TSA Members Revise Low-Sulfur Fuel Charge
Asia-U.S. container shipping lines in the Transpacific Stabilization Agreement (TSA) have revised their recommended low-sulfur fuel charge to recover the added cost.
According to TSA the container lines are facing an average USD 365 per ton low-sulfur fuel price differential at the beginning of 2015 as environmental rules mandate a shift to cleaner marine gas oil (MGO) within North American coastal waters.
Application of the new formula will take effect January 1, 2015.
TSA said that shippers with cargo moving from Asia to the U.S. can expect initial charges of USD 67 and USD 53 per 40-foot container (FEU) for the East and West Coasts respectively, versus USD 17 and USD 16 at present. Going forward, the charge will be adjusted quarterly based on a 13-week average of weekly prices. Charges for 20-foot containers (TEU) will be assessed at 90% of FEU levels.
In September TSA announced plans to establish a new formula in conjunction with its 2015 revenue and cost recovery program. Modifications reflect both the higher per-ton MGO fuel cost differential versus low-sulfur fuel currently in use, and revised fleet characteristics such as vessel size, speed and effective capacity; MGO consumption rates; sailing time within the coastal zone, and other factors.
“In the absence of firm loading prices for MGO in Asia, the new formula will base its East and West Coast charges on weekly loading prices for New York and Los Angeles, respectively, as posted by Bunkerworld,” the association said.
“As in 2012 when we first established the component, carriers are again exposed to a sudden, dramatic increase in fuel costs that they cannot possibly absorb,” explained TSA executive administrator Brian Conrad.
“Serious questions remain as to whether an overnight surge in demand for a relatively scarce fuel will be fully met and what a ramp-up on this scale will mean initially for prices. Recent estimates suggest added annual cost per carrier in the hundreds of millions of dollars, so it is critical in the current environment that lines act quickly to mitigate such a large impact.”
Conrad noted that for contracts where the current low-sulfur component is now folded into the overall bunker charge, this will be phased out as new 2015-16 service contracts are negotiated, in favor of a separate low-sulfur charge that is intended to fully take effect when the new contacts begin on May 1, 2015.
During the January-May transition period, TSA lines will assess either a modified low-sulfur component folded into the overall bunker charge, or a separate charge, depending on the terms of existing contracts and individual customer negotiations.
International MARPOL Annex VI rules limiting sulfur oxide (SOx) vessel emissions to 1% were extended to the 200-mile North American coastal zone in 2011, and TSA member lines have since imposed a low-sulfur component to their existing bunker fuel charge.
That component measures the added cost of burning more expensive low-sulfur fuel for the portion of a typical sailing spent within coastal waters. MARPOL rules lower the cap on SOx emissions to 0.1%, effective January 1, 2015, requiring the switch to still more expensive MGO and, in some cases, additional retrofitting of vessels for segregated storage of the fuel.
In a separate action, TSA has modified its basic bunker charge formula, as with the new low-sulfur charge, to reflect larger, more fuel-efficient ships with increased effective capacity entering the trade; longer transit times and different consumption rates as a result of slow steaming; routing and schedule adjustments created by vessel-sharing alliances, and other factors.
These differences primarily affect the price sensitivity for each $20 movement up or down in the average fuel price, which in turn will also result in some adjustments to the basic charge matrix. For example, the Q4 2014 bunker charge now in place of $510 per FEU to the West Coast and $969 to the East Coast would be $501 and $957 with the planned revisions. As with the low-sulfur charge, 20-foot container rates will be set at 90% of FEU levels.