Rising Marine Fuel Costs Bring About Surcharges
Container carriers recently announced emergency bunker surcharges (EBS) will go into effect to help them cover rising fuel costs. Maersk, MSC, and CMA CGM have set June 1 and July 1 dates for EBS to take effect on their respective trade lanes. This marks the second wave for EBS in as many quarters during 2018, as carriers continue to feel pressured as fuel prices climb.
Bunker fuel prices have steadily increased since July 2017, motivating carriers to pass along emergency bunker surcharges to shippers. Prices thus far in 2018 have been higher than anticipated and are the highest fuel prices seen by the maritime shipping industry since 2014. The graph above shows the combined average IFO380 (high sulfur) and LSMGO (low sulfur) prices during the past 13 months for the benchmark ports of Singapore, Fujairah, Rotterdam and Houston. Monthly average prices for these bunker fuels have increased over 40 percent year-over-year, and over 55 percent from the lowest market price of the period to the end of May 2018. Coincidentally, the price of high sulfur IFO380 on May 31, 2018 was the same price as LSMGO on June 22, 2017 demonstrating how far prices have surged. The average monthly spread—or difference between IFO380 and LSMGO—has widened by 36 percent over this same period.
In addition to the EBS, bunker prices have encouraged carriers to cut back capacity and reduce services as they look to cut costs to improve profitability. The combined effects of increased fuel costs and changing capacity will continue to have implications for the broader maritime freight industry—as well as shippers who rely on carriers’ services—as markets evolve ahead of the looming 2020 IMO sulfur regulations.
Visibility is Key to Managing Volatility
The need for shippers to gain visibility into the marine fuel costs affecting their freight movements has grown, and will continue to grow to 2020 and beyond. Breakthrough®’s Marine Fuel Management program brings transparency to marine freight, enabling shippers to manage fuel costs and make strategic, data-driven decisions as they navigate today’s challenging marketplace.
For more information about changes to the marine fuel industry, and how you can navigate them, contact us!