Dive Brief:

• Increased IMO 2020-compliant fuel costs, overcapacity exacerbated by the novel coronavirus and ongoing trade challenges could drive up costs for ocean shippers in 2020, according to AlixPartners' 2020 Global Container Shipping Report.
• Shippers should be aware that carriers' ability to survive current market conditions will depend on whether they can successfully pass on price increases, the report found.
• The uncertain market conditions grant shippers leverage to push for improved price transparency as carriers work to balance their books this year, AlixPartners said. "[Shippers] should expect increases in their fuel adjustment charges or all-in rates," the report reads. "They should also be mindful of the rising risk of carrier bankruptcies."

Dive Insight:

"I could see shippers delaying decision making, because of the uncertainty related to everything that's going on," Marc Iampieri, a managing director in the transportation and infrastructure practice at AlixPartners, said of the COVID-19 outbreak and volatile spot rates in an interview with Supply Chain Dive. "And so that obviously will impact how the pricing transparency comes into play, but it's all moot if there's no contracts negotiations going on, or if people aren't signing."

Some carriers are trying to keep costs in check by using cheaper, higher-sulfur intermediate fuel oil (IFO) and scrubbers while converting other ships to low-sulfur fuel oil (LSFO) to remain IMO 2020-compliant. But this mixed approach to fuel sourcing makes assessing consumption "nearly impossible" and can make it harder to analyze bunker adjustment factor (BAF) differentials between carriers, according to AlixPartners.

For example, after IMO 2020 was implemented, BAFs per 40 foot high cube on Asia to U.S. East Coast routes increased by 15% to 40% in Q1 2020 depending on the carrier, research from Drewry found.

While these costs can bite into a shipper's bottom line, the revenue can be a lifeline for struggling carriers, another factor AlixPartners believes could be a challenge in 2020.

As LSFO prices remain higher than traditional fuels and overcapacity remains a challenge, the report sees the risk of carrier bankruptcies increasing as these factors put pressure on the debt and profitability struggles already plaguing the industry. The report cautions shippers to "assess the viability of individual carriers and consider spreading their business among several lines" to avoid disruption.

However, given the unpredictability of the COVID-19 outbreak and its impact on the global economy throughout the remainder of the year, Iampieri recommends shippers don't hold off too long on contracts despite current pricing volatility.

"This is something that could reverse itself and you want to make sure that you're in good standing and are operating in good faith," he said. "Now it's tough for the carriers given where the market is [but] if I'm starting to pick up in the summer, you don't want to be the one shipper that was extremely tough in the contract negotiations now."