Emergency bunker surcharges announced by several leading liner shipping companies in reaction to rising fuel costs have drawn sharp criticism by the Global Shippers Forum, which said they were imposed “almost in unison. In most cases, these emergency surcharges are imposed on top of existing bunker surcharges.”
GSF “believes this move is an indictment on the liner shipping industry,” it said, adding, “Few transport operators in other transport sectors would risk imposing such short-notice emergency surcharges because of the likely strong reaction from customers, including the loss of business.
“A decade since the abolition of the liner conference system in October 2008, the container industry is still using conference-style pricing methods to impose surcharges on its customers,” GSF said.
Maersk, MS and CMA CGM all introduced new bunker surcharges last week. Hapag Lloyd issued a notice Wednesday adjusting bunker charges on July 1 on trades to and from East Asia, Australia, New Zealand and some other trades.
Shipper organizations around the world, including the National Industrial Transportation League in the United States and Freight Management Association of Canada, are members of FTA.
“Containership operators need to ‘fess up’ by taking responsibility and greater control of their costs, rather than announcing vaguely explained short-notice unrecoverable surcharge costs on customers,” said Chris Welsh, secretary general of GSF.
But Maersk last week explained “The increase in bunker price in the first quarters of 2018 has been more than 20 percent compared to the beginning of the year, reaching the highest level since 2014. This unexpected development means it is currently not possible for Maersk Line to recover bunker costs through the standard bunker adjustment factors (or SBF).”
MSC said, “The continued surge in bunker prices has greatly impacted the operating environment for container shipping lines. With crude oil today hovering around $80 a barrel — the highest since 2014 — the situation is no longer sustainable without emergency action.”
MSC said its was introducing a worldwide temporary emergency bunker surcharge on all ocean and land-based cargo carriage with immediate effect, adding, “This last-resort measure is essential to ensure that we navigate these challenging economic conditions in a steady and sustainable way and continue to provide a high quality of service to all our customers.”
The website Ship and Bunker says the average price of IFO 380 bunker fuel at four leading bunkering ports (Singapore, Rotterdam, Fujairah and Houston, which its says account for about 25 percent of global bunker volumes) on Monday was $442.50. per metric ton. That’s down $13 per metric ton from May 22, but up a whopping $140 per metric ton from where it was on May 30, 2017.
But Welsh said that “it is incumbent on container carriers to provide their customers with full transparency regarding bunker surcharge costs and to explain why an emergency surcharge is warranted on top of existing bunker surcharge mechanisms. Shippers will also want to know what steps have been taken to mitigate the impacts of rising fuel prices, including the impacts of fuel hedging arrangements which are designed to manage the risks associated with the single largest cost component of operating container ships.
“The imposition of emergency surcharges has no place in a modern liner shipping market where costs and prices should be mutually agreed between customers and suppliers, preferably in mutually agreed service contracts,” he contended. “Such arrangements enable the parties to build long-term business partnerships as well as providing clarity on the terms and conditions for the services provided and for appropriate remuneration.
“The use of emergency surcharges is a none-too-subtle attempt to impose non-negotiable charges on customers. The liner industry needs to employ more appropriate pricing arrangements, in conjunction with its customers, if it is serious about developing partnership approaches and improving individual customer-supplier relationships,” Welsh said.
In an article posted on Linkedin on Monday Bjorn Vang Jensen, vice president of Global Logistics at Electrolux, wrote, “I have sympathy for the carriers’ challenges, but refer to the agreements we and many other BCOs have only very recently entered into, both parties with eyes wide open. These agreements include specific clauses around bunker prices, and we expect that the carriers will respect those.
“Prices of steel, chemicals and freight have risen substantially in our industry over the last 12 months, and in some cases even dramatically, as anyone who reads our published financial reports will know,” he added. “But we have neither a ‘Steel Adjustment Factor’ nor a ‘Chemicals Arbitrary’ or a ‘Freight Increase Surcharge’ in our contracts with our customers. There is a risk attached to doing business, which we accept, and which we expect that our suppliers accept too. No matter whether they supply steel, gaskets, wire harnesses, compressors, circuit boards, switches, finished products — or freight.”