Notwithstanding the significant impact to the bottom line of ocean carriers from the coronavirus outbreak, it is also becoming increasingly apparent that they have failed to pass on all of the extra cost of IMO 2020 cleaner fuel legislation to their customers.

According to Bimco’s chief shipping analyst, Peter Sand, container freight rates have not risen sufficiently to cover the price of compliance.

“The hike this year was not enough, with the market offering little support to carriers attempting to pass these costs on fully,” said Mr Sand.

He noted that container lines’ surcharge mechanisms had been “widely criticised for not being transparent, or for being too complex to understand, leading to carriers having trouble implementing them”.

He added: “Those that have succeeded may have done so by lowering the underlying freight cost such that the total price shippers’ pay has not changed much.”

He said comparing the January average of the comprehensive spot market Shanghai Containerized Freight Index (SCFI) and the longer-term market China Containerized Freight Index (CCFI) – reflecting the seasonal pre-CNY cargo rush and unaffected by covid-19 – both indices were recorded above the six-year average, “but not remarkably so, and not enough to cover the additional fuel costs”.

However, according to a report published today by Alix Partners, the frustration felt by many customers at the way carriers calculate and communicate surcharges “is likely to lead to all-new pressure this year on container shipping players to contain prices and to standardise industry pricing formulae, including fuel bunker adjustment factors – a pressure campaign that could be led by eastbound transpacific mega-shippers who have a history of driving changes in the way carriers do business”.

Esben Christensen, global co-leader of the transport and infrastructure practice at AlixPartners, added: “The wide spreads today between the costs of intermediate- and low-sulphur fuels might suggest that installing scrubbers should at least be considered; however, carriers need to carefully consider the details of if and how they go about converting vessels, plus other longer-term factors such as whether smaller and more-remote ports might be challenged to secure adequate low-sulphur fuel supplies.”

Indeed, a failure to pass on the extra cost of the IMO’s sulphur cap is seen as a high risk in Maersk’s 2020-2024 business strategy of achieving a “likelihood” factor of over 25%.

The analysis said: “In the short-term, the risk is that Maersk will not be able to recover the additional cost from its customers.”

The risk analysis noted that its competitors could have “more cost-effective compliance strategies than Maersk” by their decisions to install more scrubbers on ships.

Maersk plans to have just 10% of its 700-ship fleet fitted with the exhaust gas cleaning systems, whereas its main challenger for the top rank, MSC, will have over half of its 574-strong fleet equipped with scrubbers by the end of this year.

Maersk CEO Soren Skou alluded to the problem during the group’s recent earnings call when he said that although the recovery of BAFs “had gone to plan so far”, there were around half of contracts still to be negotiated which would take place against “a weak environment”.

Meanwhile, Mr Sand said that although fleet growth would be lower than last year, at around 2.5% – representing the first time in four years that deliveries would be below 1m teu – demand growth was likely to be no better than the 0.8% for 2019; and that is without factoring-in the effect of covid-19 on demand.

“A prolonged downturn in Chinese manufacturing may result in a boost in exports once the virus is contained and manufacturing is back at its usual capacity,” said Mr Sand.

However, he added that any spike in demand would be “unlikely to make up for lost volumes earlier in the year”.

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