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October 29 2018

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October 29 2018 | The Journal of Commerce 27 www.joc.com Government additional costs will be "around $1 bil- lion in the first years." Maersk esti- mates bunker costs would increase by more than $2 billion a year, adding 35 percent to its 2018 fuel bill and 8 percent to its total costs. CMA CGM expects bunker costs to rise by $1.5 bil- lion, adding 58 percent to its 2017 fuel bill and 8 percent to total costs, and MSC is predicting an additional cost of more than $2 billion a year. Ocean carriers need a discussion forum in which they and shippers can collectively calculate low-sulfur BAFs without fear of violating antitrust laws, the executive vice president of Cosco Shipping Lines (North Amer- ica) said at the New York Maritime Forum this month. Howard Finkel said carriers are "working in the blind," with each company coming up with its own fee when what is needed is a framework created collectively that ocean carri- ers and shippers will accept. He said "something has to be done" about the way carriers are going about putting together a plan to cover the cost of meeting the regulations. "The problem is, when we collect anything, as an increase in cost, we have a terrible time doing it," he said. THE LOW-SULFUR BUNKER fuel adjust- ments announced by four global con- tainer lines provide some clarity to beneficial cargo owners (BCOs), while underlining a key division among small and large shippers ahead of the International Maritime Organization (IMO) regulation taking effect on Jan. 1, 2020. Many major shippers have created their own bunker adjustment factors (BAFs), but smaller BCOs typically have to accept the BAFs proposed by CMA CGM, Hapag-Lloyd, Maersk Line, Mediterranean Shipping Co., and OOCL. Widespread distrust of the carrier fuel surcharge mechanism, however, may push more shippers to- ward devising their own BAF formula to have greater control of the process. Finding the right formula accept- able to all shippers and carriers will be a crucial piece of the puzzle because the regulation could add $184 to $264 per TEU, depending on the prevailing price of fuel, according to Hapag-Lloyd calculations. CMA CGM has put the cost per TEU at $160. Hapag-Lloyd is the latest carrier to place a billion-dollar price tag on the low-sulfur fuel requirements for shipping from 2020, estimating its "In the past, in the United States, we still had the ability to, we had antitrust immunity, to talk to our competitors. "But it's not being used," he said. "The last forum for doing that was the TSA [Transpacific Stabilization Agreement], and we shut that down, around a half a year ago. So, the carri- ers are working in the blind making decisions for something like bunker." Jefferies estimates the cost of low- sulfur fuel needed to meet the man- date will be about 50 percent more than the current fuel type of ISO 380. The IMO rule will reduce permis- sible sulfur emissions from vessels to 0.5 percent from 3.5 percent begin- ning Jan. 1, 2020. Container shipping analyst SeaIn- telligence said that, although any type of BAF mechanism could be criticized, "Given the reality of the low-sulfur rules and the associated costs, shippers who are critical of the new structures owe it to the industry to then explain how they intend to pay the added fuel cost, because at the end of the day there is no one else to foot the bill." The carriers' surcharge mecha - nisms are similar and relatively basic calculations. Hapag-Lloyd's Marine Fuel Recovery formula uses a typical representative service in the market on a specific trade and takes into account parameters such as the vessel consumption per day, fuel type and price, sea and port days, and cargo volume carried. Hapag-Lloyd CEO Rolf Habben Jansen said the stricter regulation will create additional costs. "This will be mainly reflected in the fuel bills for low-sulfur fuel oil, as there is no realis - tic alternative for the industry remaining compliant by 2020," he said. A survey conducted by shipping consultant Drewry found considerable unease among global shippers and forwarders ahead of the low-sulfur fuel implementation. Respondents expressed particular uncertainty and concern about ocean carriers' methods of fuel cost recovery, with 56 percent stating that they didn't consider their service providers' existing approaches as fair or transparent. JOC email: greg.knowler@ihsmarkit.com twitter: @greg_knowler email: Hugh.Morley@ihsmarkit.com twitter: @HughRMorley1 A matter of distrust Shippers and carriers develop varied formulas for low-sulfur bunker fuel adjustments By Greg Knowler and Hugh R. Morley Finding the right formula that is accepted by all shippers and carriers will crucial, carriers say. Shutterstock.com International | Washington | Customs | Security | Regulation

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