The European Shipper’s Council (ESC) has written to the European Commission claiming that the implementation of emergency bunkers surcharge by the largest container shipping lines were “unjustified”. Despite the rise of oil prices during the last month, ESC claims it cannot be associated to an emergency and that “the application of such emergency surcharges should be reserved for events that can’t be foreseen”.
Adding to “oil price fluctuations, up or down, had been frequently happening in the past years and no negative surcharge was applied when the barrel of oil went down to 40 US$ some time ago.”
(Read and download the ESC letter: ESC letter to the EC)
Ocean carriers who are looking forward to applying this Emergency Bunker Surcharge claim that there is no reason to absorb such additional costs knowing most of the BCO’s contracts offer limited opportunities for pricing fluctuations.
So, is the bunker surcharge due to one of these specific events that can’t be foreseen? Or is the barrel of oil price going up in a consistent way?
As reported on shipandbunker.com , the IFO 380 average bunker fuel prices for the Global Top 20 Ports moved from 372$/metric ton on March 9th, 2018 to 446$/mt on June 18th, 2018, a +19.9% increase. However, the trend shows a smooth but steady increase since summer 2017 (315$/mt on August 17th , 2017, a +18,3% from this date up to March 9th, 2018).
This short-term discussion of “justified” or “unjustified” emergency bunker surcharges could hide a more complex situation.
Although the container shipping industry financial recovery is underway since 2017 driven by strong consumer demand, increased freight rates, new carriers alliances and better operating cost control, it is uncertain financial performance will remain sustainable due to geo-political unexpected events such as the possible US-China trade war. As 78 mega ships are also due to come online on the Asia-Europe trade within the next 2 years, there are expectations that cost control could be further improved – economies of scale and reduced transportation costs. However, due to the global economic climate and the potential impact on international trade of Donald Trump’s threats to impose increased tariffs on goods from China but also Europe, Canada or Mexico, the ocean carrier’s financial recovery remain fragile. And shipping is capital-intensive industry, heavily dependent on debt financing. Mega-ships coming on the market mean further investments were made – mostly financed by debt – in the wake of higher interest rates as shown by the 3-month LIBOR index: +0.54% in December 2017, +1.61% in December 2017 but +2.35% at the end of April 2018. The most exposed ocean carriers to financial hits could be the high level of debt ones. Is the Hanjin syndrome still on?
The emergency bunker surcharge could well not be the real upcoming issue on the shipping market.
When you can’t see the wood for the trees…
