Low sulphur bunker fuel drives cost arguments

Unsurprisingly the introduction of more expensive bunker fuel and equipment has caused arguments between container ship operators and shippers over who will pay the additional cost.  

Obliged to use more expensive low sulphur fuel or attach ‘scrubbers’ to their ships engines from 2020, ship operators have sought to remedy their higher costs through the ‘bunker fuel adjustment’ tariff that they add to each bill.

Maersk have designed a new method for calculating the tariff which they announced on September 17. This will combine the “fuel price which is calculated as the average fuel price in key bunkering ports around the world, and a trade factor that reflects the average fuel consumption on a given trade lane as a result of variables like transit time, fuel efficiency and trade imbalances between head haul and backhaul legs.”

CMA CGM has been less detailed in its description of the new tariff, just stating that it will be looking to adopt both low sulphur fuel and scrubbers, presumably to test which is more economic, and applying an average $160 to each bill. CMA CGM commented that “this additional cost will be taken into account through the application or adjustment of fuel surcharges on a trade-by-trade basis.”.

Maersk say that their tariff will be applied from the January 1, 2019 but CMA CGM will apply theirs later, stating they “will comply with the regulation issued by the IMO as from 1 January 2020”.

All of this this has not gone down well with the customers of the container shipping lines. The quality of the reaction can be judged by the statement from the Global Shippers Forum titled “Shippers suspect sulphur stitch-up”. A number of trade bodies have criticised the approach articulated by Maersk, CMA CGM and others on the basis of the application of the surcharge by route, asserting that the level of capacity utilisation and profitability varies from route to route and therefore the impact of higher fuel prices will vary in a manner not reflected in the tariff model.

No doubt these disagreements will continue for some time. However, the underlying problem is that cost base of container shipping has risen and this has to be absorbed somehow. Whilst shipping lines may try to pass the higher costs on to customers directly, prices in any market are really determined by demand and supply, not cost. Therefore, it might be suggested that the higher costs will simply make the forces for consolidation in the sector stronger.

Source: Transport Intelligence, September 27, 2018

Author: Thomas Cullen


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