Container Lines Battle Shippers Over Bunker Surcharges


Several of the world's largest container shipping companies have imposed emergency bunker surcharges upon their customers in the past two weeks, seeking to claw back revenues lost to rising fuel bills caused by the jump in crude prices in recent months.

France's CMA CGM announced a $55/TEU surcharge for dry cargo, Israel-based ZIM introduced surcharges ranging from $18-$65/TEU and the Mediterranean Shipping Company (MSC) announced an undetermined surcharge. Hapag-Lloyd and Maersk are reported to have made similar announcements to their customers.

Rising fuel bills driven by a 16 percent jump in Brent crude since the start of this year have come after a period of intense competition between container lines which drove down box rates, and the shipping companies are now struggling to recover their costs. But their customers have reacted sharply to the imposition of emergency surcharges, arguing their existing arrangements already account for variations in bunker prices.

"The use of emergency surcharges is a none-too-subtle attempt to impose non-negotiable charges on customers," Chris Welsh, secretary general of the Global Shippers' Forum, said this week. "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."

The container lines typically allow for changes in fuel costs in their contracts with the bunker adjustment factor (BAF), a floating rate that rises and falls with bunker price assessments at key ports along their routes. Some of their customers have seen the additional emergency surcharges announced in May as an arbitrary cost imposed as a means of improving shipping companies' balance sheets after a disappointing first quarter.

"I have sympathy for the carriers' challenges, but refer to the agreements we and many other beneficial cargo owners have only very recently entered into, both parties with eyes wide open," Bjorg Vang Jensen, vice president for global logistics at home appliance manufacturers Electrolux, said this week. "These agreements include specific clauses around bunker prices, and we expect that the carriers will respect those."

"There is a risk attached to doing business, which we accept, and which we expect that our suppliers accept too," he added.

The Platts North Asia-North Continent container assessment stands at $1,300/FEU as of May 31, at the same level as at the end of last year and down by 27.8 percent since the assessment was launched in July 2017. But over the same period high sulfur 380 cst delivered fuel oil prices at Rotterdam have jumped by 21.6 percent and 51.9 percent, respectively.

This discrepancy is already showing up in the shipping companies' reported results. Maersk's Ocean segment reported its average bunker price rose by 19.4 percent in the first quarter from the same period a year earlier, while average freight rates climbed by just seven percent.

Hapag-Lloyd said its bunker price advanced by 18.8 percent, and freight rates slipped by 2.6 percent. CMA CGM said unit bunker costs jumped by 17 percent, while revenue per container gained 1.7 percent.

"The situation is no longer sustainable without emergency action," MSC said in a notice to customers announcing its emergency surcharge on May 21. "This last-resort measure is essential to ensure that we navigate these challenging economic conditions in a steady and sustainable way."