News / Already hard-hit feeder operators paying the price as bunker costs soar

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Bunker prices doubled last year, ending at around $300 per tonne for heavy fuel oil (HFO) and $450 per tonne for low-sulphur marine diesel oil (MDO), putting more pressure on the already slim margins of feeder operators.

So the fourth-quarter surge in container rates was timely for ocean carriers with ultra-large containerships burning over 100 tonnes of fuel a day.

Although the freight rate increases will take some time to show up on carriers’ top lines, their pro-forma calculations will already be looking much healthier.

2016 was not a great year for feeder operators. Rates were squeezed even harder by deepsea container lines and the Hanjin receivership left them with millions of dollars of unpaid invoices. So they have yet to enjoy the same improvement in fortunes as their deepsea customers.

And because their ships must use the more expensive low-sulphur fuel in the Emission Control Areas (ECAs) – notably in the busy feeder lanes of the North Sea and Baltic – the cost impact is far greater.

One feeder operator told The Loadstar that fuel grew from representing 12% of its operating costs to 20% in the last quarter of 2016.

He added that approaches to feeder clients for increases to mitigate the fuel price hike had “fallen on deaf ears”.

One client had had told him “it was not the right time” to discuss a rate increase and instead pointed to the cheaper and more flexible charter market as the best way to reduce vessel operating costs.

And carriers involved in mergers, acquisitions and container business integrations are not prepared to discuss rates and have temporarily stood down their procurement teams.

“It is a tough time of year for us anyway,” said the feeder source. “Bad weather delays at sea and at ports cost us extra days on our ships, and this often requires additional charters, which the lines won’t pay for.”

And the big feeder operators are reluctant to play hardball with the carriers yet, not least because of the current wave of liner consolidation. They know from experience that the end result of the M&A activity will be a reduced customer base and whatever agreed rate they had with two or three carriers will be reduced to the lowest common denominator at best; and possibly even lower, given the combined volume clout of the new entity.

Furthermore, the launch of two new vessel-sharing alliances in April will pose further rate challenges for feeder operators, as well as costly adjustments to schedule and vessel sizes. And with less than three months to go before the Ocean and THE alliances commence operations, the latter is still to nominate its UK hub port or ports.