Robert Marshall, UK Commercial Director, shares his thoughts on the current challenges facing importers.
The impact of rising fuel costs continues to be a source of concern and will be a key discussion point in upcoming freight negotiations for 2019 and beyond. There are essentially two areas to consider: short-term bunker increases which carriers are trying to pass on to customers; and longer term changes in legislation which will lead to far stricter pollution controls and changed practices for all vessel operators.
Throughout 2018 there has been a steady increase in the cost of bunker fuel oil. Whilst all the major global carriers extensively hedge on fuel and buy forwards over long periods, all have now seen increased fuel prices at the key bunkering stations. The level of these increases is significant, The Rotterdam IFO380 index for the last 4 months shows a mean figure 30% higher than 12 months ago and further increases are likely as crude oil prices climb higher. The majority of carriers have responded with “emergency” surcharge adding around USD100 to a high-cube container rate and those that have yet to respond have indicated that new deals for 2019 will rise appropriately.
The longer term picture is perhaps of greater concern. New legislation announced in 2016 will come into force and significantly change the allowed levels of pollution. Carriers will be required to cut down vessel emissions either through the use of onboard cleaning equipment known as scrubbers, or will be required to use cleaner fuel oil with a sulphur content below 0.5%. There is a significant cost whichever route is chosen and a divided industry is yet to decide on which method is preferable, but what is clear is that only a tiny fraction of the world’s 5300 plus container ships will be modified by the 2020 deadline.
As a consequence there will be a massive increase in the demand for low sulphur fuel which will come at a cost. Shippers are already familiar with low sulphur surcharges which are imposed where vessels undertake maybe just a part of a longer journey in emissions……..
If you require further information please contact your dedicated account manager or myself directly Robert.Marshall@uk.ligentia.com