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Friday, 08 June 2018

Call for Long-term Solution for Emergency Bunker Surcharges

A more transparent and long-term solution for implementing emergency bunker surcharges is required, according to 100 percent online freight forwarder iContainers.

To date, Maersk, MSC, and CMA CGM have said they will be introducing the surcharges due to increasing fuel costs. Together, they make up more than 45 percent of the global container capacity. Maersk claims the 20 percent increase in bunker prices in Europe since the start of the year has made it impossible for them to cover their costs through standard bunker adjustment factors.

According to iContainers, the trickle-down cost, while frustrating for shippers, is a fair move by the shipping lines. "The emergency bunker surcharge is a result of market movements. At the end of the day, it's fair for carriers to pass this additional cost on to their clients, since it's a cost that they do not control and can change drastically depending on factors that they have absolutely no influence over," says Klaus Lysdal, vice president of operations at iContainers.

Naturally, the move has prompted backlash from shippers, some of whom claim liners should be taking more responsibility for the increase in cost. There may be others, however, who would much rather face the anticipated price hike than risk other adjustments, says iContainers.

"The exasperation felt by shippers is completely understandable and natural. But despite the backlash, I reckon some shippers would prefer to pay a little more overall and have fewer surprises come into their supply chains such as changes to rates and services," says Lysdal.

The carriers have already begun implementing the surcharge this week on several trade lanes, while FMC-controlled trade lanes get a 30-day cushion and will come into effect on July 1. Lysdal says this method of implementation and its standalone nature are stark improvements to the kind of transparency the industry was experiencing before.

"To a certain extent, the emergency bunker surcharge now stands out as an independent surcharge as more and more carriers improve their rates transparency. Several carriers have already cut back greatly on the different types of charges they work with. In fact, just a few years ago, several carriers admitted having so many line charges that it was getting hard even for them to keep up," said Lysdal.

"As it stands, some operate with a basic fuel cost that's included into the total freight charge. But with such a policy, carriers take a calculated risk with gains and losses dependent on actual fuel prices and the cost they decide to build into their rates."

The surcharge may be seen as a side effect of some carriers' efforts to inject more pricing transparency, but iContainers says a better and more sustainable solution will be needed in the long run.

"There is room for improvement in the way it's communicated to the clients. A more transparent way of managing pricing with the clients may be a good workaround to dim the opacity," says Lysdal. "The cost is there, and they have to make a call to recover what they would otherwise lose from it. But hopefully the liners can create a mechanism that's just to all parties sooner rather than later."

June 5, 2018 by Maritime-Executive

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