Maersk’s plan for low-sulfur surcharge draws predictable rebuke from shippers

Container shippers face surcharge one year prior to actual start of new low-sulfur emissions rules.

Maersk’s (Nasdaq OMX: MAERB) move to impose surcharges for the higher costs of low-sulfur marine fuel is meeting the expected reception from customers, as one trade group calls the surcharges “unjustified and blatant profiteering.”

The British International Freight Association (BIFA), which represents the country’s forwarding and logistics industry, says the surcharges outlined by Maersk earlier this week “are very major increases, and they will be received negatively by BIFA members’ customers,” said the group’s director general Robert Keen.

“While the shipping operators may say that the new (surcharges) are needed to cover the cost of switching to (low sulfur) 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,” Keen said.

Maersk says it will introduce the bunker adjustment factor beginning next year. The shipping giant says the charge will be determined by the average price of bunker fuel in different marine hubs, along with other factors such as headhaul and backhaul cargo activity and voyage distances.

The surcharge can be anywhere from $90 to $1,050 per forty foot equivalent unit, depending on fuel prices and trade lane.

Maersk, along with other shipowners, face a UN-mandated 2020 deadline for limiting sulfur emissions from ship exhaust to 0.5% down from the 3.5% level in most marine fuel.

The route to the lower threshold involves either installing a sulfur scrubbing device, which allows the ships to burn the less expensive 3.5% fuel, or to burn 0.5% sulfur marine fuel, which is still being developed by many refineries.

Maersk is still determining which route it wants to take. A Maersk executive told Reuters it is investing in scrubbers for some ships. But the company also plans to develop a low-sulfur fueling facility in Europe.

Maersk has said it faces a nearly $2 billion increase in fuel costs associated with the switch to the 0.5% emissions cap. It is introducing the new surcharges beginning next year, a full year ahead of the deadline for the actual emissions cap. But shipowners are already wrestling with how the switch will actually work.

Shipowners are concerned about whether 0.5% sulphur fuel will be standard at all ports. In addition, millions of barrels of storage of high-sulphur fuel has to be converted to low-sulfur fuel storage, prompting concerns about cross-contamination.

While Maersk says the charge is an attempt to be transparent about the cost of the 2020 mandate, BIFA said freight rates should directly reflect those costs, with any required fluctuation being managed against that figure.

“BIFA members are now faced with the task of explaining yet another surcharge to their customers, and what the rationale behind it is. The surcharge is bound to be extremely unpopular,” Keen said.