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As crude oil races towards $100 a barrel, the European Shippers’ Council has called for “a market approach” dialogue on shipping line bunker surcharge mechanisms ahead of the IMO 2020 sulphur cap.
Brent crude hit a four-year high yesterday, 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 any increase of oil prices.
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.
They failed to do this in June when a series of emergency bunker surcharges were rolled out by carriers and subsequently given back to shippers via rate discounting.
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.
To say that 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 that shippers were “naturally suspicious of something shipping lines say is ‘fair, transparent and clear’”.
Elsewhere, the European Shippers’ Council (ESC) said that while it “disapproves of the mechanism” of the surcharges, it accepts that additional costs for shippers will arise from the IMO 2020 regulations.
It was, however, critical of the carriers’ “approach to the global problem”, which it said “does not set an ideal cooperation scenario”.
Speaking to The Loadstar today, Jordi Espin Vallbona, maritime transport policy manager at the ESC, said shippers were “not against” bunker surcharges, but these should not be “by imposition”.
He suggested 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,” said Mr Espin Vallbona.
He suggested that the transparency of the bunker surcharge mechanisms could be linked to some form of KPI.
Andy Lane, partner at Singapore-based CTI Consultancy, told The Loadstar 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”.
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.
“Logically, the additional costs incurred by the ship operator [for LSFO] is passed to the shippers and, in turn, passed to the consumers,” said Mr Lane. He suggested this was what everybody agreed was “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.
“They are both competitive levers,” said Mr Lane, “those that attempt to recover more than actual costs might become uncompetitive.”