Bunker fuel surcharges not an option for tanker owners in glutted market


Amid surging bunker fuel costs container carriers are resorting to bunker surcharges to recover costs, but owners in the tankers market facing the same problem are finding it much more difficult to introduce similar measures because of the glut of vessels in the market.

* Container carriers introducing surcharges to offset rising bunker costs

* Charterers have the upper hand in tankers market, however

* Shipowners set to face higher operating costs as IMO 2020 rule looms

With IFO 380 CST bunker fuel prices in some ports having risen more than 40% year on year, this week has seen Japanese container carriers Ocean Network Express, or ONE, join a growing list of carriers worldwide to impose a bunker surcharge.

“ONE has encountered progressive and significant inflation of fuel costs over recent months,” it said in a statement, adding that it had been “forced to respond” by adjusting its approach to bunker related pricing components.

France’s CMA CGM has announced a $55/TEU surcharge for dry cargo, Israel-based ZIM introduced surcharges ranging from $18 to $65/TEU and the Mediterranean Shipping Company announced an undetermined surcharge in the past few weeks.

Hapag-Lloyd and Maersk have responded similarly.

“The increase in bunker price in 2018 has been significantly higher than what had been expected and has now reached a level of $440/mt in Europe, the highest since 2014,” Maersk Line said in a statement in May.

“It is no longer possible for us to recover bunker costs through the standard bunker adjustment factors,” Maersk said, adding that it was introducing an emergency bunker surcharge effective June 1 for “non-regulated corridors” and July 1 for regulated corridors. Regulated corridors include imports/exports from the US, Puerto Rico, American Samoa, Colombia and Taiwan.

While the containers shipping is opting for such bunker surcharges, the tanker industry doesn’t have much of a choice, however.

Sources in the tanker market said that such surcharges just aren’t possible in the segment given it is currently very much a “charterers market”. Owners are reeling under the pressure of high bunker prices but unable to pass them on to the charterers due to ample supply of tankers the latter can choose from.

“It is a falling [freight] market though the bunkers are still steady,” a chartering source in Tokyo said in the context of eroding earnings at a time when freight rates are not keeping pace with the higher fuel costs.

On several tanker routes the freight is governed by the Worldscale rates, for which the dollar per metric ton amount basis 100 Worldscale points is set on a calendar year basis, taking into account the bunker prices of the preceding October-to-September period.

The latest spike in bunker prices will only be reflected in next year’s Worldscale rates and until then tanker owners’ ability to pass on the higher costs to charterers will hinge on the supply and demand of tankers of various sizes.

“We are now putting up stiff resistance and not agreeing to offer ships at lower rates,” one chartering manager with a Long Range tanker owner said.

Daily earnings for owners are currently around $11,000 for LR2s and $7,000 for LR1s on the Persian Gulf-Japan routes, which is barely enough to cover operating costs, sources said. On these routes, LR2s and LR1s typically carry cargoes of around 75,000 mt and 55,000 mt respectively, though the volumes are higher for westbound voyages.

Even on those tanker routes where freight is fixed on a lumpsum basis rather than Worldscale, the excess supply has created a situation where owners have to significantly absorb the incremental costs, analysts said.


Shippers might have to brace for more surcharges as a plethora of upcoming environmental rules in shipping including the International Maritime Organization’s 2020 global sulfur limit rule for marine fuels loom.

Bunker fuel costs globally could rise by as much as $60 billion annually from 2020 if there is strict compliance with the International Maritime Organization’s 0.5% global sulfur cap, a mass shift to marine gasoil and a low uptake in scrubber technology, global consulting firm Wood Mackenzie said last year.

More recently, some industry sources forecast a differential of as much as $400/mt between 0.5% sulfur bunkers and conventional fuel oil around 2019, as the current estimates for alternatives such as LNG for bunkering use still leave the bulk of the marine fuel demand relying on LSFO and other 0.5% compliant options.

Surcharges could temper the impact of rising operating costs for shipowners, sources said.

However, “if the trajectory of rising bunker prices continues and carriers are not able to pass on costs, then slow steaming may become more popular,” said one source.

Source: Platts

Source from : hellenicshippingnews