Ocean carriers are confusing their customers again. This time, it’s the low-sulphur fuel charges which are being put in place before the requirement to use it is mandated. Each carrier has different charges, with different bases. The result is confusion about the impact. Some charges are being billed as “sustainability” charges. That means different things to different customers. Most of them translate to “higher cost”. Carriers are using various international indices to measure the changes in contracts, which may or may not relate to the actual extra cost. And some ships are being fit to use LNG rather than the low-sulfur marine fuel, which is a whole different calculation.
Here’s an example from the article of a typical letter.
The article finally gets to the bottom line. Customers are worried that the new charges will be used by the carriers as profit centers rather than just recovering their costs. the rate rises might go into carriers’ pockets rather than fund sustainability or simple costs. It’s a reasonable worry, given that fuel surcharges have been used that way in the past by the carriers. Everyone knows the carriers are operating at very thin margins, particularly in the container trade.
It seems like more public relations needs to be done by carriers. They also need to pay attention to the cost allocation part. How can they reassure shippers that they won’t be overcharging them? Cost allocation issues surround many business decisions, and need to be thought through.
It seems that despite all the fuss last year about the size of container ships and all the studies showing that they should not be built, the trend is continuing. I’ve maintained all along that the cost savings just can’t be ignored, and big ships will continue, maybe getting even bigger. Now we see there’s not a reversal yet, despite the academics. These new ships will be in the range of 24000 containers. Mike Wackett’s article does a good job of examining the tradeoffs and the actual geometry and stacking of the containers that’s contemplated. And see the followup piece below in the same journal the next day.
Another interesting fact in the story is the divergence on what to use for energy. One line is going for LNG power, the other for conventional fuel with stack scrubbers. But clearly the environmental concerns are holding up, and companies are making plans to deal with the new regulations on environmental emissions from ocean carriers.
There’s been some written about the efficacy of scrubbers vs LNG and the economic and engineering tradeoffs aren’t totally clear, but clearly there are merits on both sides of that debate.
This followup piece is interesting in that more people are shipping smaller packages than container-size. This means that consolidation will be a key function. that is where 3PLs have a role. The carriers and especially ports need to get in that service business also, and make the process seamless for their end user customers. It’s a big challenge, requiring a lot of cooperative activity. Not the carriers’ or ports’ strong point.
Of course we could use 20 foot containers instead of 40’s but that would just push the problem down a bit. Short term it might be viable though.
Tackling 2020: the impact of the IMO and how shipowners can deal with tighter sulfur limits
This special report from S&P and Platts documents the issues for ocean carriers, and the strategies they might employ. The report is detailed and interesting, and important reading for shipping executives.
Ocean shippers will be more tightly coupled into world petroleum markets, and their prices will be more volatile and depend on other supplies and demands, more so than before. There’s potential for the supply of proper bunkers and its location to alter trade routes and even the profitability of some export trades, especially in agricultural products.
And the strategies ocean shipping owners can use are limited; they include noncompliance, too, which may get them in a lot of trouble, but would save a lot of money in upfront expense for scrubbers, new ships, or for a specialized fuel rather than MDO.
The report is well worth a read. You have to register to get it, but it’s free.
The International Maritime Organization’s decision to tighten sulfur limits on bunker fuel has left shipowners with a dilemma they continue to brush aside. S&P Global Platts weighs up the options and the implications for the shipping industry, the market and refiners as the 2020 deadline approaches.