Shippers brace as new sulphur cap surcharges kick in

This week sees the world’s top containerlines start new bunker surcharges with the 2020 global sulphur cap in mind. Box platform Freightos is predicting this will result in price rises of between 5 to 10%, depending on tradelane

“These increases, beginning January 1, will filter through next week with price rises in the 5%-10% range, depending upon trade lane,” commented Philip von Mecklenburg-Blumenthal, Freightos’ vice president, in a year-end review.

Tomorrow’s data published on the Shanghai Containerized Freight Index will be keenly watched by shippers to assess the likely impact of the sulphur cap.

Commenting on the 5 to 10% price increase prediction, Andy Lane from CTI Consultancy in Singapore told Splash today that there were going to be very noticeable disparities between premiums sought by rival liners.

Several lines including Maersk, MSC, CMA CGM, Hapag-Lloyd and ONE have made public announcements in the last few months of 2018 advising how they will calculate bunker adjustment factors (BAF) from January 2019 and onwards. Generally these are more granular and objective by design, broken down by tradelane, actual consumption and load factors, and then multiplied by a bunker unit cost. They are intended to work both pre- and post-cap implentation, with 0.5% sulphur compliant fuel cost increments expected to have some impact around November this year, but not before, according to CTI’s Lane.

“There is some disparity over the suggested premiums,” Lane said. As an example, he cited MSC who have suggested an Asia-North Europe headhaul BAF of $248 per teu – and $96 for backhaul – based on bunker costs of $400 per metric ton. Japan’s ONE, meanwhile, has given a number of $125 per teu for the headhaul and $100 per teu for backhaul against a bunker price of $500 per metric ton.

“Depending upon actual consumption and utilisation assumptions, ONE’s BAF does not appear to cover the full cost of fuel whereas MSC’s does plus a little bit,” Lane pointed out.

Bunker costs per metric ton have decreased by more than 20% since October 2018, which is conspiring against the lines’ new mechanisms which were designed to attain better, higher cost recovery.

“A total freight cost increase in January 2019 therefore is not so logical,” Lane said, arguing against the Freightos prediction.

“For each service contract, shippers will have their exclusively negotiated deals, presumably taking the total cost of ownership – basic freight plus BAF – into consideration when selecting carriers,” Lane continued, adding: “On the spot market the total freight plus BAF which can be levied will continue to be driven by supply/demand perceptions, and the lines will continue to need to be cost-competitive, so an overall shipping cost increase is far from given.”

The controversial sulphur cap surcharges introduced by the world’s top lines has drawn predictable ire from shippers.

Sunny Ho, executive director of the Hong Kong Shippers’ Council, told Splash last year 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 in an interview last September.

The British International Freight Association (BIFA) went further saying the new sulphur cap surcharges are unjustified and are blatant profiteering.

“While the shipping operators may say that the new BAFs are needed to cover the cost of switching to low sulphur fuels or fitting exhaust scrubbers, rises of this magnitude are unjustified and could be construed as blatant profiteering by shipping lines determined to exploit the situation,” Robert Keen, BIFA director general, said in a release from last September.

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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