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 Mike Wackett (The Loadstar) – OOCL plans to begin the switch to low-sulphur fuel for its fleet of around 100 container vessels during the second half of next year, in readiness for compliance with IMO 2020.
Unlike some of its peers, the carrier has made no reference to scrubber technology that would enable vessels to continue to burn cheaper heavy fuel oil (HFO) from 1 January 2020 when the 0.5% sulphur cap becomes law.
The Cosco subsidiary said it had estimated the extra cost of compliance with IMO 2020 for its vessels could be more than “half a billion dollars”.
The current price spread between HFO and low-sulphur fuel oil (LSFO) is around $230 per ton, but OOCL warned that the difference could widen after the start date of the regulations, “due to tight supply in the market”.
It said: “Under the current industry environment and the level of cost involved in an industry that is already very cost-sensitive for survival, shippers and the consumers will need to prepare to shoulder this burden.”
It said that in “preparation for the surge in operating cost, and in consideration of the continual trend of rising fuel prices in the market”, it would be introducing a bunker recovery charge.
The company did not say when the charge would be effective, nor the quantum, but advised that it would take various factors into account, including fuel types, price fluctuations, ship size and vessel utilisation.
OOCL’s bunker recovery proposals follow in the wake of Maersk Line, Hapag-Lloyd and CMA CGM, although those carriers have proposed a 1 January 2019 start date and have indicated examples of surcharge amounts dependent on fuel price.
Maersk Line has estimated the cost of compliance with IMO2020 at over $2bn for its 700-ship fleet, while Hapag-Lloyd expects the additional cost for its 220 vessels to be in excess of $1bn.
Notwithstanding the attempts by carriers to be “transparent” with their IMO2020 surcharge proposals, if anything, shippers are more suspicious than ever of “a hidden agenda” to push up freight rates under the guise of environmental protection. And shippers and forwarders The Loadstar has spoken to recently say they are “more confused than ever” after reading the bunker surcharge announcements by the carriers.
“What they seem to be trying is to mix up the two”, one shipper told The Loadstar on the side lines of the Xeneta customer summit in Amsterdam last week.
“They are introducing new formulae from next January – a full year before the IMO2020 start date – to underpin their previous failed attempts to recover fuel price rises, which are a separate issue,” he argued.
Unless ships are fitted with scrubber systems, carriers will need to have the fuel tanks of their ships thoroughly cleaned to avoid contamination before replenishing with LSFO to be compliant with IMO2020.
OOCL’s parent, Orient Overseas International, was acquired by Chinese state-owned carrier Cosco and its port operator compatriot, Shanghai International Port Group in a $6.3bn deal completed in June.
The Loadstar is fast becoming known at the highest levels of logistics and supply chain management as one of the best sources of influential analysis and commentary.
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