This story is a follow up to one I did a couple of weeks ago. Fuel surcharges are varying wildly. A consultant found that there’s a wide disparity, the rate rationale is not very transparent, and rates vary even within alliances. Conditions like this lead to confusion and annoyance among customers, especially smaller shippers. I expect 3PLs will also be annoyed, but they will be figuring out how to explain the surcharges or where to hide them in their reselling agreements. It doesn’t make for great credibility among the ocean carriers.
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.
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.
via Are carriers boosting low-sulphur fuel surcharges to make up for low rates? – The Loadstar
