Transpacific carriers sharply increasing low-sulfur fuel surcharge

TSA says it will increase surcharge to reflect high cost of low-sulfur fuel, but give shippers a break to reflect bigger ships, slow steaming.    The low-sulfur surcharge on containerized cargo moving from Asia to the U.S. will more than triple on Jan. 1, the Transpacific Stabilization Agreement said Tuesday, but shippers will benefit from changes to the discussion agreement’s bunker formula that will reflect the use of larger, more efficient ships.
   The TSA, which counts 15 companies that move more than 90 percent of transpacific freight as members, said shippers with cargo moving from Asia to the U.S. can expect initial low-sulfur surcharges of $67 and $53 per 40-foot container for the East and West Coasts respectively, versus $17 and $16 at present.
   Going forward, TSA said the charge will be adjusted quarterly based on a 13-week average of weekly prices. Charges for 20-foot containers will be assessed at 90 percent of the 40-foot container price.
   TSA said its members face an average of $365 per ton low-sulfur fuel price differential at the beginning of 2015 as environmental rules mandate a shift to cleaner marine gas oil (MGO) within North American coastal waters.
   Starting Jan. 1, the International Maritime Organization’s MARPOL convention and U.S. law requires ships operating within 200 miles of the coast of North America (the so-called emission control area or ECA) to use fuel with no more than 0.1-percent sulfur compared to today’s 1-percent sulfur allowance.
   The website Ship & Bunker indicated Tuesday morning that in Los Angeles, the price of IFO 380 bunker fuel, which has a sulfur content of less than 3.5 percent, was $502.50 per ton; low sulfur 380 bunker fuel, with less than 1-percent sulfur, was $761 per ton; and marine gas oil, which has less than 0.1-percent sulfur, was $867 per ton.
   The TSA said the modification of its surcharge reflects both the higher per-ton MGO fuel cost differential versus low-sulfur fuel currently in use, and revised fleet characteristics such as vessel size, speed and effective capacity; MGO consumption rates; sailing time within the coastal zone, and other factors.
   “As in 2012, when we first established the component, carriers are again exposed to a sudden, dramatic increase in fuel costs that they cannot possibly absorb,” explained TSA Executive Administrator Brian Conrad. “Serious questions remain as to whether an overnight surge in demand for a relatively scarce fuel will be fully met and what a ramp-up on this scale will mean initially for prices. Recent estimates suggest added annual cost per carrier in the hundreds of millions of dollars, so it is critical in the current environment that lines act quickly to mitigate such a large impact.”
   Conrad said that contracts that have the current low-sulfur component folded into the overall bunker charge will be phased out as new 2015-16 service contracts are negotiated in favor of a separate low-sulfur charge that is intended to fully take effect when the new contacts begin on May 1, 2015.
   He said that between January and May transition period, TSA lines will assess either a modified low-sulfur component folded into the overall bunker charge, or a separate charge, depending on the terms of existing contracts and individual customer negotiations.
   Separately, and to the benefit of shippers, TSA says it is “modifying its basic bunker charge formula to reflect the use of larger, more fuel-efficient ships with increased effective capacity entering the trade; longer transit times and different consumption rates as a result of slow steaming; routing and schedule adjustments created by vessel-sharing alliances; and other factors. These differences primarily affect the price sensitivity for each $20 movement up or down in the average fuel price, which, in turn, will also result in some adjustments to the basic charge matrix.”
   TSA said “for example, the Q4 2014 bunker charge now in place of $510 per FEU to the West Coast and $969 to the East Coast would be $501 and $957 with the planned revisions. As with the low-sulfur charge, 20-foot container rates will be set at 90 percent of FEU levels.”