Thursday, September 20, 2018

Freight Forwarding Agents Object to Shipping Line Fuel Surcharge Due to Sulphur Cap

Imposition of Levy is Blatant Profiteering Says BIFA
Shipping News Feature
DENMARK – Earlier this week Maersk announced plans to levy a fuel adjustment surcharge ahead of the 2020 sulphur cap, news that has incensed the British International Freight Association (BIFA) which described the imposition as 'unjustified and blatant profiteering'. The new Bunker Adjustment Factor (BAF) surcharge aims to recover Maersk Line costs of compliance with the global sulphur cap, and will be introduced on January 1, 2019 to allow customers to familiarise themselves with the changed formula.

To become compliant with the IMO regulations, ship owners will have to invest in compliant fuels, LNG or scrubber technology. This is expected to lower global shipping's sulphur emissions by more than 80%. BIFA highlighted the drastic rise in prices with a 40 foot container on the Far East to North Europe route potentially seeing costs hiked from between $480 to $840, or by up to $683 from the Far East to US West Coast, dependant on fuel price. Vincent Clerc, Chief Commercial Officer, AP Moller – Maersk justified the company’s actions, saying:

"We fully support the new rules. They will be a significant benefit to the environment and to human health. The 2020 sulphur cap is a game changer for the shipping industry. Maersk preparations to comply are well underway and so are our customers' efforts to plan ahead. The new BAF is a simple, fair and predictable mechanism that ensures clarity for our customers in planning their supply chains for this significant shift."

The regulation will bring increases and uncertainty to fuel costs for shipping. The BAF surcharge is designed to recover increases in fuel related costs. It will be charged separately from Maersk Line's freight rate. BIFA says that it would prefer any increases that are necessary to be consolidated within freight rates and with any required fluctuation being managed against that figure. Robert Keen, BIFA Director General, commented:

“By any measure, these are very major increases, and they will be received negatively by BIFA members’ customers. While the shipping operators may say that the new BAFs are needed to cover the cost of switching to low sulphur fuels or fitting exhaust ‘scrubbers’, rises of this magnitude are unjustified and could be construed as blatant profiteering by shipping lines determined to exploit the situation.

“BIFA members are now faced with the task of explaining yet another surcharge to their customers, and what the rationale behind it is. The sulphur surcharge is bound to be extremely unpopular. Sometimes there is an unfair perception that our members are to blame.”

According to industry estimates, more than 90% of the global vessel fleet will be relying on compliant fuels when the sulphur rules step into force on January 1, 2020. This will also be the case for the Maersk Line fleet, despite a recent investment in a limited number of scrubbers.

Based on expected differences in price between current 3.5% bunker fuel and compliant 0.5% fuel, external sources estimate the additional cost for the global container shipping industry to comply could be up to $15 billion. Maersk Line expects its extra fuel costs could exceed $2 billion.

The BAF replaces Maersk Line's current Standard Bunker Adjustment Factor (SBF) surcharge and consists of two key elements; the fuel price which is calculated as the average fuel price in key bunkering ports around the world, and a trade factor that reflects the average fuel consumption on a given trade lane as a result of variables like transit time, fuel efficiency and trade imbalances between lead haul and backhaul legs.

Combining the two factors give customers full predictability of their costs at any given fuel price both before and after 2020.

The latest ‘swingeing’ increase is only the latest in a series of surcharges imposed by the shipping lines, and BIFA has long campaigned against them. Earlier this year, leading container shipping companies announced almost in unison that they would be levying ‘emergency’ bunker surcharges in response to rising fuel costs. Keen continued:

“Forwarders do not like shipping line surcharges, we have been challenging, and will continue to challenge their legitimacy on behalf of our members and their customers.”

Past attempts by lines to hike rates have included surcharges for equipment imbalance, peak season and currency, along with other fuel surcharges. Keen adds that the number of surcharges and fees continues to grow, many of them with no real explanation or justification. He concluded that while forwarders would continue to do all they can to minimise surcharges ultimately at least some of the cost had to be passed on to forwarders’ customers.

Photo: A Maersk vessel bunkering. (Courtesy Trefoil Trading BV)