Why did the EU decide to extend shipping alliances’ rights? This article in the Loadstar points to a short piece on Linked in calling attention to a study by Olaf Merk (and others) critiquing alliances and what they have done to the ocean shipping and port industries.
The study points out alliances were useful in the distant past, but today they are serving to consolidate ocean shipping, reduce offers and most every service, and they also put great pressure on ports to engage in competition on facilities, a costly endeavor that results in over-allocation of capital for the use of few lines.
I’ve attached the Merk etal. article below. He’s an eminent port and maritime economist, and what he writes should be taken seriously.
Here are a few of the initial announcements on fuel surcharges to compensate carriers for the IMO2020 rule requiring 0.5% sulfur fuel or equivalent scrubbing equipment. The current gap is $171.00 between MGO and VLSFO as seen on this graph from shipandbunker.com where you can add several grades to the graph. It’s a 20-port average reported here. A useful site.
You can see from the article that the firms are soft-pedaling the surcharges to keep from losing too many shippers. Probably a good strategy at the start. I believe long term as refineries gear up for LSFO that the spread will narrow.
And of course you don’t have to buy MGO, you can use the dirty fuel which is cheaper.
The ONE ocean carrier group has decided to arbitrage the price of Low Sulfur Fuel Oil (LSFO) vs High Sulfur Fuel Oil (HSFO) by not installing scrubbers on their vessels. That means they will have to use the LSFO everywhere it’s required, mostly in the special ECA emissions control areas set up by a variety of countries.
ONE plans to use fuel price surcharges to offset the difference in price of the fuels. Many firms are deploying price surcharges December 1. Surcharges have attracted a lot of unpleasant words from shippers, who will have one more thing to take into account to determine total landed cost. ONE may need to charge more than some of the firms that are installing scrubbers, such as Maersk, Evergreen, and MSC. It may be a disadvantage.
But, on the supply side, refiners are starting to produce the LSFO, and bunkers providers are going to inventory it. It’s possible the price differential may not be as steep as the $200 per ton currently predicted. There certainly will be some fluctuation in the price difference, and not only in global indexes; it may vary for region to region and provider to provider.
There could be an interaction with routes. Certain routes may offer opportunities to buy LSFO at lower prices; if they’re convenient, the cost hit may not be as bad as that predicted for the industry as a whole. Perhaps ONE knows something we don’t about their routes and bunker providers.
Apparently the scrubber producers and installers are backlogged at present, so it’s not possible to get one installed promptly. Over time this demand will fall, and maybe one can install a scrubber cheaper later on, an example of the learning curve phenomenon.
But rather than tag ONE management with ‘too slow too late’ decision making, we need to see how the whole picture plays out. There are lots of moving parts in the problem of how to meet IMO2020’s 0.5% sulfur requirement.
Supply Chain and Logistics 