Low-sulfur fuel cost uncertainty weighs on shippers and carriers

Dive Brief:

Ocean carriers have failed to provide enough clarity over the low-sulfur fuel surcharges the industry will face as early as 2019, shippers said in a recent survey for Drewry Maritime Consultants.
Despite media attention on the issue, 33% of shippers said they had either poor or very poor awareness of the regulation driving upcoming low-sulfur fuel surcharges. Only one in 10 shippers, meanwhile, had conducted a cost impact assessment.
"The level of uncertainty today as to the total cost impact is so large that nobody is able to provide a confident forecast of the cost of compliance," Drewry said in a press release. "The only certainty is that the extra cost will run into billions of dollars come 2020."

Dive Insight:

Ocean carriers are sounding the alarm of the high costs they will incur due to new environmental regulations set to go into effect in 2020, but the survey shows the noise is not reaching shippers — yet.

Carriers and shippers are barely beginning their budget preparations for 2019, and the new low-sulfur regulations are but a line item in a long laundry list of risks to consider next year.

However, recent announcements suggest this issue is set to be especially controversial as carriers cannot afford to shoulder the cost.

Hapag-Lloyd, which recently announced a "Marine Fuel Recovery" surcharge mechanism, said it expects the transition will cost the company $1 billion in the first year. (The group posted 32.1 million Euros, or $36.8 million, of profit in all of 2017). Other carriers have cited figures closer to $2 billion in costs.

Shippers are not content with the "unilateral" mechanisms carriers are using to make up the costs of transitioning to low-sulfur fuel. The lack of negotiations and mechanisms that favor fluctuation, they say, do not allow for accurate forecasting or budgeting to reasonably take on the additional costs.

But someone has to pay for the changes. After all, the regulations are mandatory and — according to a recent United Nations report warning the world has just 12 years to get climate change under control — essential.