Several of the world’s top shipping lines have announced they will be imposing Emergency Bunker Surcharges (EBS) in response to rising fuel costs in recent months. These include the three-largest carriers Maersk, MSC, and CMA CGM, whose total box capacities make up over 45% of the global market.
The latest round of EBS have already come into effect (from 1 June) on several trade lanes around the world, whereas FMC-controlled routes get a 30-day cushion and will come into effect on 1 July.
The EBS is different from the Bunker Adjustment Factor, also known as BAF, in the nature of the two elements. The BAF covers the fluctuating fuel costs of a freight shipment and is often made known in advance. The EBS, on the other hand, is an emergency cost to cover any unanticipated rise in bunker prices, usually introduced at the last minute.
EBS prices vary first and foremost according to the increase in fuel rates. But depending on the type of container and trade lane, the EBS may also vary, since carriers can decide to implement it only on certain routes.
The shipping lines have quoted rising fuel costs as justification for the emergency surcharge, with 2M partners Maersk and MSC, and Hapag-Lloyd claiming that the high bunker prices are no longer sustainable.
According to Maersk, bunker prices in Europe now stand at $440/ton, the highest since 2014. It says the EBS is a “necessary action to ensure a continued sustainable service to our customers.”
“The increase is more than 20% compared to the beginning of the year and this unexpected development means it is no longer possible for us to recover bunker costs through the standard bunker adjustment factors.”
- Maersk statement
Some shippers, however, are buying none of that and have demanded more transparency into the working mechanisms of bunker pricing. The frustrated shippers claim liners should be taking more responsibility for the cost increase, reviving a long-standing debate over who should carry the financial burden of operating costs such as bunker prices, charters, etc.
“The exasperation felt by shippers is completely understandable and natural. But at the end of the day, it’s fair for carriers to pass this additional cost on to their clients since it’s a cost that they do not control and that can change drastically depending on factors they have absolutely no influence over.”
- Klaus Lysdal, vice president of operations at iContainers
The EBS announcements come after many carriers posted operating losses for the first quarter of the year due to a fall in rates from increased competition among the liners. Average operating margins for the top 11 carriers that posted their figures reportedly fell to -3.3% - the worst performance in six quarters.
This has prompted several shippers to suggest that the latest EBS, announced last month, has in fact been implemented to cover carriers’ operating losses, instead of a monetary response to rising fuel costs.
“It is incumbent on container carriers to provide their customers with full transparency regarding bunker surcharge costs, and to explain why an emergency surcharge is warranted on top of existing bunker surcharge mechanisms.”
- Chris Welsh, secretary general of Global Shippers’ Forum
In Europe, displeasure has found its way into bureaucratic grounds. The European Shippers’ Council says it will be filing an official protest with the EU Commission, following a string of complaints from shippers.
“This is a fluctuation in price, and it has been much lower than today, where carriers also got some advantage out of that, and that is fine, that is how it works. But to bring in the surcharge with weak evidence and on such a short term is not a good development.“
- Rogier Spoel, European Shipper’s Council Spokesperson
Several other industry experts, including SeaIntelligence CEO Lars Jensen and Vice President of Global Logistics Bjorg Vang Jensen, have also criticised the move, especially given that the fluctuating bunker prices are already compensated for in existing bunker surcharge mechanisms.
“But the implementations announced now are not logical and seems more to be fueled by a need to do something urgently, than a need to implement a logical structure to the surcharge. If these surcharges stick, we will be left with the jungle of surcharges becoming more illogical and intransparent.”
- Lars Jensen, Seaintelligence Consulting CEO
Already, the industry has seen improvements in rate transparency and the way such surcharges are being implemented. Up until a few years ago, certain carriers had so many charges to work with that it proved difficult even for them to manage. Today, the EBS stands as an independent surcharge as more carriers ramp up transparency efforts. But that’s not to say that more can’t be done.
“Several carriers have already cut back greatly on the different types of charges they work with. But a more transparent way of managing pricing with the clients way of managing pricing with the clients may be a good workaround to dim the opacity. Hopefully the liners can create a mechanism that’s just to all parties sooner rather than later.”
- Klaus Lysdal
Some carriers still operate with a basic fuel cost that’s included into the total freight charge. Such an embedded rate means carriers take a calculated risk with gains and losses dependent on actual fuel prices and the cost they decide to build into their rates. That said, further efforts can still be made to improve transparency and the way these prices are managed. Going forward, a less opaque price mechanism and more candid communication will surely be appreciated by shippers.
"Don't underestimate the value of Incoterms and their impact on international trade."
Aliona Yurlova, Business Development Manager at iContainersDOWNLOAD THE FREE GUIDE