Ocean freight customers face significant fuel price rise next month
Shippers and forwarders are preparing to help carriers cover the extra cost of next year’s low-sulphur fuel, including some customers on annual contracts also being asked to start paying an IMO BAF from 1 December, reports Drewry.
Shippers and freight forwarders are preparing to help carriers cover the extra cost of next year’s cleaner, low-sulphur fuel from next month, for which prices look set to be around 34-38% higher than the level paid for the current IFO 380 (intermediate fuel oil) fuel. And although transitional or ‘emergency’ bunker charges were only expected to apply to spot rates and to contracts of less than three months, customers with annual contracts have also been requested by some carriers to start paying an IMO BAF from 1 December, container shipping analyst Drewry noted.
Philip Damas, director of Drewry Supply Chain Advisors, noted that with the enforcement date of the IMO 2020 low-sulphur regulation now only six weeks away, “shippers and forwarders are starting to get their cheque-books out to help ocean carriers cover the additional cost of the cleaner, low-sulphur fuel”.
He highlighted that on 4 December, Drewry will publish its first Bunker Adjustment Factor reference price, based on low-sulphur fuel and in line with its independent BAF indexing mechanism. Using this mechanism, the bunker reference price will change from the previous high-sulphur IFO 380 fuel to the new low-sulphur fuel and affect the new BAFs with effect from January, it noted.
Examining what the numbers are likely to look like, he noted that since early October, the weighted average low-sulphur bunker price for major bunkering ports tracked by Drewry has been $542 per metric tonne, adding: “So, assuming prices stay at about that level in the next two weeks, the Drewry bunker reference price for the period October-November will be around $530-550, up about 34-38% from the $396 price of IFO 380 fuel at the same bunkering ports applicable to the 4Q19 period.”
Drewry recommends that shippers and forwarders use the average October-November low-sulphur price to set new BAF charges applicable from 1 January 2020, noting that several carriers have announced transitional or ‘emergency’ bunker charges applicable from 1 December 2019.
“These will apply, they say, only to spot rates and to contracts of less than three months, but a Drewry customer with an annual contract has also been requested by some of his carriers to start paying an IMO BAF from 1 December,” Damas highlighted.
“To benchmark BAFs confidentially by trade lane, many BCOs are using the Drewry Benchmarking Club. It will be interesting to see whether the agreed contract BAFs go up pro rata the bunker prices, as stipulated by the Drewry BAF indexing mechanism, and whether some carriers end up reducing their base rates and charge the ‘full BAF’ in their next contracts.
“Shippers should continue to watch this topic very closely in 2020.”
Source: Lloyds Loading List