IMO 2020 fuel surcharges push container rates higher
This is a crucial time for container lines. Their future financial health relies upon whether or not they can pass along new fuel costs to cargo shippers.
Only three weeks remain until the IMO 2020 regulation takes effect. On Jan. 1, all vessels without exhaust-gas scrubbers will have to switch from cheaper 3.5% sulfur fuel to more expensive 0.1-0.5% sulfur fuel.
In the case of larger container ships doing long-haul routes, that transition has almost certainly already occurred (to prevent a ship from still carrying 3.5% sulfur fuel in mid-voyage on the deadline day).
Container lines implemented their IMO 2020 surcharges on Dec. 1. The Freightos Baltic Daily Index tracks the price to ship 40-foot-equivalent (FEU) boxes along various routes. If higher fuel costs are being passed along, the index levels should have bumped up, not just piecemeal, but across all major lanes.
The good news for container lines is that the fuel surcharges appear to be working. The caveat is that it’s still very early days....MORESo, container carriers think they have a chance. How about bulk carriers?
A deep dive published four hours ago:
What happens when IMO 2020 collides with cargo slump?
What’s going on in dry bulk, the world’s largest transport market by volume, is a cautionary tale for all ocean segments.
The Jan. 1 implementation of IMO 2020, the global switch to low-sulfur marine fuel, is coinciding with a seasonal cargo-demand slump. Because bulker owners and operators must pay for the fuel in spot contracts, they’re netting even less as they’re having to cover the incremental cost of IMO 2020-compliant fuel.
In the spot market for “workhorse” Capesizes (bulkers with capacity of around 180,000 deadweight tons), vessel interests do not have enough negotiating power to pass along any of the costs of more expensive low-sulfur fuel to cargo interests.
As Breakwave Advisors said in its latest market report, “Charterers have managed to hold voyage levels steady regardless of IMO 2020. Despite significantly higher fuel prices as a result of the IMO 2020 transition, voyage rates failed to adjust upwards as a number of market participants anticipated, signifying a major win for dry bulk charterers.”
Breakwave Advisors added, “The Capesize dry bulk market is dominated by four to five major charterers, and as such, the pricing power of the hundreds of shipowners diminishes during relatively weak periods.”
Platts’ dual indices
S&P Global Platts is offering one of the clearest views on what’s going on in dry bulk vis-à-vis IMO 2020.
On Oct. 1, Platts debuted its CapeT4 Index, a weighted average of assessments of four Capesize round-trip voyages. On Nov. 1, Platts debuted dual CapeT4 indices, one for ships burning more expensive IMO 2020-compliant 0.5% sulfur fuel known as very low sulfur fuel oil (VLSFO) and one for ships equipped with exhaust-gas scrubbers that are still allowed to burn the cheaper traditional 3.5% sulfur heavy fuel oil (HFO).
Platts derives its index values by starting with the spot rate, charged in dollars per tons of cargo, then translating that into a time-charter-equivalent (TCE) rate measured in dollars per day, which is net of expenses such as fuel. As the cost of fuel increases, spot TCE decreases.
In response to a request from FreightWaves, Platts provided all of the data for its dual CapeT4 indices and the main component indices for the IMO 2020 transition period.
TCE rates for Capesizes consuming HFO (i.e., those with scrubbers after Jan. 1) have fallen from a recent peak of $32,368 per day on Dec. 3, 2019, to $15,558 per day on Jan. 9, a decline of 52%.
Over the same period, the spread between HFO and VLSFO has widened, with Platts’ assessment of the implied premium a Capesize owner must pay for compliant fuel rising from $8,810 per day on Dec. 3, 2019, to $10,928 on Jan. 9, an increase of 24%.Previously:
Ships without scrubbers were burning HFO before Jan. 1 and VLSFO after. As a result of the fuel transition and the widening fuel spread, their implied TCE rate, according to the Platts CapeT4 index, fell from $32,368 per day burning HFO on Dec. 3, 2019, to $4,630 per day burning VLSFO on Jan. 9, a decline of 86% over the IMO 2020 transition period....MUCH MORE
October 6, 2019
Shipping: "Platts poised to take on Baltic Exchange in dry freight futures"
And today:
Shipping: Container and Bulk Lines Meeting Resistance To IMO 2020 Fuel Surcharges
Shipping: Japan's K-Line Says: "We Can’t Reach IMO’s 2030 Targets by Simply Switching to LNG Fuel"
