In just over 500 days, tanker owners and operators are going to be hit with a large bill to comply with the 2020 sulphur cap. Could a minimum charter rate offset this cost?
There has been some talk of setting a minimum charter rate to cover the extra cost of tanker operations when the 2020 sulphur cap arrives in just over 500 days’ time.
Such talk of minimum day rates is not new.
I recall at the start of the financial crisis, when the Baltic Dry Index fell by 93% overnight in October 2008, the Baltic Exchange called an emergency meeting of all stakeholders.
Press were excluded, but I attended as a representative of a shipping bank.
One suggestion was setting a minimum daily rate for Panamax and Capesize dry bulk carriers. This was quickly shot down by the lawyers present, who pointed out that this would be in violation of US anti-trust laws.
But liner services got away with something similar for decades. Under the conference system, there was a set tariff for every item transported in a container on every route. I recall on Lloyd’s Shipping Economist having the tedious task of updating the typewriter parts tariff for the liner rate calculations.
The liner conference system was eventually dismantled by the US and EU authorities, but that is not the reason why I think a minimum rate for tankers will not work.
It would fail for the reason given by a prominent owner at the end of the Baltic Exchange dry bulk emergency meeting in 2008: “We are all lone wolves fighting for the same scraps. Only a few will survive this crisis, and I intend to be one of them.”
In other words, in a fragmented ownership industry like shipping, there is no incentive to support the weak, every incentive to see their demise. This is why I think setting a minimum daily rate would not work, but I welcome your feedback on the subject.
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