Due to the dynamics of supply and demand, shipping lines are often confronted with equipment imbalances, especially during peak seasons. This requires carriers to strategically reposition empty containers to locations that lack equipment.
An Equipment Imbalance Surcharge (EIS) is a fee charged by shipping lines to cover the cost of container repositioning due to equipment imbalance. This helps carriers to replenish the empty container supply at locations that face equipment shortages due to trade imbalances or increased demand.
In this article, we’ll be taking a detailed look at how equipment imbalances happen and how equipment imbalance surcharges are applied. We’ll also make sure to share some useful tips on how to avoid or mitigate these types of surcharges.
How Do Equipment Imbalances Happen?
Equipment imbalances typically happen due to an increasing export demand or uneven trade flow. What commonly happens is that there are more containers being exported from a particular location than imported.
This could mean that most of the containers end up at the destination, whereby the origin would face a shortage of empty containers. This phenomenon is also amplified by peak seasons and various other market conditions.
Moreover, the increasing global demand can also lead to an overall shortage of equipment as the demand to ship cargo via sea freight increases, which ultimately requires more empty containers.
In order for shipping lines to protect themselves against the exposure of having to reposition equipment, they charge a Equipment Imbalance Surcharge. This covers the cost of shipping empty containers back on container ships to origins that face severe equipment shortages.
Who Imposes An Equipment Imbalance Surcharge?
Equipment Imbalance Surcharges are charged by the shipping line and appear on the invoice as part of the destination charges. If the shipment is booked through a freight forwarder, the carrier bills the freight forwarder, and the freight forwarder will pass the fee on.
Who Pays For an Equipment Imbalance Surcharge?
As Equipment Imbalance Surcharges are part of the destination charges, they are typically paid by the consignee. If there is an internal agreement between the consignee and shipper, whereby the shipper absorbs these charges, then the carrier may be instructed to bill this directly to the shipper instead.
How Much Is the Equipment Imbalance Surcharge?
It’s important to note that Equipment Imbalance Surcharges typically only occur if there is a market situation that requires a shipping line to reposition empty containers.
Secondly, shipping lines don’t charge a standard rate. Instead, they carefully analyze and evaluate how many containers are required to be repositioned, to exactly what location and how much the potential exposure would amount to.
Using industry averages as a basis, Equipment Imbalance Surcharges range between $150 to $500 per container. To be more specific, Equipment Imbalance Surcharges for 20’ containers range between $150 to $300 and about $300 to $500 for 40’ containers.
Tips to Avoid and Reduce Equipment Imbalance Surcharges
There are certain things that you’ll be able to do that could help to reduce or potentially avoid being billed Equipment Imbalance Surcharges. Take note that not all of these tips may be applicable to you, as it depends on the nature of your business and the type of carriers you are working with.
- Try Not to Ship During Peak Season – If possible try to ship cargo out in regular intervals or in low season. Shipping in peak seasons can run the risk of shipping lines imposing Equipment Imbalance Surcharges.
- Select Carriers with Lower Equipment Imbalance Surcharges – Work with carriers who are transparent with their fee structure and request them to notify you of all charges in advance. Working with carriers who impose lower Equipment Imbalance Surcharges can save you a lot of money in the long run.
- Diversify Production & Sourcing Locations – Diversifying your production and sourcing locations means that the risk of equipment shortages affecting your entire supply chain are minimized. This also allows you to shift exports from one location to another more easily and will allow you not to be affected by EIS as much.
- Use Shipper Owned Containers (SOC) – If need be, use shipper owned containers. This allows you to use your own containers and you will subsequently not be affected by carrier equipment shortages. Do note that it may be more costly to do so, but it may offer better reliability.
- Negotiate Service Contracts – Check if Equipment Imbalance Surcharges can be eliminated or negotiated with the shipping line to avoid getting charged the full rate or any rate at all. You may need significant shipping volume to do so.
Example of An Equipment Imbalance Surcharge Announcement
Most carriers announce their Equipment Imbalance Surcharges through a memo that is made available via email and their website. Here is an example of how a carrier announces EIS to their customers.
|Origin||All inland and origin base ports from France, Germany and Italy.|
|Destination||To all cargo bound to US East Coast ports and inland points.|
|Effective Date||Effective on January 1, 2022 (‘Shipped on Board’ date)|
|Equipment Type||Applicable to all sizes of standard dry and reefer containers.|
|EIS Rate||$300/20’ container and $500/40’ per container, subject to other applicable destination charges.|