Maersk’s sulphur cap charge draws predictable shipper ire

Maersk’s sulphur cap charge draws predictable shipper ire

Yesterday’s lead story on Splash regarding Maersk’s decision to get clients to help pay for its sulphur cap fleet adjustment has drawn predictable ire from shippers, while a number of analysts have hailed the decision as both trailblazing and logical.

Maersk Line announced yesterday a new Bunker Adjustment Factor surcharge, which it claims is aimed at recovering the costs of compliance – thought to be up to $2bn for Maersk alone – with the global sulphur cap, which enters into force on January 1 2020.

Maersk becomes the first carrier to publically state how it intends to charge for the sulphur cap, with other lines waiting in the wings to see what reaction this Maersk surcharge will get from the markets. Maersk Line’s BAF surcharge will be introduced on January 1 2019.

Sunny Ho, executive director of the Hong Kong Shippers’ Council, told Splash he was not in favour of more surcharges, preferring that additional costs be factored into freight rates.

“Carriers should make their revenue through freight rates, instead of surcharges, or other charges,” Ho said. Surcharges are allowed only when there are factors that cannot be expected, such as war or natural disasters, Ho maintained, saying that surcharges ought to be temporary in nature.

Carriers have had years to prepare for the sulphur cap, so the legislation should not be paid for via surcharges, Ho argued.

“Fuel is essential and a basic cost factor for providing the carrier services. The requirement of the cap has been known well in advance. Therefore, they are not unexpected and cannot be justified to be levied under a separate cost item,” Ho said.

Moreover, the Hong Kong shippers boss pointed out that the calculation of the fuel surcharge is one-sidedly decided by the carriers.

“Shippers are not being involved in the process, and being able to negotiate with carriers, on both the adjustment mechanism and charge level. Shippers should reject this new charge item,” Ho told Splash.

Meanwhile, a spokesperson for the China Shippers’ Association echoed much of Ho’s comments today, telling Splash: “It is unreasonable that some carriers just set certain standards for low sulphur fuel surcharges in order to recover the cost from 2020 sulphur cap. Different ships have different fuel efficiency levels and carriers may have different options to comply with the regulations. Shippers need more transparency in the surcharges.”

Others contacted by Splash were more sanguine about the Maersk announcement.

Andy Lane from CTI Consultancy commented: “The additional cost associated with less pollution was always going to end up with the end consumer via shippers and 3PLs.”

Lane added: “Maersk, as usual, leads the industry in creating something new or revised at least, which hopefully will be an improvement.”

Lane said he expects other carriers to follow suit once a few more details of the new BAF are known.

Writing on LinkedIn, regular Splash contributor Lars Jensen from SeaIntelligence Consulting reckoned the Maersk news was long overdue. Earlier this year, Jensen observed, it became clear that old BAF structures in the industry had become entirely dysfunctional and left the carriers collectively scrambling as they saw themselves with no other option than to introduce an emergency BAF.

“With this announcement,” Jensen wrote, “Maersk has proposed a path which includes well-known tools to both carriers and shippers, and a structure which is also logical.”

“The new BAF is a simple, fair and predictable mechanism that ensures clarity for our customers in planning their supply chains for this significant shift,” Vincent Clerc, Maersk’s chief commercial officer, said while unveiling the new surcharge yesterday.

The new BAF replaces Maersk Line’s current Standard Bunker Adjustment Factor (SBF) surcharge and consists of two key elements; 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.

“Combining the two factors give customers full predictability of their costs at any given fuel price both before and after 2020,” the company stated in a release yesterday.

Industry consultant Neil Dekker told Splash today: “Maersk has started to open up the enormous industry can of worms, but this is just the beginning.”

Dekker said the road to IMO 2020 implementation represents the start of a long negotiation between carriers and shippers to agree on how to pay for the additional fuel cost.

“It will be the ultimate test after more than 50 years for operators to prove that they can once and for all move away from the protect market share at all costs pricing model,” Dekker concluded.

With additional reporting from Jason Jiang

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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1 Comment

  1. Noel Leonard
    September 18, 2018 at 9:58 pm

    Mr Ho is quite correct in his summing up of the fuel cap, the surcharge should be factored into the freight rate. Shiping companies risk becoming the Ryanair of the High Seas with surcharges here and surcharges there. The client wants an all in rate covering everything, plain and simple for everyone.