Both companies will start using new formulas on Jan. 1 in advance of the low-sulfur exhaust mandate.
MSC and CMA CGM have published customer advisories on how they will charge for higher cost fuel in order to comply with the low-sulfur engine exhaust requirements being mandated by the International Maritime Organization (IMO) starting on Jan. 1, 2020. Both companies said they will switch to new formulas starting this Jan. 1.
Under a revision to the IMO’s International Convention for the Prevention of Pollution from Ships (MARPOL) ship operators must either utilize marine fuel will a maximum sulfur content
of 0.5 percent after January 1, 2020, down from fuel with a sulfur content of 3.5 percent commonly
used today, or equip their ships with scrubbers in order to remove
sulfur from engine exhaust. The vast majority of ships will, initially at least, have to purchase low sulfur fuel to comply with the IMO
regulation since few ships are equipped with scrubbers.
(Even stricter rules requiring use of fuel with a maximum sulfur
content of 0.1 percent will remain in place in so-called Emission
Control Areas or ECAs.) Much of the coast of North America is in an ECA as well as the Caribbean, North Sea, Baltic Sea and English Channel.
MSC’s customer advisory said its new bunker recovery charge (BRC) “will be a transparent way of segregating, and passing on, the significant operating cost MSC faces from the 2020 sulfur cap. MSC estimates the cost of the various changes it is
making to its fleet and fuel supply in order to comply with the IMO
sulfur cap will be in excess of $2 billion per year.
“We have already had to start incurring these costs to be ready for 2020,” it explained.
“We believe that it is essential to segregate transparently the burden of fuel costs in order for this cost to be passed on visibly throughout the supply chain. Passing on that cost is also vital to ensure the sustainable future of the container shipping industry,” MSC explained.
The BRC will be calculated by multiplying fuel price per ton by a trade factor coefficient equal to fuel consumption per round trip divided by the number of TEUs carried on a round trip. For reefer cargo, the BRC will be multiplied by 1.5 due to the additional cost of generating electricity to power reefer containers.
MSC said the fuel price per ton will initially be based on the monthly average cost of high sulfur fuel oil (380 CST) for each specific trade or service, but that from the fourth quarter of next year “low-sulfur fuel oil 0.5 percent may apply, in order to be ready for 2020.”
The new BRC will “reflect the true additional cost that MSC will incur as a result of the regulatory changes we all support in order to protect the environment. The BRC replaces the current bunker xontribution (BUC), fuel adjustment factor (FAD) and emergency fuel surcharge (EFS) and largely absorbs other pre-existing fuel-related charges,” said MSC.
It added that “charges specifically related to coastal emission control areas (ECAs) will remain in place.”
CMA CGM said it will also update its Bunker Adjustment Formula (BAF) on January 1, 2019 for long term contracts.
“Bunker is one of the most important costs for a container shipping line. IFO 380 price has shown strong fluctuations in the previous months,” it noted.
CMA CGM said it will use a similar formula for determining its BAF, multiplying feul price by a trade coefficient. In 2019 it said it will use a single IFO 380 reference price for all trades, based on prices at major bunkering places (50% Singapore IFO 380, 40% Rotterdam IFO 380, 10% Houston IFO 380). In 2020 it it said the reference price will be based on the cost of low sulfur fuel oil, with detail on the formula to be determined in the third quarter of 2019.
CMA said the BAF will be reviewed on a quarterly basis, with a one-month notice
CMA said the new BAF formula will be applicable only on all contracts/quotations with at least 3-month validity starting as from January 1st, 2019 and that BAF will be applied on top of freight. It said that existing 2018 contracts with BAF still valid at the time of shipment will l keep on running with the former BAF formula.
The BAF will not be applied to spot and short-term contracts and quotations with a validity of less than 3 months, but they will be subject to an emergency bunker surcharge.
CMA CGM said its trade coefficient will be equal to the round voyage consumption of fuel oil (in tons) per trade divided by number of full TEU carried. It said an imbalance adjustment will be applied on some trades to adjust for the difference in the backhaul and headhaul legs. It also said a surcharge of 20 percent will be implemented for refrigerated containers on top of the BAF for non-refrigerated containers.
MSC, CMA CGM lay out new fuel cost charges
