forwarders and shippers, the key challenge of the coming months will
come from the higher costs that implementing new environmental shipping
regulations will impose on global supply chains.
From January 1, 2020, new International
Maritime Organization regulations will put a 0.5% cap on sulfur content
in marine fuels globally, down from a maximum of 3.5% now. With oil
prices rising, the exact cost of the new fuels is not yet known for
certain, but with low-sulfur fuels significantly more expensive, container
line shipping executives have called on supply chain partners to share
the burden of rising fuel costs, which they describe as an economic
Some analysts have suggested that if
carriers fail to pass on the full cost to customers then a further
round of liner consolidation or bankruptcies could result.
The new regulation could also see more
slow-steaming and use of transshipment strategies as carriers seek
to mitigate the expected higher operating costs. “The logic
is that as ships’ sailing speed is reduced and round voyages
are extended, carriers will drop ports from rotations to ensure that
transit times to key points remain competitive,” said shipping
analyst Drewry. “Fewer direct port calls will induce greater
need for transshipment and feeder operations.”
None of which improves the service reliability
performance liner customers should expect.
More positively, contrary to many predictions, container lines have
at least indicated that availability of low-sulfur fuels in leading
ports was unlikely to be a major problem, and the IMO has set up a
reporting system for operators unable to source fuel at smaller ports.
Forwarders are now negotiating a variety of methods to share the cost
of low-sulfur bunker fuels once container lines start introducing
them. But they would still like more transparent charging structures
from carriers, not least in the implementation of the Bunker Adjustment
Factor (BAF) charges that lines usually use to pass on fuel costs
von Orelli, (right) Head of Global Ocean Freight at DHL Global Forwarding,
welcomed the emissions reduction efforts of the IMO, which fit in
with DHL’s own extensive emissions-cutting program. He said
that although the exact cost increases due to IMO 2020 were not yet
known and were very difficult to estimate, a significant hike was
expected. “We expect ocean carriers to begin charging additional
fees in the fourth quarter of 2019 when the new fuels are introduced
on container ships,” he told FlyingTypers.
“There’s no industry standard
[for passing on costs] but we promise our customers to be very transparent.
We will also publish our own Danmar BAF which will simplify the calculation
for the customer regardless of the ocean carrier used.”
However, while he believes the market
will get used to BAFs being separated from freight rates and therefore
subject to change, he warned lines not to try and charge for low-sulfur
fuels until their price level was transparent.
“Acceptance [of floating BAFs]
is increasing significantly and will become the standard for everyone,”
he said. “BAF based on the new low sulfur regulation can only
be charged by the carrier and will only be paid by the customers when
the regulation comes into force or when carriers start to bunker low
“As things stand today, the BAF
cannot be based on low sulfur costs. We don’t accept this and
neither do our customers.”
Panalpina’s concerns rest on the
lack of uniform global policing of regulations and provisions through
the IMO, given that each individual signatory nation is responsible
for determining its own enforcement policies, and these vary from
jurisdiction to jurisdiction.
Twachtmann, (left) Panalpina’s Global Head of Ocean Freight
FCL, said the forwarder would pass on costs to customers as fairly
as possible. “We have been developing a transparent and competitive
pricing mechanism to cut the best deal for our customers,” he
said. “We now have a globally competitive bunker mechanism that
will increase visibility for customers and ease the transition towards
new fuel types to comply with the sulfur limit.”
Lysdal, (right) Vice President of Operations at iContainers, told FlyingTypers that customers had been surprisingly unconcerned
– or unaware - of the looming shipping pricing increases.
“I think it's a case where the
larger clients we have generally stay pretty well informed, so they
have an idea of what is happening, where many of the others are not
shipping that often and it is really not that big a concern for them,”
iContainers will pass on extra costs
to customers as they are presented by carriers. “The thing is
that the carriers have different approaches to how each of them implements
the increases they need to cover the additional cost,” he said.
“So, the most transparent thing
we can do at this point is pass through the charges the way we receive
them. Maybe there will be a point later on where things become a little
He said carriers were still jockeying
for position about how to charge customers and there could be a shift
to more use of the spot market as a result.
“In terms of cargo from Asia,
there is a real chance that it will become even more spot market-based
for the U.S. as well as for Europe,” he added. “It's generally
only the top tier importers that can potentially obtain competitive
rates from Asia here.
“We are advising our clients that
increases are on the horizon. For us, the increases end up being a