Costlier crude forces local carriers to impose fuel surcharge

Photo by Michael Maga-ao on Unsplash
  • Domestic shipping lines have started imposing a bunker fuel surcharge to cover the additional costs of high fuel prices
  • The share of fuel in vessels’ total operating cost has gone up to as much as 50% from 30%, said Philippine Liner Shipping Association president Mark Matthew Parco
  • Cargo volumes have shown signs of picking up but remain exposed to uncertainties such as rising fuel costs, the upcoming elections, and the pandemic
  • To help lines, Parco said the government can cut or at least reduce excise tax on fuel

Domestic shipping lines have started imposing a bunker fuel surcharge as global fuel prices continue to surge and expand their share in vessels’ operating costs, according to the Philippine Liner Shipping Association (PLSA).

PLSA president Mark Matthew Parco, in a phone interview with PortCalls, said domestic shipping lines are collecting the surcharge “in one form or another”, some starting from last year, to cover additional fuel costs.

Parco noted that fuel used to account for about 30% of total vessel operating cost but now makes up 40% to 50% of total cost.

The price of Brent crude has breached the US$95 per barrel mark as of Feb 14, gaining nearly 20% this year. It has rallied more than 60% since the beginning of 2021.

Parco said the crude benchmark price may even breach $100 per barrel amid tension between Russia and Ukraine, which could affect gas supply and, subsequently, other fuel prices.

“At the end of the day, it doesn’t look good moving forward,” Parco said.

Shipping lines need the surcharge to maintain their viability, especially since cargo volumes in the country have not been as buoyant as those in other countries, he added.

Domestic shipping lines have extended their services even during the pandemic, implementing the government-ordered 40% discount on charges for agricultural and food products and carrying relief goods for free during natural disasters such as typhoons, Parco said. He noted that some shipping lines are already in the red, and some have resorted to reducing their sailings to cut costs.

READ: Shipping lines offer free pier-to-pier transport of relief goods

Volumes were “very much down” at the start of the year but have shown signs of picking up, although they can still recoil from uncertainties, such as those stemming from rising fuel costs, the upcoming elections and the pandemic.

“It’s still a bit mixed although we’re hoping this will be a successful election that will pump confidence in the economy and the people,” Parco said, adding that, hopefully, no new variants COVID-19 variants will emerge.

Parco said higher fuel prices are “a worry not just now but looking forward,” especially since the country is scheduled to implement the International Maritime Organization’s global 0.50% sulfur cap on marine fuel oil in the local shipping industry in 2025. The sulfur cap policy, which was implemented in 2020, requires all ships in non-emission control zones to limit the sulfur content of their fuels from 3.50% to 0.50%.

“Just imagine, when that happens, fuel prices will increase again because, obviously, they will be charging higher for that type of fuel,” Parco noted.

Lift excise tax

To help domestic shipping operators, he said the government can remove or at least reduce the high excise tax on fuel. Domestic shipping lines are levied duties and taxes for fuel used, adding to their operating costs.

Parco said the government can look at how much shipping lines are charged for fuel in other archipelagic countries such as Japan and Indonesia.

He said the government can also look at other increases in charges that directly impact shipping operating costs, such as terminal costs and other government fees and charges.

Shipping lines have repeatedly pointed out that operating domestic ships in the country is costly because of the high cost of doing business here, notably taxes, a lack of economies of scale and a dearth of equipment at some local ports. – Roumina Pablo