Expect rising fuel costs as carriers address tighter environmental rules

By Margaret Bux
clock 4 min

Although ocean shipping is much more energy efficient than air or road transport, the price of shipping goods will continue to face upward pressure as regulators impose tighter pollution combating rules.

The International Maritime Organisation (IMO) will introduce new low-sulphur fuel regulations that impose a cap on sulphur emissions of 0.5% of fuel content from 2020.  The current maximum is 3.5% of fuel content.

To comply with these tighter controls, shipping lines can either:

  • switch away fro the sulphur-rich bunker fuels to more expensive marine gasoil, ultra-low sulphur fuel oil, diesel oil or liquefied natural gas (LNG),
  • alternatively fit scrubbers to clean exhaust emissions as fuels are burned, allowing ships to continue to sue high-sulphur fuel oil.

With the added costs of higher priced fuel or retro-fitting vessels with scrubbers, it is estimated that the annual global shipping fuel bill from January 1, 2020 will be US$15 billion.  The shipping lines are moving to pass this on to freight forwarders and shippers, who have reacted with outrage.

Maersk and MSC have outlined new bunker surcharge policies to come into effect one year before the IMO regulations and to be charged separately from the basic ocean freight.  It will be calculated differently for each trade lane as an average taking into account such variables as fuel consumption per feu (forty foot equivalent) or whether the headhaul route will be carrying a larger volume than say the opposite direction.

BIFA, a British freight membership organisation, have called for carriers to quote all-in freight rates, rather than this separate charge that forwarders will have to explain to their customers.  Shippers have also reacted to the lack of data available to allow customers to work out how the charges would be calculated.

MSC estimates the changes to cost $2 billion a year and will replace its existing bunker surcharge with a global fuel surcharge, effective from 1 January 2019, taking into account fuel prices at bunkering ports as well as specific line costs such as transit times, fuel efficiency, etc.  They are also one of several carriers considering the fitting of scrubbers to new and existing vessels.

CMA CGM will be using the low-sulphur fuel oil for its fleet, but is also ordering several scrubbers and planning to power newly built 22,000 teu vessels with LNG by the end of next year.  It estimates all these measures to cost $160 per teu (twenty foot equivalent) on average.  Fuel charges would be applied or adjusted on a trade-by-trade basis.

Hapag Lloyd are expecting the cost of compliance to be $1billion annually and are proposing a new ‘marine fuel recovery’ (MFR) mechanism for calculating fuel costs which they believe would be transparent and easy to understand for their customers. They will also be running some ships on gas and trialling scrubbers on other vessels.

In response, a Drewry market survey has found a lack of information has been sent to shippers on fuel recovery plans and that shippers were insufficiently convinced of the fairness and transparency of the proposals.  It also highlighted ‘widely divergent’ fuel cost structures of differently powered ships.

It appears that the carriers have a long way to go to set a more cooperative scenario to solve the global fuel emissions problem.

Photo by Flickr


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