In a little over 6 months the new IMO low-sulphur rule will come into effect. Few contest the change will have anything other than far-reaching consequences for the global container shipping industry and its users, but many BCOs remain uncertain about the full impact of the new regulation on fuel costs, contracts and transit times.
In recent months Drewry has been working with dozens of global shippers helping them prepare for the new regime by better understanding the full cost impact of the changes and preparing their carrier contracts.
Transpacific shippers, who renewed their annual service contracts from May 2019 have already had to deal with the new regulation and provide a useful reference for others – in this interview we discover how one major transpacific importer prepared for their organisation for the change:
Q: As a BCO, what did you see as the required preparation for the IMO 2020 low-sulphur regulation in the context of your annual service contracts with ocean carriers?
A: First, we needed to educate ourselves to understand to the best of our ability what options were available to carriers and what the implications of the regulations would be on their operations. Second, we needed to review our existing BAF [Bunker Adjustment Factor] schedules to assess how aligned they were with how carriers’ costs would change under the new regulations. Finally, we needed to modify our BAF schedules to insure a fair and equitable compensation program existed with carriers under the new regulations.
Q: What is your company’s underlying principle when agreeing variable fuel charges with your ocean transportation vendors?
A: We believe that variable fuel charges should represent neither a windfall for the BCO nor a windfall for carriers. As much as possible it is our desire to come up with a variable fuel charge program that aligns with how carrier operating expenses change (up or down) in relation to the cost for fuel. Secondarily, we desire to achieve all of this with as little complexity as possible thereby minimizing the burden of invoicing for and paying for such surcharges.
Q: Did you review your Bunker Adjustment Factor program due to the forthcoming IMO 2020 low-sulphur regulation? What were the results of your review and how did you establish the level of your standard BAF charges post-IMO 2020?
A: With the help of Drewry we were able to estimate the bunker impact along each of our key lanes and carriers. That analysis enabled us to create a BAF program aligned with projected carrier consumption levels on a given lane. We then reviewed all available indexing data to establish the source by which global prices would be determined post-IMO 2020.
Q: Did all your carriers/providers accept your standard BAF changes? If not, what did you do?
A: No, they did not. We invited 11 carriers to our bid; of those, 3 rejected outright our proposed BAF schedule. We chose not to do business with [2 carriers] who did not accept our BAF changes. The one remaining carrier originally agreed to the program but, during the latter part of contract negotiations, retracted their original acceptance and demanded we revert to their boilerplate [BAF] schedule. It is our intention to either have this final carrier revert to our schedule or to discontinue use of their services during the next contract cycle.
Source:Drewry
The opinions expressed herein are the author's and not necessarily those of The Xinde Marine News.
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