2020 — Who pays?

Malcolm Latarche
Malcolm Latarche
ShipInsight

18 October 2018


Over the last few weeks there have been several announcements – mostly by liner operators about the need to cover the cost of compliance with the 2020 fuel regulations. Joining in the debate, shippers have complained about the way some of the operators seem intent on recouping the inevitable additional cost.

Three of the major container line operators – Maersk, MSC and CMA CGM – seem to have upset their customers who through a press release by the European Shippers Council have said “A new bunker adjustment factor launched by Maersk aims at covering additional costs that will arise from the upcoming global sulphur regulations.

Empty Wallet

Carriers impose it unilaterally without any negotiation with shippers and ignore a market approach to the global problem. MSC and CMA CGM have recently announced plans that follow the same direction. This does not set an ideal cooperation scenario”.

The ESC believes that the imposition of bunker adjustment factors – something that was less controversial when all ships relied upon basically the same type of fuel – under the current circumstances lacks transparency and have called for more negotiation over the issue.

To some degree, the shippers do have a point. Competition among liner operators has always been fierce but there has also been an element of price fixing collusion between lines that was hard to prove when most were operating more or less similar ships on similar routes.

From 2020 – or perhaps even earlier – that will change as some operators will sail with compliant low sulphur oils, some will be running on LNG and others still continuing with HSFO and scrubbers. Determining an appropriate freight rate, especially if one operator is making use of two or more of the alternatives, is not going to be easy. Is it any wonder therefore that shippers are beginning to suspect that the line operators are working to increase freight rates by stealth beyond just covering their additional costs?

For ships running on low sulphur fuels the calculation is pretty simple but over what period should the capital cost of an LNG or dual fuel installation or installation of a scrubber be recuperated? It is very likely that the whole life costs of equipment and fuel will vary considerably between the three alternatives with those using scrubbers also possibly subject to future additional costs if wash water rules change.

Because how the cost of fuel changes after 2020 is an unknown, which strategy gives the best competitive advantage is almost impossible to predict at this moment. But shipowners do need to make plans. If expensive equipment is part of their strategy, owners must start early to build up funds to cover at least part of the cost even if shippers may believe otherwise.

In the long run of course it will be the ordinary man in the street that will bear the cost as first ship operators and then shippers pass the additional costs along the line. The same will be true for the cost of meeting the decarbonisation ambitions now being discussed at the IMO.

That is fair if you follow the argument that the SOx rules and decarbonisation are being undertaken for the benefit of the world population, their health and the planet we all live on, but you cannot help wondering how much longer they will be able to bear shelling out more and more for all of life’s essentials and luxuries. Some believe that the point is rapidly approaching when the man in the street says no more.