Asia-U.S. container shipping lines in the Transpacific Stabilization Agreement (TSA) announced new formulas for calculating low-sulfur fuel and basic bunker charges, and implementation of intermodal door delivery charges, all in reaction to new cost developments in the industry.
In an official release dated October 21, TSA said its members are facing an average US$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.
This development has caused the group to revise its recommended low-sulfur fuel charge to recover the added cost.
Application of the new formula will take effect January 1, 2015, said TSA.
Shippers with cargo moving from Asia to the U.S. can expect initial charges of $67 and $53 per 40-foot container (FEU) for the East and West Coasts, respectively, versus $17 and $16 at present.
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 percent of FEU levels, said TSA.
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.
“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.
Modified bunker charges
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 percent of FEU levels.
Conrad indicated that further details on the new bunker and low-sulfur formula changes will be posted on the TSA website and communicated by the lines directly to customers prior to January 1.
New intermodal door delivery charges
At the same time, Asia-U.S. container lines are to levy intermodal door delivery charges as a result of the inland transport crisis in the U.S.
In an October 20 statement, TSA said: “Congested U.S. port terminals, harbor and over-the-road truck and driver shortages, slower trains and longer rail terminal dwell times due to increased domestic rates have not only disrupted service but also driven intermodal rates and cargo handling costs up sharply. Asia-U.S. container lines, still heavily reliant on intermodal service, have now been forced to respond with intermodal door delivery charges to recover those costs.”
As TSA announced previously, most member lines in the association are moving forward individually with charges of $100 per FEU, and $90 per 20-foot container “effective on or around November 15, 2014, but by no later than December 1.”
The charges apply to all cargo moving under intermodal store-door delivery through rates from Asia to the U.S.
Conrad noted that congestion and associated costs are the result of a convergence of factors, among them equipment interchange issues, railcar shortages, freight backup at intermodal terminals, and a shift of intermodal cargo to more costly pure truck moves.
“These are systemic issues that will get resolved over time, but in the midst of the peak season and with demand still strong, we don’t have time,” he said. “Carriers are doing their best given the service and infrastructure constraints we see across the supply chain. For now, as we all work on solutions, the key is cost recovery.”
TSA is a research and discussion forum of major container shipping lines serving the trade from Asia to ports and inland points in the U.S. These carriers include APL, China Shipping Container Lines, CMA-CGM, COSCO Container Lines, Evergreen Line, Hanjin Shipping Co., Hapag-Lloyd, Hyundai Merchant Marine, Kawasaki Kisen Kaisha, Maersk Line, Mediterranean Shipping Co., Nippon Yusen Kaisha, Orient Overseas Container Line, Yangming Marine Transport, and Zim Integrated Shipping Services.
Photo: Brooks O. Hubbard IV
