October 2019 Announcement for Importers
IMO2020: Update on Bunker Adjustment Factor (BAF) and new Environmental Fuel Fee (EFF)
From 1st January 2020, a new regulation will come into force to reduce air pollution from ships globally. Whereas today ships can use fuel with up to 3.5% sulphur content (outside Emission Control Areas), the new global sulphur cap will be 0.5%.
The cost of compliance with the new regulation will be significant, so the cost of shipping will increase.
Update on Bunker Adjustment Factor (BAF)
As previously communicated, our revised Bunker Adjustment Factor (BAF) is designed to adjust contract rates within the duration of a contract, based on fluctuations in fuel-related costs. It applies to contracts with validity for longer than 3 months.
In 2019, we have used the fuel price for high-sulphur fuel (3.5% sulphur) to calculate the BAF. From 1st January 2020, the BAF tariff will be calculated based on the fuel price for 0.1% sulphur gasoil with a fixed deduction of 50 USD/ton.
New Environmental Fuel Fee (EFF)
Effective from 1st December 2019, there will be an Environmental Fuel Fee (EFF) on all trades, which will apply to all spot business and contracts with validity up to 3 months.
The EFF tariff will be trade-specific and reflect the fuel-related cost increases that result from compliance to the IMO 2020 regulation (calculated as the price difference between high sulphur fuel and low sulphur fuel multiplied by a trade factor).
The EFF tariffs will only be reviewed in case of significant fuel price fluctuations (more than 50 USD/ton). The EFF tariffs applicable from 1st December 2019 will be announced end-October 2019.
HAPAG-Lloyd has become the latest container line in the North & East Asia-Australia trade to announce a new rate restoration, applying an increase from 1 November. 2019
The rise applies to all cargoes and container types moving from, in the carrier’s definition, Korea, China, China/Hong Kong, China/Macau and China/Taiwan.
Theoretically, HLL already has two identical rises in process, scheduled to take effect (1 October) and on 15 October 2019.
APL has announced a larger increase from N&E Asia (also including Japan) to Australia and to New Zealand, from 15 October 2019. OOCL has declared a rise on 15 October 2019.
Carriers have been attempting to manage capacity and rate erosion by blanking voyages, suspending services and downsizing vessels throughout 2019 and have also been confronted by an anaemic and late southbound peak, which is reflected in trend figures reported by local container ports. Almost all services have cancelled voyages during what should be the busiest months of the year, from August onwards.
The China Containerised Freight Index, which measures average indexed freight rates (all-inclusive spot and long-term rates, excluding THCs) of 15 different carriers for shipments from Dalian, Fuzhou, Guangzhou, Nanjing, Ningbo, Qingdao, Shanghai, Shenzhen, Tianjin and Xiamen to Australia/NZ, last week rose very marginally.