Look out for tariff landmines
Which way to jump – discount or no discount on port tariffs? The question is not as straightforward as it might seem.
Port authority tariffs are in theory subject to annual review which can encompass both price increases and overall pricing arrangements.
Price increases are, however, becoming harder to achieve and especially in the Euro Zone where the business climate is tough. It is one of those times where lines are extremely resistant to port tariff increases and more often than not are in search of some benefit such as line related discounts as opposed to vessel specific discounts.
Where competition is intense, this year has seen port authorities coming up with emphasis on discounts based on number of calls and other volume criteria. Then there are often other discounts related to specific aspects of the tariff system – negotiated discounts on light dues or on tonnage tax formulas.
There are a number of difficulties with this sort of ‘pick and mix’ tariff discounting – one is remaining competitive in conjunction with all vessel sizes. There have been incidences of tariffs being discounted on a broad basis without any calculation of the impact on specific vessel sizes and, while it has proved attractive with one or more vessel types, it has served to penalise another vessel type, for example, a feeder vessel. This distorting effect can also grow in magnitude over the years, as new discounts are introduced.
Another common mistake is to follow the competition – what works in one location is not guaranteed to work in another. It is important to model the effect of discounts in conjunction with different vessel types and business scenarios. If this isn’t done then things can go horribly wrong including discounts having little effect, an unbalanced impact across different vessel types and worst of all a miscalculation that severely impairs revenue take.
It is considerably easier to say ‘no discounts’ but that can usually only be achieved where there is little or no competition. But then again if this happens it is reasonable to expect payback from the port authority concerned in some other way, for instance, lower terminal rents facilitating competitive terminal charges or the introduction of new competition into areas of strong port demand.
Nothing, as they say, is for nothing.