Jun 29

VGM Submission Fee by Forwarder: Is there a justifiable cost?

JOC.com  June 28, 2016

The verified gross mass (VGM) processing fee being imposed by freight forwarders has come under fire from the Hong Kong Shippers’ Council that has called on its members to reject what it regards as an unjustified charge.

With just days to go before the 1 July implementation of the International Maritime Organization’s Safety of Life at Sea (SOLAS) rule requiring shippers to verify the weight of all their export containers, shippers are beginning to gain a clearer picture of what VGM compliance will cost and not everyone is happy.

“There is so little extra work that freight forwarders must perform so there is no justification at all for them to produce a new charge,” said Sunny Ho, executive director at the Hong Kong Shippers’ Council.

The charges vary. Kuehne + Nagel said shippers that submit the VGM verifications via the forwarder’s portal will be charged USD12.75 for each shipment, while submission by other means, such as in an e-mail, will accrue a USD25 charge.

DB Schenker will charge a VGM processing fee of USD25 per container for full container load (FCL) shipments and USD15 per less than container load (LCL) shipment. Ho said figures he had seen ranged from USD6 per LCL shipments and up to USD25 per FCL.
“Forwarders are taking advantage of the unclear situation to increase revenue. The shipper must provide the VGM and the lines and terminals do not have to check that it is accurate, so there is no risk to the forwarders. If a container is checked and its weight is found to be inaccurate it is the shipper who will pay when the container cannot be loaded.”

Under the SOLAS rule, there is no obligation for carriers or terminals to verify that the VGM provided by the shipper is accurate, but maritime agencies will conduct random checks on containers and if the declared weight is outside the established tolerance in that jurisdiction, the box will not be loaded on a vessel.

But forwarders were quick to defend their need to levy the VGM container processing fee.

Joerg Hoppe, director and head of ocean freight for North and Central China, said providing the VGM certification added an additional cost and time element to the shipping process for all parties. He compared the rule to the security regulations such as the 24-hour advanced manifest system for US cargo and Europe’s entry summary declaration.

“It’s similar to AMS, ENS or AFR regulations for example as it requires additional information to be formally collected, checked, processed, stored and passed on timely in a specific format to other parties in the supply chain,” he told IHS Fairplay.

Hoppe said 100% trade compliance was something customers had come to expect, but unfortunately it did not always come free.

“A VGM processing fee has almost no impact on overall merchandise costing if broken down to line item level. We believe shippers should be, and in fact are already, far more concerned about early VGM submission deadlines negatively impacting their current production lead times. This then comes back full circle to the already described ‘late’ VGM submission with the freight forwarder being relied upon by shippers to fix things,” he said.

The Shanghai-based DB Schenker executive said there was also a considerable, and as yet unexplored, financial risk and legal angle to the SOLAS rule.

“It starts with the cost of simple exception management in cases of VGM discrepancies or the inevitable late submission of VGM’s, such as making sure containers don’t roll, amending manifests, customs declarations,” Hoppe said.

“And it ends with the VGM further firming up the chain of legal responsibility and custody in case of accidents involving containers. After all, NVOCCs, such as DB Schenker, are legally acting as shipper of record having to provide a correct VGM as shippers to the carriers.”

A Hong Kong-based forwarder with offices across China said for almost every export shipment he handled, his company consolidated the cargo and was indicated as the shipper on the bill of lading.

“That means we are responsible for ensuring the container has a VGM and must get that data to the carriers and terminals. We must combine the weight of cargo from, say, 10 different customers and add that to the tare. That is an additional administrative process that we do not need to care about today,” he said.

“At the end of this week that will all change and it will become a burden for us. Not a huge one, I admit, but it adds to our workload and for that I believe a small charge per container is completely justified.”

Contact Greg Knowler at greg.knowler@ihs.com and follow him on Twitter: @greg_knowler.