CEO of ocean & air freight rate benchmarking and market analytics platform Xeneta has voiced his concern around the lack of transparency on surcharging for the compliant and more expensive fuels needed to meet the IMO 2020 regulation.
Patrik Berglund, CEO, Xeneta, says that this lack of transparency is, “fuelling growing criticism and unease within the shipper community. Carriers need to address this.”
The IMO’s 0.5 per cent cap on sulphur content in fuel is due to enter into force on January 1, 2020. The Xeneta CEO tells of a surprisingly large spread between surcharges – even between alliance partners. This, he says, is causing scepticism about the true nature of the charges being imposed.
“For example,” Mr Berglund says, “ONE is charging just $92 per TEU whilst fellow alliance member Hapag-Lloyd is proposing $135 per TEU. Then we have 2M, with MSC charging only $71 per TEU, while Maersk is looking to impose an additional $116 TEU. There are different approaches here dictating pricing, but they’re not being effectively communicated. We feel there’s going to be a lot of difficult questions coming for carriers, particularly from well informed shippers tracking the fuel markets. Things will probably settle, and the spread will narrow as carriers react to changes in demand, but when?”
Xeneta reports that early negotiations from shippers and freight forwarders reveal different tactics. Some shippers report agreeing on fixed rates with baked-in IMO 2020 charges for Q1 2020, with these rates actually coming in at a lower level than pre-IMO contracted rates negotiated earlier in 2019. Others have opted for a flexible approach, agreeing on quarterly bunker adjustments, with a ‘wait, watch and see’ approach, while a further group have adopted a mix of both strategies.
“It’s difficult to say conclusively what is the best to do in early negotiations, as any decision is very much dependent on what is feasible for individual shippers. If shippers can delay procurement of new freight rates for as long as possible, it is advisable to wait and sit it out for the first quarter of 2020. Delaying negotiations and monitoring freight rate developments over Q1 should provide a better view on how to navigate upcoming freight rate negotiations. However, waiting is not always possible for all and thus incorporating an element of flexibility into rate procurement strategies (e.g. ensuring building-in quarterly rate adjustments) could be a plausible alternative and a less risky solution going forward.
“As ever, it’s going to pay real dividends to watch the market closely and access the latest intelligence in the coming months to ensure you get the best deal for your business. 2020 will likely be just as exciting, and unpredictable, as 2019 – so stay informed to make sure you have the happiest New Year possible!”