Monday, September 24, 2018

More Shipping Stakeholders Object to Container Line Low Sulphur Surcharges

Freight Group Tells Maersk Its New Bunker Adjustment Charges Stink
Shipping News Feature
WORLDWIDE – The backlash after Maersk Line declared it was to introduce surcharges to cover its extra costs incurred because of the International Maritime Organization (IMO) mandatory sulphur cap has continued to anger the shipping community. The container carrier's announcement produced an immediate response from the British International Freight Association (BIFA) last week and now the Global Shippers Forum (GSF) has reacted with suspicion to the new charges.

The GSF, in common with other maritime stakeholders, are concerned about the new fuel surcharge arrangements, applicable from 1 January 2019 to recover presumed costs from the introduction of low-sulphur marine fuel from 1 January 2020. Based on the information released by Maersk, the new charges, which are additional to agreed contract rates, are based on two factors, an average cost of fuel and a ‘trade factor' that upscales the costs on head trades and discounts the fuel cost on reverse trades.

However, the GSF says because the charge is per container, the greater number of revenue-earning boxes sailing west will collectively pay far more than they need to in order to compensate for the same boxes returning east when empty. This has the effect of applying higher than average surcharges on their most profitable routes. For example, the Far East to North Europe route has a trade factor of 1.3, but North Europe to Far East of 0.7.

What seems to be really getting up the noses of the GSF is that in addition, Maersk has decided to help itself to a whole year of higher fuel surcharges, a full 12 months before the rules requiring them to use surcharges actually come in. And the new charging structure would apply to all variations of fuel price, not just due of the introduction of low sulphur fuel. James Hookham, GSF Secretary General, said:

"Asking customers to contribute to new environmental costs is to be expected, but this charge lacks transparency; no data is available to let customers work out how the charge has been calculated. Given historical experiences with surcharges, shippers are naturally suspicious over something shipping lines say is ‘fair, transparent and clear'. GSF will be taking this piece of financial engineering apart piece by piece as we suspect this has more to do with rate restoration than environmental conservation.

"Maersk has other options. Global rules allow lines to meet air quality standards by fitting ‘scrubbers' to clean up exhaust emissions, rather than buying more expensive low-sulphur fuel. This requires a one-off capital expense, but for shippers this is a better option than paying sulphur surcharges indefinitely. Some of Maersk's biggest competitors are taking this different approach, and customers will be looking at the options and voting with their wallets.

"What also disappoints shippers is the lack of negotiation about the timing and the structure of the charge. It would have been better if Maersk had discussed its plans with individual customers in the course of confidential contract reviews, rather than just publishing something that wouldn't be out of place in the puzzles section of your daily newspaper.

"We suspect that other shipping lines will be tempted to follow suit, but it would surely be of concern to competition authorities around the world if the same formula were to be used by other shipping lines, especially in the same Alliance. GSF would encourage Maersk to consult with customers and reconsider their strategy. These new charges may be all about low-sulphur fuel, but they still stink to us!"

A change of $10/tonne in fuel prices will trigger an adjustment to the quarterly review of the surcharge, reefers will cost 1.5 times that of the standard container rate to reflect their average electricity consumption. During 2019 the new Bunker Adjustment Factor (BAF) will be based on the fuel price for high sulphur fuel then, from Q1 2020 the revised BAF will be based on the new regulation 0.5% sulphur fuel.

With regard to investing in the technology, as opposed to a surcharge, doubtless Maersk will point to the cost of retro fitting scrubbers to the world’s largest fleet of container vessels. Earlier this month one of our weekly round ups gave details of Eagle Bulk Shipping purchasing up to 37 of the gas cleaning systems, at a cost of $2 million per ship. Although doubtless some of its modern vessels have such technology the gigantic Maersk fleet, almost 800 vessels, would require a formidable investment to ensure total compliance.