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Saturday, September 24, 2011

the extra cost of War - Pentagon saddled with detention fee !!


The one common unkind comment against Insurers is that ‘the policy has terms and conditions in fine print and the exclusions would be drawn to be used against the claimant’.  The Policy wording – terms, conditions, exceptions and exclusions are standardized and are neatly printed on the standard policy form.  Also mostly they are available in word document or pdf, if only some wishes to read, search or analyse.  Is it not they duty of a Policy holder to read the conditions to which the contract entered into by one is subjected to ?

Most of you sure would have sure seen copies of Bill of Lading and Airway Bill.  The AWB by the nature of its document and composition would make it too difficult and strain for the eyes to read; whilst Bill of Lading would be in small prints with multi reference to statues and cross references.  Sometimes they only direct you elsewhere stating that the terms and conditions are available at www…… dot.com – why nobody is complaining ??

The field of Logistics and Transportation is very big.  When goods are sent from one place to another costs are necessarily incurred.  To a lay man, the sale contract incorporates the price which is determined the cost upgraded to price which would include the handling expenses and more importantly the cost of transportation, if the seller were to bear that.  The cost of transportation is the freight, paid to the transporter.

In a Modern World, it is much more complex.  Freight generally denotes Ocean freight; there could be inland transportation, multiple handling, storage, customs clearance and then the cost of packing material – from the primary packing to containerization.  As one observes most of the cargo is moved in containers – TEU (Twenty foot equivalent Unit) is a common word.  From the times when Malcolm McLean invented cost effective alternative for moving cargo speedily and safely, the World is dependent on ISO containers for movement of cargo.   There are specialized container carrying ships and trucks are modified to cater to movement of containers.  Millions of TEUs are moved every day and the container industry is a big money spinner.

If one were to transport goods by stowing them in a container – he either owns a container or obtains a container on lease or for a particular voyage from Shipping Lines.  Thus there would be container charges and then freight paid to Shipping Lines / Ship owners.  Of course this is applicable for FCL cargo and not for LCL cargo.  Well, that is not all.  Here are some of the fees that a shipper (a consignor of cargo) might incur for movement of cargo from one country to another: ------------------------------------

AMF (Transport Document Amendment Fee – the fee when any transport document is amended at the request of the shipper / consignee or their agents)
BAF (Bunker Adjustment Factor – surcharge associated with vessel fuel cost)
CAF (Currency Adjustment Factor -  charge associated with fluctuations in exchange rates)
CAS ( Controlled Atmosphere Gas Regulation Charge  - the charge associated with providing special refrigerated containers that regulate the mixture of gases)
CCL ( Container Cleaning – the  charge associated with cleaning the container by request of the shipper)
CDD ( Submission of Cargo Declaration Data Fee   -  fee assessed for submitting cargo declarations electronically )
CNS (Container Nomination Service Fee  - the fee assessed when customer nominate containers with special characteristics, e.g. age of container, material of container, or specific depot for pick-up, etc. )


Don’t get overawed.  These are only few of the vast extras that a shipper might have to bear.  Some could be expected whilst some are brought about by circumstances (Congestion charges when there is heavy traffic in Port, demurrage, detention, emergency bunkering etc.,)     There is something known as DTS (Detention / demurrage charges) charged when there is delay on the part of consignee or their agent in releasing the container beyond the allowed free time.   It is very important that the goods are unloaded and containers released within the specified time known as free time.  After the expiry of this time,  retaining the container there is called detention and costs are payable.  Containers are for transportation and not for storage.  The costs that the Shipping Lines charge for storage of laden containers in their care in a Port / CFS / feeder terminal, ICD, container yard is known as demurrage.  Detention charges are those charged when the containers are lying in the consignee / receiver’s premises.

Detention charges are applied for the storage or holding of containers whilst in our customers’ care outside a port, rail terminal, feeder terminal, inland depot or container yard. Detention is applied after a designated free time.  There are various types of detention such as Merchant Haulage -  when customers do their own trucking and have to return the container back to the Shipping line; Carrier Haulage – where container is placed at the facility of consignor for loading / unloading.  There could also be the driver of the shipping line waiting to take back the container and delay makes one pay fee.

Shipping Lines vary their ‘free time’ – again there could be different deadlines for different customers and might be from a week to ten days.   The count starts once the container is made available on the wharf.  If it is bemusing for a common man, understandable -------      but to Pentagon could not understand or manage it properly -   !!!!!!
Pentagon is the headquarters of the United States Department of Defense, located in Arlington County, Virginia. Designed by the American architect George Bergstrom and built by Philadelphia, Pennsylvania, general contractor John McShain, the building was dedicated on January 15, 1943.   It is the World’s largest office building by floor area.


Photo of pengaton (courtesy space imaging.com / global security.org)

Now there are interesting reports that the Pentagon spent over $30 billion on contracts and grants in Iraq and Afghanistan and a big part of around $720 million was in fact the penal fee paid for failure to return the shipping containers in time.   The huge waste has emerged from a report to be submitted to Congress today by the Commission on Wartime Contracting in Iraq and Afghanistan.  It is reported that shipping companies charged up to $2,200 each time a container failed to arrive back at their depot on time.  These are some of the figures based on data since 2001. 

When US waged war outside in Iraq and Afghan, the troops used these containers for storage, shelter and building material.  The amount perhaps represents a thin slice of the Pentagon's $553 billion budget. Yet military spending is under intense scrutiny as the Defense Department has been ordered to trim $350billion in spending over the next 10 years and could face steeper reductions from budget cutters.   Those costs perhaps were aggravated by the mistaken belief that  the wars in Afghanistan and Iraq would be brief and late fees would be minimal.

Reports further state that the  military also has improved its ability to identify containers it wants to keep so it can buy them before paying the maximum in late fees.   Whether these should be classified as ‘marine transport related costs’ or ‘war related’ is also a moot Q

Regards – S. Sampathkumar.



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