(Updated with background and industry comments)
London 26/01/2016 - The London Metal Exchange (LME) has scheduled an emergency warehouse committee meeting for this Friday to offer operators one last chance to reduce their rent and free-on-truck (FOT) charges before they go live on April 1, FastMarkets understands.
"They are going to propose a window for warehouse operators to reduce their rents and FOT levels," a well-informed source said. "It's a one-off [proposal] because they feel that rates [that have already been submitted] are not reflective of the market."
The meeting was confirmed by multiples sources, two of which attributed it to speculation that Reuben Brothers-owned Metro may be willing to moderate its plan to lift rent by 33 percent on April 1.
The LME declined to comment and Metro was not immediately available for comment.
LME-listed warehouse companies submitted late in December increases for rents and FOTs for the year starting on April 1, 2016. At 10 percent for rents and 12 percent for FOTs, the stockweighted average increases were significantly higher than in the previous two cycles.
Metro stood out with planned increases of 33 percent in rents and 39 percent in FOTs, followed by Istim - the Whelan family business - with increases of 22-33 percent and Noble-owned Worldwide Warehouse Solutions (WWS) with rents up by nearly 10 percent.
The LME, which has no control over warehouse fees, said on December 30 that it was reviewing what it regarded as "out-of-line" increases.
"Metro apparently told the LME that they didn't intend to be so out of line with others and would review fees lower if they got given the chance to do so," one source told FastMarkets.
"The only point of this meeting is if the LME has struck an agreement with Metro," a third source added.
Two other sources, however, believed that Metro had carefully set its rent and FOT charges in December to "a level that made commercial sense to them" and was thus unlikely to review the fees lower.
Warehouse operators and industry participants were surprised by the LME's proposed meeting, which some believed could create a precedent for such late rent reviews to take place in future years.
Currently, the LME's rulebook states that warehouse companies must inform the exchange of their fee intentions for the following year by December 1 each year and the LME must publish these maximum rental rates by December 31 before these fares come into effect on April 1.
Some were annoyed at the prospect of yet more rule changes, while others pointed out the LME's lack of leverage due to European competition laws.
"They establish processes just to go and change them again - that's pretty ridiculous," one source told FastMarkets.
"People are getting frustrated about this. What sanctions are they proposing to implement if warehouses do not reduce rents? Rent capping? There's nothing automatic or easy about [going forward with] it," another source said.
The LME said in December that it would further investigate the possibility of implementing rent and FOT charge caps (CC) for all warehouse companies and not just those with queues.
If the LME pressed ahead of with CC, warehouse operators could take legal action, especially if it sets the cap too low, sources told fastMarkets.
"There is no way we would let them do that without resisting," one source said on Tuesday.
Currently, European Commission competition regulation prevents the LME from setting, capping or influencing rents and FOTs although the exchange is taking advice on possible changes. For now, all it can do is ask warehouses to explain any fee increase and ask them to reconsider but, ultimately, it is the warehouses that decide.
The LME will introduce another set of load-out rate increases (LORI) in March this year, followed by queue-based rent caps (QBRC) in June 2016, with a view of eliminating long delivery queues at Metro's warehouses in Detroit and Pacorini's sheds in Vlissingen.
The rules, which also include reporting and auditing duties, will increase operating costs for all warehouses and in particular those with queues.
(Editing by Tom Jennemann)