Hapag-Lloyd unveils 2020 fuel surcharges, but shippers still not clear on low-sulfur fuel costs

A Hapag-Lloyd containership in the Port of Savanna (Photo: Iryna Liveoak / Shutterstock.com)

Latest round of fuel surcharges aimed at guiding expectations on IMO 2020 costs.

Hapag-Lloyd (XETRA: HLAG) laid out its fuel surcharge formula for low-sulfur marine fuel, joining other ocean carriers in readying for the global switch in 2020.

But a majority of shippers and cargo owners say the cost recovery efforts lack transparency and are not fair, according to a survey from shipping consultancy Drewry.

The fifth largest ocean carrier by tonnage, Hapag-Lloyd said the requirement from the International Maritime Organization that global shipping lines will have to limit fuel sulfur emissions to 0.5% from the current 3.5% limit sulfur will cost the industry $60 billion in added expenses.

Hapag-Lloyd says it expects $1 billion in higher costs in the first few years of the 2020 mandate, based on the assumption of a $250 per ton spread in the price of low- and high-sulfur marine fuel.

Futures prices on the Intercontinental Exchange put the price spread between low-sulfur fuel and 3.5% marine fuel at $359 per ton for December 2019 delivery.

Rolf Habben Jansen, chief executive of Hapag-Lloyd says the company welcomes the environmental improvements of low-sulfur fuel, “but it is obvious that this is not for free and will create additional costs.”

“This will be mainly reflected in the fuel bills for low-sulfur fuel oil, as there is no realistic alternative for the industry remaining compliant by 2020,” he added.

Hapag-Lloyd said its formula for the surcharge takes into account fuel consumption per day, fuel type and fuel prices at sea and total containers carried. “Overall, it aims for transparent calculation of costs,” the carrier said.

The list of new surcharges come four weeks after Maersk (Nasdaq OMX: MAER.B) introduced its own surcharge formula for the 2020 switchover.

The ocean carriers have started introducing the surcharges well ahead of implementation so shippers can be prepared. But shipping consultancy Drewry questions whether those efforts are having any effect yet.

The results of a survey of 106 shippers and freight forwarders show that 56% of them do not consider the ocean carriers existing approaches to fuel recovery surcharges “as either fair or transparent.” About 80% of the respondents say they have not received clarity from the ocean carriers on how they plan to meet the 2020 goal.

“The IMO low-sulfur rule change represents a very significant, industry-wide, change event which will likely have far reaching effects on the global shipping industry for many years to come”, said Philip Damas, head of Drewry’s supply chain research. “There is a need for carriers to address the transparency concerns expressed by their customers.”