Shippers urgently need more information about the likely cost implications of low-sulphur fuel ahead of the implementation of Emission Control Areas (ECAs) from 1 January 2015 as they prepare to finalise freight budgets for next year, the Global Shippers’ Forum (GSF) said, calling for transparency from freight carriers and an acceleration in the information process.
Shippers urgently need more information about the likely cost implications of low-sulphur fuel ahead of the implementation of Emission Control Areas (ECAs) from 1 January 2015 as they prepare to finalise freight budgets for next year, the Global Shippers’ Forum (GSF) said, calling for transparency from freight carriers and an acceleration in the information process.
From January new legal requirements will come into force in North Europe (including the Baltic Sea, North Sea and English Channel) and North America (200 nautical miles from American and Canadian shores) that will lower the maximum allowed content of sulphur in fuel burned in the ECA’s to 0.1% sulphur from the current 1%.
GSF Secretary General Chris Welsh said: “With one or two notable exceptions, few shipping lines have yet provided information to their customers on their low sulphur fuel strategies and the extra cost to be passed on to shippers via increased rates or bunker surcharges. With shippers under pressure to finalise freight budgets for 2015 this information is urgently required by customers.”
The GSF said it recognised that implementation of the new low-sulphur fuel limits represents a challenge to the shipping industry. It noted that there are a range of options open to carriers: use of marine gas oil which meets the 0.15 sulphur content, use of alternative fuels such as LNG and methanol and the use of abatement technology such as scrubbers to dilute exhaust gas sulphur emissions to the 0.1% limit.
Welsh added: “The fact that there are a range of options for managing the new low-sulphur limits means that the impact on costs will be very different from one shipping line to another. For example, fuel costs for new-built vessels capable of using alternative fuels will be substantially different to a carrier using abatement equipment or higher grade marine gas oil.”
GSF has stated that as the low-sulphur requirements are limited to specific geographical areas, and as there are various options for managing the new sulphur requirements, that shippers will require greater transparency from carriers in order to substantiate extra freight charges and bunker surcharges levied by shipping lines to recover additional costs.
The GSF has developed a series of questions for shippers to use in their negotiations with carriers based on the approach by individual carriers in meeting the 0.1% lower sulphur limit. For example, for those applying retrofit scrubber technologies if additional freight charges or surcharges are levied how much of the cost (running costs and capital costs) are being passed on? And if capital costs are being applied upfront in the form of tariff increases or surcharges, at what point will the extra charges be withdrawn once capital cost have been recouped?
Welsh concluded: “It is extremely important that individual carriers are open and transparent with their customers about the additional costs incurred resulting from the new sulphur limits, and they fully justify the additional freight charges and surcharges being levied.
“Broad industry surcharge guidelines set by some carrier groups are wholly inappropriate to recover additional low sulphur fuel costs because of the significant differences in energy efficiency of vessels, management of fuel and the different options available to carriers in implementing the new low sulphur limits.
“It’s clear, however, that information on additional costs is needed now rather later as shippers set their freight budgets for 2015.”
Container lines, freight ferry companies and road haulage operators all look set to pass on new ‘low-sulphur’ surcharges to their customers from next year, although their plans and the levels of surcharges have yet to be communicated to most shippers and freight forwarders.
Several container lines have already outlined their plans to introduce ECA surcharges from next year, with planned container surcharges varying from US$15 per teu to more than $165 per teu, depending on the route. For example, feeder specialist Unifeeder has said it would impose a surcharge of €65 per container to recoup the extra cost of switching to low-sulphur fuel from January 1 2015. MSC has said it will implement a surcharge of up to $165 per teu on shippers using its North European and North American services as a result of the new bunker rules.
Samskip’s chief operating officer Diederick Blom has predicted that the increasing costs of fuel resulting from new low-sulphur fuel regulations may drive a shift back to road transport on certain European shortsea routes. He said certain operators had already closed services, anticipating a modal shift in favour of road transport when new rules come into force in January, although he felt this would be a short-term development. Longer term he expects transport by sea and rail will increase and by more than road.
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