‘A Market Approach’ Dialogue on Bunker Surcharges

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The European Shippers’ Council has called for a market approach dialogue on shipping line bunker surcharge mechanisms ahead of the IMO 2020 sulphur cap as the crude oil races towards $100 a barrel.

All time high

The Brent crude oil hit a four-year high, at $82 per barrel, pushing up the price of IFO 380 heavy fuel oil (HFO) above $450 per ton. The current cost of low-sulphur fuel oil (LSFO) – compliant with the new regulations – is around $670 per ton with the spread expected to widen with an increase of oil prices.

Adding fuel to fire

The industry-average fuel cost to ocean carriers in the first six months of the year, when the majority of lines traded in the red, was around $400 per ton, so the latest spike in oil prices will be unwelcome news and exert further pressure on carriers to recoup the extra costs with higher bunker adjustment mechanisms.

With just 15 months before the 1 January 2020 deadline, when shipping lines need to be compliant with the IMO’s 0.5% sulphur cap regulations, major carriers like Maersk Line, MSC and CMA CGM have published proposals to recover the extra costs. Other lines are expected to follow suit.

Customers unhappy

The notices have not gone down well with customers is an understatement: the UK’s BIFA accused shipping lines of blatant profiteering, while the Global Shippers’ Forum (GSF) suspected the proposed surcharges had more to do with rate restoration than environmental conservation.

The GSF added, “The shippers were naturally suspicious of something shipping lines say is fair, transparent and clear”.

The European Shippers’ Council (ESC) said, “We disapprove of the mechanism of the surcharges, it accepts that additional costs for shippers will arise from the IMO 2020 regulations. It is, however, critical of the carriers’ approach to the global problem, which does not set an ideal cooperation scenario”.

Shippers unhappy with the imposition of charges

Jordi Espin Vallbona, Maritime transport policy manager at the ESC, said: “Shippers were not against bunker surcharges, but these should not be by imposition. A new kind of dialogue was needed to build trust between shippers and carriers. We really need to target what is important in the IMO’s new regulation, which is about a cleaner environment”.

He suggested that the transparency of the bunker surcharge mechanisms could be linked to some form of KPI.

Andy Lane, the partner at Singapore-based CTI Consultancy, told: “The carriers should be commended and not chastised for announcing bunker cost recovery plans well in advance of the new IMO regulations”.

He warned that if shipping lines were to fully absorb the extra cost of low-sulphur fuel from January 2020 – which could be as much as an additional $1m per Asia-Europe round trip – it could “send them out of business”.

Cost of commodities to rise

According to Mr. Lane ’s rough calculations, the proposed hike in bunker surcharges would add just $0.07 to the cost of a shirt shipped from Asia to Europe or the US, and around $3 to the cost of an appliance.

Mr.Lane said, “Logically, the additional costs incurred by the ship operator [for LSFO] is passed to the shippers and, in turn, passed to the consumers. It is necessary for a more sustainable planet and better health for its communities”.

On the subject of the need for closer dialogue, Mr.Lane said he “would not disagree”, but noted that the BAF along with the basic sea freight would always be negotiated between the carrier and the shipper.

Mr.Lane said, “They are both competitive levers and those that attempt to recover more than actual costs might become uncompetitive”.

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Source: The Loadstar