The upcoming 2020 low sulphur fuel directive “weighs on” an industry struggling to generate sustained profitability, AlixPartners’ 2019 Global Container Shipping Outlook said
The upcoming 2020 low sulphur fuel directive “weighs on” an industry struggling to generate sustained profitability, AlixPartners’ 2019 Global Container Shipping Outlook said.
The report – released in February – warned that the industry as a whole could be looking at as much as US$10Bn in additional exposure, based on 2018 prices. It added “And if tight supplies of LSFO trigger higher prices, fuel costs could climb even higher, making the difficult task of cost recovery even more urgent.”
Breaking this down, it estimated that the new fuel rules could expose carriers to as much as US$3Bn in additional costs on the eastbound transpacific (EBTP) and Asia–Europe routes alone, which account for about 20% of container shipping trade volume.
The report warned that to a large extent, carriers’ financial fortunes depend on whether they will be able to recover any additional fuel costs through surcharges or whether they will have to bear at least a portion of those costs themselves. It explained “According to our analysis of large carriers that publish bunker adjustment factor (BAF) rates (tracked by maritime research consultant Drewry), carriers plying the Asia–Europe route in 2018 would have had to increase their BAF rates by 40%, or US$270 per FEU, to achieve the same financial result; carriers working the EBTP route would have needed to increase by 33%, or an additional US$150 per FEU.”
The conclusion was that carriers will have to impose “significantly” higher fuel surcharges in 2019 and beyond to maintain their margins, with “no guarantee that those charges will stick or that they’ll be able to realise recovery in a timely manner”.
The report said “Failure to do so will depress cash flow significantly. Carriers will have to impose significantly higher fuel surcharges in 2019 and beyond to maintain their margins.”