The company will begin employing the “marine fuel recovery” charge on Jan. 1, but the full effect will not be felt until late next year.
Hapag-Lloyd has joined several other large shipping companies in outlining plans for a revised fuel surcharge in advance of the International Maritime Organization’s global cap on the sulfur content of marine fuel, due to go into effect on Jan. 1, 2020.
Like Maersk and Mediterranean Shipping Co., Hapag-Lloyd said it will begin using the new formula to determine the marine fuel recovery (MFR) charge a year early, on Jan. 1, 2019, so that shippers can become accustomed to how it is calculated. But since the company won’t generally start using low-sulfur fuel globally until late in 2019, the full impact of the IMO mandate will not be felt until then.
The new MFR will be calculated by multiplying the average price that Hapag-Lloyd pays for fuel globally by a factor that adjusts for the average size ships utilized in individual trades, their average speeds, how much time they spend under way or in port, as well as average utilization of ships.
Unlike Maersk, Hapag-Lloyd said its MFR will be the same on headhaul and backhaul legs of services.
“With our new marine fuel recovery mechanism, we have developed a system for our customers that we think is fair, as it allows for a causal, transparent and easy-to-understand calculation of fuel costs,” said Hapag-Lloyd.
It said the MFR will be reviewed quarterly — or monthly if fuel price fluctuations are above $45 per tonne.
When the cap kicks in on Jan. 1, 2020, shipowners will either have to power their vessels globally with fuel with less than 0.5 percent sulfur or equip their ships with scrubbers to remove sulfur oxides from engine exhaust. (Carriers will have to continue to use, as they do today, even cleaner fuel with a maximum sulfur content of 0.1 percent in so-called emission control areas, for example, within 200 miles along much of the coast of the United States and Canada. And a small number of shipowners are planning to repower their ships with liquefied natural gas, but that requires expensive modification to ships and new fueling facilities, which have not been built in most ports.)
Hapag-Lloyd said while it will test at least two ships with scrubbers in 2019 and operate another ship with LNG, “Using low-sulfur fuel oil will be the key solution for the shipping industry and Hapag-Lloyd to remain compliant. Furthermore, it is the most environmentally friendly solution in the short term.”
The same MFR will be imposed even if a Hapag-Lloyd customer’s cargo moves on one of those ships equipped with a scrubber or is powered with LNG, since the cost of installing that equipment also must be recovered.
Meeting the IMO requirements “will entail a radical transformation for the entire shipping industry,” the company said. “However, the good news in this is that the regulation will make the industry greener. For this reason, Hapag-Lloyd welcomes the new regulation and views it as an important step towards setting uniform standards that will benefit both, the environment and people.”
Hapag-Lloyd said it estimates its fuel costs will rise by about $1 billion per year in 2020 when the new IMO regulation goes into effect. That’s based on the assumption the price difference between high-sulfur fuel oil, which can contain as much as 3.5 percent sulfur, and low-sulfur fuel oil, with a sulfur content of 0.5 percent or less, is assumed to be $250 per tonne.
