35-percent no-show rate is not unusual in some ports. At some Eastern European ports, it can hit 100 percent, said Neilsen.

Neilsen calls phantom bookings "a major disruption to our processes and our capacity planning." A no-show leaves the carrier with an empty container and an empty slot on the ship, while customers who were turned away from ostensibly fully booked sailings may ship with another carrier instead, he said.

The carrier also pays the administrative costs of making the booking—$50 to $100 per booking, by some estimates—as well as the operational cost of suboptimal asset utilization. In addition, carriers find it difficult to fill unexpectedly empty space on such short notice, analysts said.

"If you have a bunch of shippers canceling at the last minute, then it's challenging for carriers to fill space because they have cutoffs, and with today's security rules you can't take bookings at the last minute to backfill what was canceled," said Esben Christensen, a vice president with the transportation consulting firm AlixPartners.

Maersk is not the only affected carrier. Almost all ocean carriers experience the problem to various degrees, but those that have larger exposures to ocean consolidators (NVOCCs) typically have bigger problems than carriers whose customer base mostly comprises beneficial cargo owners, according to Christensen. That's because NVOCCs don't know their customers' production schedules, so they book what they think they will need as a precaution, he said.

Fee cuts both ways
Maersk, taking its cue from a long-accepted airline industry practice, generally overbooks each load port by the average amount of projected shortfall, Neilsen said. If more bookings materialize than expected, the carrier is then forced to roll cargo to the next sailing. That means less capacity on the next vessel, as well as unhappy customers.

Neilsen emphasizes that the no-show fee is not "a secret plan to assess more surcharges" and that the purpose of the fee is to take waste and cost out of the industry. "In our view, success is to make absolutely no revenue with this program," he said. "We may pay a little extra in compensation, but in return we could reduce overbooking by 80 percent."

There's been little or no pushback from shippers. Peter Gatti, executive vice president of the National Industrial Transportation League (NITL), said that his group has not formally discussed the fee yet but the initial assessment is favorable. "Generally speaking, what Maersk is proposing and the changes they have made are very positive aspects of trying to avoid the additional costs they incur, which they in turn would have to pass on to customers," Gatti said.

However, Gatti cautioned that Maersk should take into account the "practical as well as unforeseeable problems" that can force shippers to miss sailings despite their best efforts. "This is not an issue with a simple, black-and-white answer," he added.

The Federal Maritime Commission (FMC), which has over the years investigated how carriers apply surcharges, is not opposed to the concept of a no-show fee. "Without taking a position on the particulars of the Maersk plan, I can say that the chairman of the FMC definitely favors shippers and carriers working together on new incentives to smooth the cargo flow to reduce cancellations and to reduce rolling and phantom bookings," Lowry Crook, the FMC's chief of staff, said in an interview.

Crook added that service contracts provide flexibility to experiment with incentive structures, which could include such a fee. Unless the commission receives complaints that the fee is being applied in an "unreasonable" manner, Crook said, it would have no reason to question or investigate Maersk's fee.