Hapag-Lloyd has become the latest container line to cut forwarding agents’ commission (FAC) as it tightens its belt for a challenging first quarter next year.
Many forwarders still rely on traditional FACs from carriers, but it is a practice that is fast dying out as the lines seek to squeeze every last drop of cost out of their operations.
One UK forwarder told The Loadstar FACs from carriers were being “continually eroded” and in some cases had been withdrawn. He said: “FACs were always set at around 5%, but that has been cut by half in many cases, without negotiation.”
He said that many of the mega-carriers, such as MSC, were no longer offering FACs in the UK, and added that this made life increasingly tough for smaller forwarders in a market where margins were already extremely tight.
Customer advisories were sent yesterday by the German carrier to forwarders in Serbia, Libya, Romania and the Ukraine advising that from January 1 FAC would no longer be paid, while for several other countries, the commission would be reduced for some trades and cancelled on others.
In Italy, Hapag-Lloyd will still pay a reduced FAC on US, Canadian and Mexican shipments, but none on cargo for Asia, Middle East, and India – except for reefer and out-of-gauge bookings, where it earns substantially more revenue.
The carrier has also advised customers of a raft of “service fee” increases on the same date, such as for the handling of import documentation, as it endeavours to compensate for sub-economic freight rates on several trades.
Hapag-Lloyd barely broke even in the third quarter, posting a $3.3m net profit, and with two months of the fourth quarter now passed, it will have good transparency of its final period and full-year results.
According to Alphaliner, Q4 financial performance at Hapag-Lloyd and its peers will likely have deteriorated further, as the fundamentals of weak demand and overcapacity have remained unchanged and margins remain slender.
It said: “Carriers’ operating margins are forecast to worsen in the fourth quarter, with the majority of them expected to turn in negative results.”
This is more bad news for investors in Hapag-Lloyd’s recent $300m IPO, who have seen their shares hover just above or just below the €20 launch price since trading began on November 6.
Although the cancelling of FACs will have a small impact on its results, it might be taken as evidence to its shareholders of Hapag-Lloyd’s commitment to achieve sustained profitability.