Maersk Line is preparing customers for a low-sulphur fuel surcharge of up to $150 per 40ft container after January 1, when stricter ship emission regulations are enforced in the emission control areas (ECAs) of Europe and the US.
However, with less than six months until the deadline, most other major ocean carriers trading within ECA zones seem unprepared for a big hike in their fuel bills.
It appears that only Maersk and Germany’s Hapag-Lloyd have announced an intention to recover the extra cost of the low-sulphur fuel – currently at $900 per tonne it is around 50% more expensive than heavy fuel oil.
Maersk Line estimates that it will purchase 650,000 tonnes of low-sulphur marine gas oil (LSMGO) a year for its fleet, equal to 7% of its annual bunker fuel requirement, at an additional cost of around $250m. Hapag-Lloyd says it faces a similar bill.
However, unlike Maersk, Hapag-Lloyd has not indicated the level of its ECA surcharge, telling its customers they will be informed in a “timely manner”.
But carriers do not have a good track record of explaining surcharges to customers, and the timing of announcement and implementation can also cause confusion and irritation. In fact, in regard to general rate increases, several thousand dollars of GRIs announced this year have been eroded within weeks of their implementation dates, thereby denting carriers’ credibility.
And there is another problem for the embattled carriers hoping to recover the extra cost of the low-sulphur fuel – shippers will point to the already considerable fuel savings that container lines have achieved as a result of slow- and super-slow-steaming.
The major argument from shippers on slow-steaming is that it is done without any form of consultation with the customer, leaving shippers to build expensive bigger inventories to compensate for much longer transit times.
Interestingly, feeder ships transhipping export and import cargo at hub ports in the Channel, North Sea and Baltic Sea must burn the 0.1% sulphur content fuel from next year, while feeders operating in the Irish Sea and serving ports on the UK’s west coast and won’t be subject to the tougher regulations.
Maersk Line has issued a statement revealing the projected financial impact of the new legislation lowering the maximum allowed content of sulphur in fuel burned to 0.1% sulphur from today’s 1.0% in the Emission Control Areas (ECA) in North Europe (including the Baltic Sea, North Sea and English Channel) and North America (200 nautical miles from American and Canadian shore).
Fuel with a sulphur content of 0.1% is significantly more expensive than fuel with 1.0% sulphur content required in ECA areas today.
By 2015, Maersk Line expects to purchase 650,000 tonnes of fuel with 0.1% sulphur content annually for their fleet, equal to 7% of all fuel purchased.
Based on the current price difference of USD 300 per ton (approx. 50%), the additional cost to Maersk Line will be around $250m per year.
On top of that Maersk Line will face increased costs for buying services from third-party feeder operators, who will also have increasing fuel costs.
To offset the additional cost incurred, Maersk Line will incorporate the higher average fuel costs into the existing standard bunker surcharge (SBF).
The expected additional cost to customers in affected trades will be between $50 and $150 per 40’ container to and from main ports, depending on transit time inside ECA areas, and whether they are touching ECA areas at both origin and destination.
Map of Emission Control Areas in Europe and North America
Reefer containers will incur higher cost due to fuel used to generate power on board vessels; also cost will fluctuate depending on the volatility of low sulphur fuel prices.
The North American ECA requirements are strongly enforced, but the current weak enforcement of the North European ECA requirements, combined with the significant cost burden increase in 2015 might lead to increased non-compliance.
This would not only weaken the positive effect on air quality, it would also be a major competitive disadvantage for the shipping companies that follow the rules.
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