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European shippers should ready themselves for a hike in container shipping costs, as vessel operating and fuel costs are set to rise substantially.

Analyst Drewry says it expects ship operating costs to rise by 2-3% per year in the next few years, after keeping costs pegged back to a bare minimum of 1% in some sectors in 2013 against a backdrop of weak freight earnings.

Drewry said new international maritime conventions on safety, manning and the environment were placing “upward pressure on some cost elements”.

Not the least of these is an element of “catch-up in repairs due” that have been the subject of minimum maintenance regimes in the previous four years of depressed freight markets.

But it is bunker fuel where the industry faces the biggest cost inflation – a consequence of new regulations on sulphur content in emission control areas [ECAs] of the US and north Europe.

Effective January 2015, the sulphur content in bunker fuel in the ECAs of north Europe will reduce from a maximum of 1% to just 0.1%.

This will force ship operators to switch from tanks of IFO380 to more expensive marine gas oil (MGO) when operating in these regions.

In the US, tighter regulations were put in place on January 1 this year for Californian ports.

With the current price of Rotterdam-sourced IFO380 at around $560 per tonne, compared with low-sulphur MGO at approximately $880 per tonne, the difference will weigh heavily on the budgets of shipping lines. In the case of ocean carriers operating 10,000teu-plus ships that are slow-steaming, they burn more than 125 tonnes of fuel each day and the extra operating costs will be substantial, potentially destroying voyage profitability.

The challenge facing carriers is to successfully pass this cost on to shippers. However, they do not have a good track record of transparency when dealing with customers, and shippers are cynical about surcharges, viewing them as a covert way to raise prices.

Germany’s Hapag-Lloyd is one of the few carriers that appears to have alerted its customers to the prospect of higher bunker surcharges as a consequence of the new ECAs, and says it faces around $270m a year in higher fuel costs.

Historically, the problem for the carriers is that bunker surcharges often get wrapped into annual contracts, leaving little room for manoeuvre when higher costs hit.

Meanwhile, more carriers are looking at the option of LNG, which is currently 20% cheaper than heavy fuel oil and around 50% less in price than MGO.

The market-leading “LNG-ready” ocean carrier is UASC, with an order of five 14,000teu and five 18,000teu ships – the first due for delivery in 2015 – being designed to allow retrofitting of LNG tanks once the infrastructure to supply the gas is in place at major ports.

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