News / Feeders facing headwinds as negotiations over low-sulphur surcharges heat up

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While nearly all carriers have introduced sulphur emission control area (SECA) surcharges, claiming shippers will contribute to the extra cost of low-sulphur fuel, North European feeder operators are becoming frustrated in their negotiations with ocean carriers in obtaining similar agreements.

Under tougher IMO regulations shortsea and feeder lines deploying ships in the Channel, North Sea and Baltic Sea from 1 January will be required to burn only the more expensive marine gas oil (MGO) with a maximum of 0.1% sulphur content.

This compares with the current heavy fuel oil (HFO) bunkers with a sulphur content of 1%.

The big container vessels arriving from Asia and elsewhere will have to switch to low-sulphur fuel before entering ECA zones, and surcharges from shippers need to cover this cost, together with the extra cost of the feeder surcharge if the cargo is transhipped.

The problem seems to be that the carrier surcharges of around $25 per teu are insufficient to cover both, with feeder operators calculating that they need a similar figure per teu.

According to one industry source, carriers are proving very reluctant to agree to pass the full amount onto their feeder operators, arguing that they need a significant percentage of the surcharge themselves.

Moreover, deepsea carriers are arguing that since the collapse of oil prices, low-sulphur bunkers have come down to the equivalent of HFO prices six months ago.

Feeder contracts are normally negotiated on an annual basis and industry sources suggest that in general carriers have not been willing to agree to increases for 2015, and in some cases are using a carrot of possible extra volumes due to the launch of new alliances.

Port congestion and the Russian market collapse are other issues that have made the going extra tough and the margins even thinner this year for commercial feeder operators plying North European routes.

The decision last week by Saverys family-owned Delphis to regroup its fleet of 14 container vessels into Belgian parent CMB as a non-operating owner/manager, and thus to concentrate its efforts on Baltic specialist feeder subsidiary Team Lines, is an indication of how much more challenging the feeder market is becoming.

However, an anomaly in the new IMO regulations is that ships operating in the Irish Sea, and servicing ports in Ireland and the west coast of the UK, will still be able to burn cheaper HFO, since, bizarrely, the SECA does not extend to this shipping region.

But this presents its own problems when feeder ships sailing between the North Europe and the Irish Sea are constantly being asked by ship managers to switch fuel tanks in order to save cost.

Indeed, there have been worrying examples reported from California, where similar emission restrictions have been in place since the beginning of this year, of a significant number of vessel engine breakdowns which have been blamed on the switch to distillate fuels.

It appears that pump malfunctions can occur when the changeover between fuels takes place too quickly, leading to the possibility of engine shutdown and the risk of a casualty – and in the ship-heavy Channel this is presenting maritime authorities with considerable cause for concern