Emergency Bunker Surcharge – is it really an emergency..??
In my previous article about Bunker, Bunkering and Bunker Adjustment Factor I wrote
- Bunker is simply nothing but FUEL (oil) used in ships
- BAF (Bunker Adjustment Factor) is a surcharge charged by the shipping line to counter the fluctuations in oil prices
The term BAF may be a foreign term to some customers in many high volume, low freight, back haul trade lanes like Africa/Far East because BAF is usually included within the freight rate in these trades and this term BAF may not be visible in the quotation or invoices..
But in other trade lanes BAF may be shown as a charge item in the quotation and invoice to the customer..
Depending on which carrier you use, you may come across various abbreviated variants of BAF (Bunker Adjustment Factor) such as BUC (Bunker Contribution), SBF (Standard Bunker Adjustment Factor) etc..
During the last week of May 2018, many carriers implemented what is known as Emergency Bunker Surcharge (EBS) or Emergency Bunker Fee (EBF) or Emergency Fuel Adjustment Factor (EFAF)..
The motivation given by the lines for the implementation of this emergency surcharge is that there has been a dramatic increase in fuel prices as compared to 2017 and the current price of around USD440/per ton, calculated for IFO 380 has been the highest since 2014..
As per the lines, when compared to the 2017 average to current, there has been a price increase of 45% and bunkers being the single largest cost component in a shipping line’s operation, the lines have to implement this surcharge in order to remain sustainable..
- Do you feel the lines are justified in implementing this “emergency” surcharge..??
- How long do you think this surcharge will last..??
- Is there a win-win formula/methodology that the lines can follow in order to stay profitable and sustainable but without unduly taxing the trade..??
Lars Jensen, CEO and Partner at SeaIntelligence Consulting has given some interesting insights on this whole emergency bunker surcharge situation through his article on LinkedIn (reproduced below)..
In the article he also poses the question “Does a 1 USD/TEU surcharge qualify for the term “emergency”..??
The 1-dollar BAF emergency in shipping?
Today Hapag-Lloyd also announced the introduction of an emergency bunker surcharge (EBS).
Just looking at the above statement one could be excused for thinking that they are following in the footsteps of Maersk, MSC and CMA CGM’s announcements from last week. However a look at the details reveals something else entirely.
The EBS is part of the CustomerInfo sheet issued by Hapag-Lloyd today for the trades to/from Asia and Oceania. 27 trades are listed as being part of the EBS for trades to/from Asia and Oceania.
For 9 trades the EBS is 0 (zero!) USD, and for 4 it doesn’t apply.
For Asia to North Europe and the Mediterranean the EBS is 1 (one!) USD per TEU. Same for the backhaul.
The EBS then ranges between 51-75 USD/TEU for tradelanes linking South and Central Amrica to East Asia and Oceania, and is then set at 215 USD/TEU from Mediterranen to New Zealand, Australia and Fiji.
They also announce changes in their ordinary BAF. As an example, the quarterly Asia to North Europe BAF increases from 481 to 487 USD/TEU – i.e. an increase of 6 USD/TEU.
For carriers which ship millions of TEU with razor-thin margins, then clearly every dollar counts, and hence should not be scoffed at.
However, it does beg a few questions.
Does a 1 USD/TEU surcharge qualify for the term “emergency”? Why is the ordinary BAF not instead increased by 7 USD/TEU instead of 6 USD/TEU? Ostensibly, the 6 USD/TEU increase stems from the effect of the changing bunker fuel price?
And, even more interestingly, Hapag Lloyd introduced an EBS of 1 USD/TEU on some major trades. For Maersk Line the corresponding charge is 60 USD/TEU and for CMA CGM it is 55 USD/TEU. MSC has not published an official number. Quite a diverse take on the impact of the increasing oilprices – even when Hapag Lloyd’s increase in ordinary BAF is also taken into account.
At the end of the day reality is that the carriers must have their costs covered. Running a loss-making service is not in the long-term interests of the shippers (cue the Hanjin debacle). But it seems evident that years of rate-erosion and quite fierce price-competition have led to a point where carriers appear not to believe in their own market power in terms of raising the actual freight rates, but need to point to a plethora of surcharges to get properly compensated.
The EBS is merely an additional symptom of this – and that is likely why the logic behind the EBS seems to be somewhat lacking, because de facto the problem being addressed is not an exceptional increase in fuel price, it is the collapse of the BAF mechanism itself over the past years.
Share your comments/opinions in the comments section below..
Update : JOC.com has reported that Hapag Lloyd was said to have incorrectly issued the EBS of $1 and was expected to disclose the correct amount around noon time (EST) on 31st May 2018..
Pretty obvious for us in NZ that the amalgamation of large carriers that serve our trades is leading to lack of service options plus near-nil market competition I.e a monopoly or duopoly exists
I realy dont understand what is the logic behind the use of the term ” Emergency”?
Is it a kind of insurance to cover freight volatility, if so why should be applied to shippers?
I think that carriers should review their investment and competition models.
The imbalance in terms of negotiation power between shippers and carriers (in a favor of the carrier) may lead to a disaster and unfair word trade.
Hanjin Season 2 is not far.
Thanks M. Hariesh Manaadiar for this nice article.
Capt Farid OMARI