LAST week Australian shippers were shocked by notifications from the world’s top three container lines of the imminent introduction of emergency bunker surcharges (EBS) in response to the rising cost of fuel.
MSC’s Monday announcement was quickly followed by Maersk on Wednesday and CMA CGM on Friday, and doubtless other lines will follow suit in coming days. Even breakbulk carrier Spliethoff has imposed an EBS per freight tonne.
Lines claim they are paying up to US$100/tonne more for bunkers than 12 months ago, an increase which is adding some US$10bn to their annual fuel bills. Maersk says prices have hit US$440/tonne, a 20% rise since the start of the year and the highest level since 2014. This additional cost is significantly higher than expected must be passed on to end users, lines say.
Notably, despite rising revenues and liftings Maersk and CMA CGM both reported losses for the first quarter (the privately-held MSC does not disclose results). Maersk lost US$239 million in the first quarter and CMA CGM a net US$77 million, and others to report 1Q deficits so far include Yang Ming, Hyundai Merchant Marine, Zim, MOL, NYK and Evergreen. Al have attributed their losses, in part, to rising fuel costs.
However, as various commentators have noted, after a strong 2017 freight rates have been steadily falling this year across the two main east-west trade lanes, Far East-Europe and transpacific (Asia-North America) by between 12% and 19%.
And guess what? This has happened as an additional 1.1m TEU of capacity, in the form of newbuildings, is introduced by carriers in 2018.
French consultancy Alphaliner sees the usual absence of common sense among carriers, which will continue to add capacity as they battle for market share. “Faced with the stark choice of cutting back on capacity or risking continued freight rate weakness, carriers have thus far chosen the latter course. Average capacity operated by the top-13 carriers has increased by 9.1% year-on-year, as essentially everyone is still chasing market share at the expense of securing higher freight rates,” Alphaliner said.
“The aggressive capacity additions are expected to continue through the summer, with a raft of newbuildings due to come on stream. Charter rates will maintain their upward path on the back of strong vessel demand.”
In other words, lines’ costs will continue to rise as rates fall. Shippers are being forced to cover the shortfall – and while the headlines are all about the main east-west routes, the new EBSs are global.
Furthermore, since large shippers may have the market power or contract stipulations to lessen or avoid the EBS impact, smaller shippers will likely bear a disproportionate burden. Ironically, analysts say, significant EBS increases often see freight rates fall further as lines ‘do deals’ to protect market share – but this time carriers are seeking to avoid this by declaring the surcharges globally applicable. Increased concentration of carrier ownership assures more widespread adoption, too.
Interestingly, Maersk has released a notice that the EBS will not apply to exports from China. However, on the same day, Maersk announced a “Peak Season Surcharge” for exports from China.
The EBS also appears to have encountered difficulties on some US routes, where the Federal Maritime Commission (FMC) require greater notification periods.
In Australia, unfortunately, it must be noted with the end of the Trade Facilitation Agreement (TFA) and Trade Facilitation Group (TFG) Discussion Agreements, there is little to no mechanism for mandatory notification to Australian shippers.
And without the protection of Part X there is no regulation of EBS unless the Minister decides that an individual line has ‘significant market power’ and then uses his discretionary powers to intervene.
Have we just added to the “jungle of surcharges” as Lars Jensen from Seaintelligence describes it?
Australian Peak Shippers Association (APSA) members have responded to the shipping line announcements with frustration and cynicism. Will the lines rollback this charge once fuel prices are relieved?
If we need a new bunker mechanism that allows shipping lines to respond to fluctuations in fuel prices then that’s something that should be considered and designed with a long-term view and in collaboration with shipper interests.
What we see today can be described as reactive at best, and dangerously opportunistic at worst.
Australian Peak Shippers Association