Carriers will need to provide transparent cost calculations to exporters and importers to justify the cost surcharges which they have announced from January 2015, according to Drewry Shipping Consultants.
Carriers do face additional costs to meet the tighter pollution rules Drewry says, but may have a difficult task convincing big shippers to pay a separate low-sulphur surcharge.
In late May, Drewry’s Container Insight Weekly highlighted the new low-sulphur fuel environment regulations that will come into force in January 2015 and some five months later a number of carriers have finally announced the related surcharges they will be requesting from shippers.
In summary, from January 1 carriers will be obligated to use fuel with maximum 0.1% sulphur content, down from today’s allowed 1%, in so-called Emission Control Areas (ECAs) in North Europe and North America.
Carriers have said that they will collect new “low-sulphur surcharges” or “emission control area charges” in addition to ocean freight. As predicted by Drewry, these new fuel charges vary by geography and by trade. They range from USD 30 per 40ft container for Asia to/from North West Europe, to USD 280 per 40ft container for Baltic region to/from Canada East Coast, which carriers justify by the need to use fuel-inefficient feeder ships to serve Baltic ports.
The Transpacific Stabilization Agreement (TSA), a discussion group of 15 container lines serving the eastbound Asia to US trade, said that shippers can expect initial low-sulphur charges on January 1 of USD 67 for Asia-USEC and USD 53 per feu for Asia-USWC, versus USD 17 and USD 16 at present for the respective trades. Charges per teu will be assessed at 90% of feu levels.
How carriers recover these significant extra costs will be an interesting problem according to Drewry, particularly as many high-volume shippers have specific “no surcharge” clauses within their contracts. Prior to the signing of the annual Transpacific 2015-16 contracts in May, Drewry says that carriers will have to negotiate with their customers to either adopt a modified low-sulphur component within the total bunker charge or apply a standalone charge.
Whether shippers accept the separate surcharge within the next annual contracts is not a given and Drewry Supply Chain Advisors, the sea freight procurement consultancy arm of Drewry, advises large shippers to try to include the new low-sulphur surcharges in all-inclusive rates fixed for 12 months. Drewry believes that by using more fuel-efficient mega-vessels, carriers may be able to mitigate some of these cost increases, but not 100%.
However, Drewry says that no one knows whether, come January, low-sulphur Marine Gas Oil (MGO) – approximately USD 280 per tonne more expensive that IFO 380 at current Rotterdam prices – will remain at current prices or will increase faster than other fuel types in response to much higher industry demand.
The cost differential between MGO and IFO will have a significant impact on the likely costs levied to importers and exporters. The TSA told Drewry that under the new regulations a USD 20 increase in the differential between MGO and IFO fuels would add USD 4 per feu in costs to carriers for Asia to US West Coast services and USD 7 per teu for Asia to US East Coast loops.
To cover any potential swing in the fuel price differential, the TSA will introduce a floating low-sulphur cost recovery formula that will be adjusted quarterly based on a 13-week average of weekly prices. The TSA’s formula will also take into account revised fleet characteristics such as vessel size, speed and effective capacity; MGO consumption rates; and sailing time within the ECA zone.