Thursday, September 27, 2018

European Shippers Object to Container Line Bunker Surcharges

Increase in Freight Costs by Big Three Unwarranted Says ESC
Shipping News Feature
WORLDWIDE – The European Shippers' Council (ESC) has become the latest industry body to disapprove of the mechanism of surcharges that shipping lines have just launched to cover the higher costs associated with purchasing lower sulphur fuel, or the investment needed in scrubber technology, to meet mandatory incoming pollution regulations and calling for a dialogue with container freight carriers to find the best mechanism to share the costs.

The new bunker adjustment factor recently announced by Maersk aims at covering additional costs that will arise from the upcoming global sulphur regulations. The ESC says that carriers impose such surcharges unilaterally without any negotiation with shippers and ignore a market approach to the global problem. MSC and CMA CGM have recently announced plans that follow the same direction meaning the world’s three largest box lines are all singing from the same hymn sheet. This, the ESC argues, does not set an ideal cooperation scenario.

The International Maritime Organization (IMO) Low Sulphur Regulation, the ‘Sulphur Cap’ comes into effect from January 1, 2020, requiring all shipping companies to cut sulphur emissions by 85%, with the aim of reducing the environmental impact of the industry and improve global air quality. 

Mediterranean Shipping Company (MSC) announced at the beginning of the week that with its operating costs expected to increase significantly in preparation for the 2020 sulphur cap, it will introduce a new Global Fuel Surcharge from January 1, 2019, a year earlier like its 2M partner Maersk, in order to help customers ‘plan for the impact’ of the post-2020 fuel regime.

The new MSC Global Fuel Surcharge will replace existing bunker surcharge mechanisms and, according to the Swiss headquartered group, will reflect a combination of fuel prices at bunkering ports around the world and specific line costs such as transit times (presumably a reference to slow steaming policies or otherwise), fuel efficiency and other ‘trade-related factors’. The company says the cost of the various changes it is making to its fleet, and its fuel supply, will be in excess of $2 billion per year. The company intends to further optimise energy efficiency through continuous evaluation of its services with a view to help limit fuel use.

CMA CGM has yet to announce its full plans for the upcoming cap announcing instead that the ‘additional cost will be taken into account through the application or adjustment of fuel surcharges on a trade-by-trade basis’. The company has opted to invest significantly in using LNG to power some of its future container ships (9 of which are on order), a fuel which results in a 99% reduction in sulphur emissions on those vessels, as well as ordering several scrubbers for its conventionally fuelled ships.

These measures CMA CGM says represent an additional cost estimated, based on current conditions, at an ‘average of $160/TEU’ which will be taken into account through the application or adjustment of fuel surcharges on a trade-by-trade basis. On announcing the move Mathieu Friedberg, Senior Vice President Commercial Agencies Network, CMA CGM said:

"The implementation of this new regulation, which represents a major environmental advance for our sector, will affect all players in the shipping industry. In line with its commitments, the Group will comply with the regulation issued by the IMO as from 1 January 2020. In this context, we will inevitably have to review our sales policy regarding fuel surcharges.”

ESC says that it is monitoring, through its National Councils, all current actions related to bunker surcharges and their consequences in the operational field. ESC encourages shipping lines to negotiate all freight costs with shippers to come to an agreement satisfying both sides. Within the new commercial framework of logistics stakeholders, ‘the imposition of bunker surcharges restrains cooperation and lacks transparency. What is most important, it decreases potential innovative solutions and results in a low acceptance by shippers’. ESC is insistent that a dialogue between shippers and ocean carriers will be indispensable as a way to reach a mutually satisfying agreement.