fuel increase

Why are fuel prices increasing?

Fuel prices are on the increase again, which is liable to have a considerable impact on the freight industry.

Fuel is now at its highest cost since 2014, and the main reasons for this are the war in Syria, Iranian tensions and biofuel for renewable energy increases.

As a result, pump prices and bunkering have increased and fuel surcharges are now coming into effect. Shipping lines are raising freight costs as the rising oil price lands them with spiralling fuel bills. This is likely to result in the the cost of imported goods rising.

Maersk, the world’s largest shipping business, has joined rival Mediterranean Shipping Co (MSC) in slapping a surcharge on freight costs to offset its own rising costs. MSC has also introduced a similar measure, telling customers the situation was an “emergency and no longer sustainable”. Maersk has also stated it would stop working with Iran as a consequence of the US introducing sanctions on the country, ending the its nascent business there.

Explaining the prices rises, MSC added: “Fuel prices are up more than 30pc this year, and almost 70pc since last June. [Ship fuel] prices in Europe exceeded $442 per metric ton last week. Crude oil is hovering around $80 a barrel — the highest since 2014.”

Warning its customers of higher charges, Maersk said the increase in ship fuel prices was “significantly higher than expected”, hitting $440 per ton.

Almost 90pc of the world’s good trade travels by sea, and the higher fuel costs are ultimately likely to be passed on to consumers, with other shipping lines following suit.

Since 2009, the price of a ton of bunker fuel from Asia to the US West and East and Gulf coasts has on average been 5.7 times greater than the price of a barrel of Brent crude oil. Assuming that multiplier and the IHS Markit forecast holds, the average cost for bunker fuel in 2017 should come to $330 per ton. Such an increase would raise the current BAF for 20-foot containers to $292 from $238 and to $324 from $264 for 40-foot boxes to the West Coast, according to the BAF surcharge calculator of the Transpacific Stabilization Agreement. To the East Coast, the BAF would rise to $537 from $473 for 20-footers and from $525 to $597 for 40-footers.

In order to address the trend in increasing fuel costs over the last decade, most shipping companies began restructuring their operations to create fuel efficiencies:

  • Consolidated services through multi-carrier alliances.
  • Consolidated routes to serve more locations with fewer ships.
  • Improved monitoring of hull and propeller conditions to reduce resistance and improve efficiency.

These actions have helped carriers reduce fuel consumption, and consequently, their fuel costs. However the challenge of rising fuel prices in 2018 is even greater than ever and the outlook is challenging for shipping companies and freight forwarders alike.

To add to the pressure, analysts predict that there is the possibility that shipping fuel costs could rise by as much as a quarter in 2020 when new rules limiting sulphur kick in. Today Emission Control Areas restrict the Sulphur Limit for fuel oil used by ships but the Emission Control areas are restricted to coastal areas in Europe and the US and Canada. Under the new global cap the reduced Sulphur Limit is imposed in all global waters. The predicted cost increase will come as the change to ultra low sulphur fuel oil comes at a much higher cost based on todays market.

Beyond rising costs, higher bunker prices are problematic for container lines because of the delay between when fuel prices rise and when the container lines are able to pass those increases off to customers. This means container lines must spend billions of dollars on more expensive fuel without necessarily having the funding needed to offset the increase, according to maritime analyst SeaIntel.

Source: Telegraph / pfe-express.com / JOC.com

 

hapag lloyd

Hapag-Lloyd cutting costs to cope with a rise in fuel prices

German shipping company Hapag-Lloyd is cutting costs to cope with a rise in fuel prices that led it to slash full year earnings forecasts last month, its chief executive told shareholders on this week.

“Major cost positions have risen more than initially expected and are pressuring operating margins,” CEO Rolf Habben Jansen said in Hamburg. “We are responding short-term to this development through forceful cost management and will keep Hapag-Lloyd competitive this way,” he added.

Among the measures being taken are accepting more valuable cargo, trying to reduce terminal contract costs and stripping out economically inefficient ship systems, he said.

The effects of recent industry mergers have yet to be felt as the integration process is only just starting, he added, referring to a merger in April of three Japanese rivals and Chinese approval for COSCO Shipping Holdings’ takeover of Hong Kong peer Orient Overseas International.

Hapag-Lloyd in June cut its full-year profit forecast, saying freight rates had recovered more slowly than expected, while fuel costs had ballooned as global oil prices respond to supply disruptions and tightness.

The news led to several banks cutting their price targets on the stock, while the company stressed it hoped to reap substantial synergies from its 2017 merger with Arab peer UASC.

Habben Jansen also said the global ship orderbook had shrunk to just 11 percent of the total fleet. That should help bring supply and demand into a better balance over the next 2 1/2 to three years, he said.

At the same time, world shipping demand could rise 5.2 percent per year, which should result in freight rate increases from the second half of 2018 onwards.

But the CEO also said increased geopolitical uncertainty – as the world’s leading economies head for a full-blown trade war – was acutely felt by container liners and their customers.

Hapag-Lloyd last month said it has stopped one of two feeder services to Iran and would decide on the remaining one before a Nov. 4 deadline imposed by the United States.

Source: Reuters

port of felixstowe

Felixstowe productivity improving after implementation of new operating system

The Port of Felixstowe has stated that vessel and rail loading performance remain below target but no new issues have emerged as it works on resolving slow loading and delays caused by problems with its terminal operating system (TOS).

Issues first surfaced last month when the port introduced the TOS but it confirmed in the week beginning Monday 2 July that overall quayside volume was 66,000 teus and productivity was 80% of pre go-live levels. Felixstowe added that nearly 5,000 containers were loaded to rail and over 21,000 road hauliers serviced, while average haulier turnaround times have stabilised at 46 minutes.

Confirming there has been no additional issues since its last report on 5 July and stressing its continued work to improve productivity, the port stated: “Vessel and rail loading performance remain below the targets we need to achieve. We are working to reduce further the number of rail misses and we recognise that performance in all areas is not good enough.”

Improvement initiatives

It said several initiatives have been implemented to improve yard operations and productivity, which are expected to improve vessel, rail and road loading cycles and times.

A new area for empty storage will be opened behind berths eight and nine on 14 July. The new yard will provide capacity for an additional 4,200 teus of empty storage and is designed to facilitate quicker loading of empties to outbound vessels.

“We are continuing to work closely with our shipping line customers to minimise disruption,” the port stated.

Source: Port Strategy

arctic shipping

The environment and Arctic Shipping

Mariners have known about short cuts to the Pacific via the Arctic for a long time. The Northern Sea Route (NSR), north of Siberia, was discovered 300 years ago, and the Northwest Passage (NWP) has been on the map for more than a century.

Although these routes are much shorter than the traditional trading routes from Europe and the eastern US to the Pacific, until recently they were only navigable by specialised ships. They have not been considered commercially viable until now.

The world is warming, and over the last several decades climate change has begun to significantly change the game for vessel navigation. Alarmingly, global warming is not evenly distributed over the globe. In the Arctic, warming is at a much higher level than the global average. Svalbard, Norway, for example, is experiencing a temperature increase that is 6°C higher than the global average.

Climate change, retreating summer ice and the prospect of shorter journey times and 40% lower fuel costs has led Russia, European governments and some industries to expect a major ice-free shipping lane to open above Russia, allowing regular, year-long trade between the Atlantic and Pacific oceans within a few years.

However, low bunker fuel prices, a short sailing season and continuing treacherous ice conditions in the Arctic even in summer months means it could be 2040 at the earliest before it is commercially viable for ordinary merchant ships to pass through

In September 1980, Arctic ice covered some 8 mill. km2. In 2012, Arctic ice cover dropped to less than half that area — 3.4M km2 — the lowest ever recorded. The reduction in Arctic ice cover is relatively linear (see image below, click for larger version), and the trend means the NSR and the NWR are now navigable for part of the year, every year.

Peaking with 71 transits in 2013, the Northern Sea Route to the north of Russia has been more popular for commercial transits than its counterpart in the Americas, but NSR transits declined after 2013 and were down to 25 in 2017. Nevertheless, due to the drop in Arctic sea ice and enormous amounts of oil, natural gas and various metal ores, the Siberian coast has seen a significant increase in shipping activities.

Decreasing ice coverage in the Arctic would open a larger window for transits. A report published in the journal Nature Climate Change in June 2018 predicts that, even if we manage to keep temperature change within the parameters of the 2°C temperature increase as embedded in the Paris Agreement, we will experience a completely ice-free Arctic during the Northern hemisphere’s summer months within this century.

Russia has tried to open up the Arctic to international traffic by offering icebreaker service and better port facilities. But cargo in transit along the northern sea route dropped from 1.3m tonnes in 2013 to 300,000 tonnes in 2014. Last year only 100,000 tonnes was transported between Asia and Europe on the route. However, there was a big rise in the number of vessels going to and from Russian Arctic ports.

So how would an ice-free Arctic summer impact shipping?

As of now, vessels cut off 40% of the distance travelled between Rotterdam and Yokohama by using the Northern Sea Route. An ice-free Arctic would likely mean 50% or more in miles saved over traditional routes.

Shipping could save millions of tonne-miles and huge amounts of fuel if the predicted growth of the NSR’s navigable window holds true, an outcome that would be good for shipping’s global greenhouse gas emissions account.

Average Arctic temperatures are rising twice as fast as elsewhere in the world and the polar ice cap’s permanent cover is shrinking at a rate of around 10 percent per decade. By the end of this century, summers in the Arctic could be free of ice.

Black Carbon

One alarm raised by some green NGOs that is supported by many nations including some of the Arctic littoral states, is that shipping’s emissions of black carbon (BC) in the Arctic is speeding up the melting of Arctic ice — sea ice as well as glacial ice. Black carbon is basically soot emanating from incomplete engine combustion and is generally believed to be more related to the combustion of Heavy Fuel Oil (HFO) than that of lighter distillates. It is also related to the condition of the engine as well as to the engine load.

Scientists have predicted negative consequences from the rapid melting of Arctic sea ice and the Arctic glaciers that will be felt globally. Melting will result in rising sea levels globally, threatening the existence of many island states. More open water means further absorption of the sun’s warmth and heating of the Arctic Ocean — an accelerating cycle. Many large cities will need to invest in expensive climate change mitigation enterprises, such as increasing the height and extent of dykes and barriers. Two obvious examples of the threat to low-lying cities are New Orleans, which was inundated during Hurricane Katrina and New York and New Jersey which faced huge storm surges from Hurricane Sandy. Rising sea levels and a likely increase in frequency and violence of hurricanes offers frightening scnarios for low-lying cities and countries.

Massive melting of Arctic ice might also, according to some scientists, force the Gulf Stream to take a more southerly course, which will result in a much colder northern Europe. So even as climate change produces an average increase in global temperatures, there are likely to be regions that will experience colder weather and climate.

Ban on Heavy Fuel Oil in the Arctic?

Last year Canada and other states proposed that IMO should commence work on mitigating the risks of use and carriage of HFO as fuel by ships in the Arctic. The European Parliament has broadly supported this move by adopting a resolution calling for a ban on the use of HFO in Arctic waters.

Prior to that, in October 2016, the IMO at MEPC 70 decided that from 1 January 2020, all ships operating outside Emission Control Areas (ECAs) must not burn fuel oil with a sulphur content above 0.5% (by mass). When that rule was adopted in 2008, it was believed that such future fuel oil would be distillate, either marine gas oil or marine diesel oil.

In connection with the 0.1% sulphur limit in ECAs in 2015, the world saw a number of new fuels that did not fall under the traditional definition of distillate fuel. It is expected that the 2020 global cap of 0.5% sulphur limit will see the introduction of many new fuels. Some of these are expected to be based on de-sulphurised HFO derived from sweet crude, others might be blends of HFO with low-sulphur products. It could even be new oil products that the world has not yet seen.

The Environment

The WWF state that the trend will increase pressure on a relatively pristine area, and that although the routes will not be open year round, companies are already investing billions of dollars in tankers capable of going through ice.

The WWF are:

  • Mapping data on Arctic species, ecosystems, cultures and industry that will help us make concrete policy recommendations pertaining to Arctic ship traffic.
  • Advocating for a strong Polar Code, currently under discussion in the International Maritime Organization, which will set legally binding environmental requirements for all ships in the Arctic.
  • Working to establish PSSAs (particularly sensitive sea areas) to protect vulnerable areas from shipping activities.

Their vision for Arctic shipping is:

  • Ships venturing into Arctic waters must be prepared for Arctic conditions, especially those carrying ecologically hazardous cargos.
  • Operational practices for ships operating in Arctic waters should include measures forbidding the discharge of ballast waters in Arctic areas to prevent the introduction of alien species.
  • These measures need to be backed up with monitoring and enforcement.

Conclusion

It will be decades before big cargo ships link China and northern Europe by taking a shortcut through the Arctic Ocean, and it will remain cheaper to send trade between Europe and the east via the Suez canal until then. The Arctic sea ice will be too thick and treacherous for many years, requiring expensive ice breakers and strengthened hulls.

The Copenhagen Business School report concludes that “the Arctic navigation season is currently too short and ice conditions are too unpredictable for liner shipping to be feasible. Arctic liner shipping will only become a viable alternative to the contemporary shipping lanes if global warming continues to melt the ice cover along the North-west passage and the Northern sea route. It is highly unlikely that large-scale containerised cargo transports will appear in the near future. The question then arises: when, if ever, will the ice conditions allow for continuous and economically feasible container transport along the route?”

The greatest potential for the use of ice-reinforced container ships was found if the speed of global warming increased and the price of fuel is high. But even in this scenario, the cost per container was about 10% higher than going via the Suez canal route.

Source: mpropulsion.com / The Guardian / WWF