High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
By Christian Wienberg (Bloomberg) — The cost of delivering world trade is about to go up.
A.P. Moller-Maersk A/S, the world’s largest container shipping line, said Monday that customers using its giant box ships will have to pay separately for fuel from 2020, when prices are expected to surge because of tougher environmental standards. The regulations are designed to cut down emissions of sulfur, a pollutant blamed for human health conditions such as asthma.
To get customers ready for the fuel upgrade, the Copenhagen-based company will from next year start to break out the fuel cost when charging its customers for delivering goods in steel containers across thousands of miles of ocean. From 2020, customers will then be expected to cover that bill.
“The 2020 sulfur cap is a game changer for the shipping industry,” Vincent Clerc, chief commercial officer at Copenhagen-based Maersk, said in a statement. The new bunker fuel surcharge model “is a simple, fair and predictable mechanism that ensures clarity for our customers in planning their supply chains for this significant shift.”
Maersk, which controls about a fifth of the container shipping market, has for years added surcharges to its container rates to make up for swings in bunker fuel prices with varying degrees of success. It hasn’t always succeeded in moving all costs over to clients because of fierce competition and overcapacity in the shipping industry.
A successful implementation of the new pricing system could have profound implications for trade given that Maersk says its own fuel bill in 2020 will jump by $2 billion — or almost 60 percent more than it had to pay in 2017. The company estimates an extra fuel bill of $15 billion a year for container shipping lines. About 90 percent of world trade moves by sea, including millions of tons of oil, gas and dry commodities like coal and iron ore.
The attempt to pass on costs is yet another secondary impact from rules that are expected to boost oil prices and upend global refining systems. Until now, few companies have confirmed publicly that their customers will have to pay up to cover the additional expense. Maersk’s ships transport everything from electrical goods to furniture.
Maersk plans to use more expensive low-sulfur fuel when the new rules start, but will also install a limited number of its vessels with on-board equipment called scrubbers that enable the carriers to keep using cheaper fuels that are high in sulfur.
“This will have an inflationary impact on the cost of transportation,” Olivier Jakob, an oil analyst at Petromatrix GmbH, said of the extra costs involved in complying with the new rules. “It could impact some world trade, it may lower demand in some areas and goods.”
© 2018 Bloomberg L.P
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