The Federal Maritime Commission will monitor the transparency of bunker-adjustment factor formulas as the IMO low-sulfur fuel mandate looms, Chairman Michael Khouri said.
The U.S. Federal Maritime Commission is keeping track of how container carriers will manage their cost recovery with shippers as the Jan. 1 deadline looms for the mandatory use of bunker fuel with a sulfur content of 0.5%.
“We are paying particular attention to the validity and transparency of announced bunker-adjustment factor formulas,” FMC Chairman Michael Khouri told American Shipper. “Our oversight of the new low- sulfur mandate is ongoing and will extend well past January 1, 2020.”
Khouri told members of the Senate Commerce Committee during a hearing in early April that the commission will closely monitor how the container carriers recover their anticipated increasing fuel costs from shippers to ensure they do not violate the Shipping Act.
“A primary concern to the commission under the Shipping Act is whether ocean carrier bunker charge adjustment formulas are clear and definite,” Khouri told senators at the hearing.
The expectation among shippers is that their container shipping rates will rise sharply when the International Maritime Organization’s low-sulfur fuel content mandate takes effect Jan. 1. Currently, ocean carriers can burn bunker fuel in most parts of the world that has a sulfur content of 3.5%.
According to various industry analyst estimates, the low-sulfur requirement could increase ship-operating costs by one-third and add costs of $10 billion to $15 billion to the ocean carrier industry. Refineries also are scrambling to prepare to supply bunker with 0.5% sulfur content.
Ships operating in the so-called “emission control areas,” or within 200 nautical miles off the coasts of North America and parts of North Europe (including the Baltic Sea, North Sea and the English Channel), will continue to be required to burn bunker fuel with a 0.1% sulfur content.
U.K.-based consultancy MDS Transmodal Ltd. said “bunker costs per TEU are set to increase by over 50% from January 2020 as the IMO 2020 rules force global container lines to switch to more expensive low-sulfur fuels.”
For example, the firm said calculations using its online BAF calculator suggest that the switch from the commonly used bunker, known as IFO 380, to marine gas oil (MGO) for an 18,500-TEU containership on a “benchmark” Far East-Europe service would raise the bunker cost per TEU to $62 on the headhaul direction and $39 per TEU on the backhaul direction.
MDS Transmodal cautioned, however, that there are significant variations around these benchmark results depending on the service and ship size. The increase on Far East-Europe service “could be as high as $81 per headhaul TEU and $51 per backhaul TEU,” the firm said.
“This level of increase in BAFs will in itself lead to heated negotiations as shippers seek to avoid additional costs and the lines look to protect their bottom lines,” MDS added.
