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Make it worse! The price of marine fuel has risen sharply, and the low-sulfur fuel surcharge has also risen

With oil prices rising again, ocean shipping companies are preparing to increase low-sulfur fuel surcharges, which will make shippers struggling with high freight and surcharges worse.

Shipping analysis company Sea-Intelligence said that fuel prices have fallen sharply due to the outbreak of the new crown virus last spring, but since November, the price of marine fuel has risen sharply by 35%, which may lead to the recurrence of BAF fuel surcharges, especially Starting in March, shippers must prepare for price increases.

The so-called fuel surcharge is a mechanism that adjusts to fluctuations in fuel prices to avoid shipping companies having to bear the costs of possible fuel price increases when fuel prices rise, and vice versa. The surcharge may be adjusted monthly or quarterly, depending on the shipping company.

Since the beginning of September, the price of Brent crude oil has risen by 41% to $55 a barrel, and has soared by 8% last week only because of Saudi Arabia’s commitment to cut production.

During the same period, the heavy fuel oil (HFO) consumed by ships equipped with exhaust gas scrubber systems increased by about 36% to around US$327 per ton; however, the low-sulfur fuel oil (LSFO) that meets IMO requirements closely follows oil prices Rose, up 43%, reaching $403 per ton.

This means that since September, the difference in price per ton between the two fuels has widened from US$41 to US$76, adding a huge additional cost to the voyage of ships using LSFO fuel.

Moreover, even ships equipped with scrubbers have to convert their tanks to more expensive fuel when entering ports where the use of this technology in their waters is prohibited.

"All in all, this shows that shippers need to prepare for the increase in fuel surcharges in the coming months." said Lars Jensen of SeaIntelligence, a shipping consulting agency.

There are also polls showing that shipping companies may warn shippers that LSFO surcharges will increase as early as February, and some shippers will face the problem of automatic fuel surcharges due to contract terms.

A British freight forwarder said that he thinks the prospect of raising fuel surcharges is "incredible". He added: "We have been turned around by shipping companies, and now the freight is at least four times higher than a year ago. Plus a package of surcharges and premiums."

"Therefore, they [carriers] should be able to sustain the rise in fuel prices, especially when the price of fuel plummeted at the beginning of the outbreak, they were slow to cancel the surcharge."

George Griffiths of S&P Global (Platts)'s global container freight market said that the fuel surcharge clause will enable shippers to fight on two fronts-rising freight rates and increasing fuel surcharges.

Asia’s fuel charges to North America rose to US$265.82/feu yesterday, the highest level since US$266.50 on March 5 last year, when the price of fuel was at a low of US$111.14 in April.

"The recent increase in fuel prices has begun to make some shippers cautious, especially when the annual contract season is approaching, their eyes are again focused on the fuel adjustment factor clause in the contract, and there are additional low-sulfur additional Fees. From the beginning of 2020, these concerns seem to have been basically eliminated, when the urgency of these surcharges was offset by the plunge in oil prices behind the new coronavirus pandemic."

At the same time, due to the widening fuel price difference, shipping companies such as MSC and Evergreen have the highest proportion of scrubbers in their fleets. It is expected that their investment will pay off sooner.