CMA CGM Introduces New Peak Season Surcharges from Asia to Africa, Extends PSS Across Europe and North America

The Analysis

Standing on the buying side, this is what I see: CMA CGM is putting a peak season surcharge on Asia to East Africa and West Africa from mid-June, widening the peak season surcharge programmes it already runs into Europe and North America, and raising FAK rates out of the Indian Subcontinent to Latin America, Europe and North Africa. One carrier, three moves, the same month. The reason on the record is sustained demand on developing-market lanes, which are exactly the lanes the headline rate indices do not carry.

I do not have a filed number for the new PSS in front of me, and I am not going to invent one. What I do have is the shape of the move, and the shape is what a buyer needs. This is not one lane. It is a wave, and a wave does not leave you a clean place to stand.

So the work here is not to argue the surcharge away. The work is to build a ledger that tells you what your landed cost actually is, because on these lanes nobody is going to publish that number for you.

What is on the record: a new peak season surcharge on Asia to East Africa and West Africa from mid-June; existing PSS programmes widened across Europe and North America destinations; FAK rates raised from the Indian Subcontinent to Latin America, Europe and North Africa. What is not on the record, in the material I am working from: the amount of the new PSS, the exact date inside mid-June, and the expiry. Those three gaps decide whether this is a $21,000 problem or a $199,200 problem for the importer I am about to describe, and I would not put a number into a budget until all three were in writing.

Start with the part of this that nobody writes about, because it is the reason a buyer on these lanes is flying blind. The rate indices that get quoted in board meetings are built on the big east-west headhaul trades. Africa is not in them. West Africa is not in them, East Africa is not in them, and neither is the Indian Subcontinent to Latin America. Vivian Zhao reads these indices better than I do; here I only price what it does to my landed cost. The practical consequence of that gap is blunt: you have no benchmark. Your finance team can pull a headline index every Monday and it will tell them nothing whatsoever about whether your quote is fair, because your lane does not appear anywhere in the arithmetic.

So build your own benchmark. Per lane, monthly, one sheet. The columns I would insist on: base freight, PSS, every other surcharge by name, terminal handling, inland to your door, dwell days at the port, demurrage and detention actually paid, all-in per container, and all-in as a percentage of the cargo value in that container. One row per month. One unit throughout, per 40ft box, never per TEU and never per ton. The last two columns are the ones you will actually use; everything before them exists so that you can answer why.

One owner, and a close date. I want all-in per container closed within three working days of month end. If it currently takes fifteen days, fix that first, because a number you receive on the twentieth is a number you cannot negotiate with. And keep twelve months of it before you believe any trend, because on lanes like these a single month is noise and a quarter is only a rumour.

Now the arithmetic, assumptions stated rather than buried. Assume you are an importer into West Africa bringing in 20 forty-foot containers a month from Asia. Assume the cargo value is $60,000 a container, so $1.2m a month. Assume the new PSS lands at $350 per 40ft. I do not have the filed figure, so treat $350 as a placeholder and replace it the day your carrier notice arrives. Assume congestion is costing four extra days of dwell beyond free time, and assume demurrage and detention run at $120 a day per container, so four days is $480 a container.

Twenty containers at $350 is $7,000 a month of PSS. Twenty containers at $480 is $9,600 a month of congestion cost. Together $16,600 a month, or $199,200 a year, against cargo worth $1.2m a month. That is 1.38% of cargo value. Read that once more, because it changes the meeting you are about to have: something that looks like a freight argument is one and a half points of your cost of goods. And look at which half is bigger. The congestion is $9,600 of the $16,600. The thing everybody negotiates, the surcharge, is the smaller half of the problem.

Take it to the price tag, because that is where it ends up. Assume you sell at a 22% markup on landed cost, which works out to an 18% gross margin: cost 100, price 122, profit 22. Landed cost goes to 101.38 and the price holds, so profit is 20.62 and gross margin is 16.90%. You have lost 1.13 percentage points of gross margin. To get back to 18% the price has to rise 1.38%. In a market where the summary says consumers are inflation-sensitive and can least absorb it, that 1.38% is the entire problem, and at that moment it stops being a freight problem and becomes a pricing one.

Then run the two options, because this is the calculation I would actually take to the commercial team. Assume price elasticity of demand is minus 1.5, an assumption, not a measurement. Absorb the cost and profit falls by the full $16,600 a month. Pass the whole 1.38% through and volume falls by 1.5 times 1.38%, which is 2.07%. Revenue becomes 123.68 times 0.9793, or 121.12 against 122; cost becomes 101.38 times 0.9793, or 99.28; profit is 21.84 against 22. That is a drop of 0.16 for every 122 of revenue, or 0.131%, and on a $1.464m monthly revenue line it is roughly $1,918.

So absorbing costs you $16,600 a month and passing it through costs you about $1,900. The gap is close to nine to one. There is a condition attached, and it is the one that decides whether any of this holds: it works only if your competitors pass it through as well. If they absorb it and you raise, you hand over share, and the share is worth more than $16,600. That is a market question rather than a freight question, and I would put it in front of commercial this week rather than next quarter.

The demand signal in the summary deserves a second read, because it cuts both ways for a buyer. Sustained demand on developing-market lanes means your competitors are restocking at the same time you are. Assume your door-to-door lead time is 45 days, an assumption, and assume everyone in your market restocks for the same season. The constraint stops being price and becomes arrival date. In that situation the question changes shape: you are not buying the cheapest box, you are buying a box that lands before the shelf is empty, and a supplier who can commit to an arrival window is worth more than one who is $200 cheaper and two weeks looser. Put arrival reliability into your supplier scorecard beside price, give it a weight, and make it a number rather than an impression.

The second thing I would flag before anybody spends money on it: the FAK rise out of the Indian Subcontinent to Latin America, Europe and North Africa means switching sourcing origin does not get you out of this wave. If the plan was to move volume from Asia to India or Bangladesh to dodge the new Africa PSS, the same carrier is raising the other route in the same month. That is what a broad-based wave looks like from the buying side: the escape hatches close together. It also tells you something useful about how to negotiate. A carrier raising rates across several unrelated routes at once is not reacting to one lane's spot rate; it believes demand is strong across its book. Expect the increase to be defended, and do not spend your limited capital asking for it to be withdrawn. Spend it on structure.

If you also buy out of the Indian Subcontinent, put that on the same ledger and watch the spread between the two. Assume you move 15 containers a month from the subcontinent to North Africa and assume the FAK increase lands at $200 per 40ft, a placeholder to be replaced with the filed number. That is $3,000 a month, or $36,000 a year, on top of the $199,200. The reason for keeping both on one sheet is not arithmetic, it is leverage: a carrier raising you on two routes in one month is a carrier you can ask one structural question of, and the answer covers both. Separate spreadsheets produce separate conversations, and separate conversations are easier to win one at a time and lose overall.

Three structural asks, in the order I would spend capital on them. The first is the expiry date. A peak season surcharge is seasonal by name and it should carry an end date; get it in writing. If it ends 30 September, your exposure is three months at $7,000, which is $21,000, and the annual figure above is wrong by a factor of four. If it is open-ended, treat it as permanent and put $84,000 in the budget. The second is a cap against committed volume. Assume you can commit 80% of your annual volume on the lane; the ask is a PSS capped at 60% of the filed amount for twelve months, with a written review at six.

The third is payment terms. If surcharges are prepaid at booking, you are financing the carrier. Ask for surcharges billed monthly in arrears on 30-day terms. On $16,600 a month that puts $16,600 of working capital back into your business every month, and it costs the carrier nothing you were not already going to pay.

On the cash side, one more calculation, because it is the least contested ask in the whole negotiation and almost nobody makes it. Assume your surcharges and congestion cost run at $16,600 a month and assume they are currently prepaid at booking. Moving to monthly billing in arrears on 30-day terms returns about one month of that, $16,600, to working capital on a permanent basis, and at an assumed 10% annual cost of capital that is roughly $1,660 a year for the price of one email. Compare that with the rate concession you are arguing about. It is smaller, it is certain, and it does not require anybody to give up revenue. Ask for it in the same message as the cap, not as a separate round three weeks later.

The question every procurement team asks me at this point is whether to pull volume forward and beat the surcharge. Let us run it. Assume the PSS runs three months, mid-June to mid-September. Assume you pull those three months of volume, 60 containers, into May. Assume inventory carrying cost is 18% a year on cargo value, which is $900 a month on a $60,000 container, and assume the average container sits 1.5 months longer than it otherwise would. Sixty containers, $900, 1.5 months is $81,000. The PSS you avoided is 60 times $350, which is $21,000. Pre-building costs nearly four times what the surcharge costs. Do not pre-build. The surcharge is the cheap option, and that is a sentence I do not often get to write.

What about changing the discharge port? Assume an alternative port saves three days of dwell, worth $360 a container at $120 a day, and adds $450 a container of inland haulage to your door. The net is $90 a container against you, or $1,800 a month on 20 containers. On my assumptions it is not worth doing, and the assumptions are mine rather than yours, so price your own inland leg before deciding. The point of the calculation is not the answer. The point is that a port switch is a haulage problem wearing a freight costume, and you will not know which way it goes until somebody quotes the trucks.

On dual sourcing, because somebody in the room will propose it. Assume qualifying a second supplier takes 90 days and costs $25,000 in samples, audits and freight, both assumptions. Against a $16,600 a month problem that pays back in under two months if it removes the cost, and it does not remove the cost, because the surcharge sits on the lane and not on the factory. So the case for a second supplier here is resilience, and it should be argued as resilience or dropped. Where the same logic does pay is the 20% I want kept alive with a second carrier: much shorter qualification, and it gives you a real number to put in front of the incumbent at renewal.

For the budget, do not submit a point estimate. Submit the range, because the range is honest and a single number is a guess in a suit. Best case, PSS ends 30 September and congestion eases after three months: $21,000 of surcharge plus $28,800 of congestion, which is $49,800. Base case, PSS runs six months and congestion runs six months: $42,000 plus $57,600, which is $99,600. Worst case, both run twelve months: $84,000 plus $115,200, which is $199,200. Plan on the middle case and keep the worst case in the contingency line. A buyer who hands finance a range with the assumptions written beside each figure gets listened to at the next review. A buyer who hands over one number gets asked to explain it in November.

On the calendar, because this is a seasonal pattern and the calendar is where buyers lose money. A PSS that starts mid-June arrives in roughly the same weeks every year. If your contract renews in December, you will spend every June arguing about a surcharge that was entirely foreseeable in January. Move the renewal into the spring, or write the treatment of the PSS into the contract now so it does not have to be renegotiated every June. Either one works. What does not work is discovering the surcharge in the same month it takes effect, which is where most buyers find themselves right now.

One more thought about how this gets decided inside a company. Freight sits in one budget, the congestion cost lands in another, and the price increase belongs to commercial. Nobody owns all three, so nobody sees the $16,600. Fix that before you negotiate anything. One owner, one sheet, and a standing half hour at the quarter close with procurement, finance and commercial looking at the same number. I have watched companies spend a quarter arguing about a $350 surcharge while a $480 a container dwell cost ran untouched underneath it.

Three questions I would put to the carrier in writing this week, in this order. What is the exact amount of the new PSS on my port pair, and what unit is it billed in. What is the end date of the surcharge, in writing. And what is the treatment if the surcharge is still in place at renewal. Those are not hostile questions. They are the ones a counterparty can answer in a single email, and the answers turn a headline into a budget line. If no end date can be given, treat the surcharge as permanent and budget it that way, because permanent is what it will turn out to be.

If I were signing this, here is the contract I would try to land. Twelve months rather than six, because the surcharge pattern repeats and a six-month contract expires straight into the next filing season. Eighty per cent of lane volume committed, in exchange for a PSS capped at 60% of the filed amount and a written expiry date on every surcharge line. Surcharges billed monthly in arrears on 30-day terms. A second carrier qualified on the lane, able to take 20% of volume within 60 days, and kept alive with a real 20% so the qualification does not exist only on paper. One quarterly review with one number on the table: surcharges plus congestion as a percentage of cargo value, 1.38% today, held under 1.5% through the next filing season.

What would change my mind about all of this? Two things. If the PSS carries a written end date and the carrier actually withdraws it, this is a three-month event and the annual cost is $21,000 of surcharge rather than $84,000; in that case do not restructure the contract at all, absorb it and move on. If the congestion clears, $9,600 a month disappears and the surcharge on its own is $7,000, which is 0.58% of cargo value and survivable. Watch the dwell days column in your ledger as closely as the rate column. It is the larger half of the cost and it is the half nobody negotiates.

Where I land on this: the wave is real, it is broad, and it will not be argued away, and I do not think arguing it away is a good use of a buyer's time. This money comes out of my pocket in the end, so what I care about is the four things a buyer can actually control: the ledger, the cap, the expiry date and the payment terms. Those four are worth more than any rate concession you are likely to win this quarter, and three of them cost the carrier nothing at all.

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— By Grace Yang