CMA CGM will no longer levy a low-sulfur fuel surcharge, a move that puts pressure on other carriers to do the same and a reflection of how the crash in energy prices has sapped the pressure on carriers and cargo owners to shoulder the cost of the IMO 2020 mandate.
The container line’s decision was announced on its website and is effective May 1, although CMA CGM noted that the group’s low-sulfur fuel surcharge (LSS), applicable on short-term quotations, was suspended and not deleted, and the bunker adjustment factor (BAF), applicable on long-term contracts, was not affected and would be revised quarterly.
With demand for non-essential goods evaporating as countries remain locked down in a battle with the coronavirus disease 2019 (COVID-19), shippers are facing huge financial pressures of their own. As bunker prices collapse, they see little justification for fuel surcharges.
“We are pushing our carriers to follow what CMA CGM has done,” the logistics director for a large German shipper told JOC.com Wednesday. “Of course, the low-sulfur surcharge normally has a delay for a month or two, but it will have an impact.”
CMA CGM is the only carrier so far to cancel its low-sulfur surcharge amid collapsing fuel prices that have plummeted by about 70 percent since early January when the International Maritime Organization’s (IMO) low-sulfur mandate went into effect.
A spokesman for Hapag-Lloyd said, “Our Marine Fuel Recovery (MFR) mechanism is based on a transparent formula and the LSFO 0.5 price is currently at around $200 per ton. We have adjusted our MFR recently as of April 1 and there are no plans to cancel the MFR as we are still paying this money for fuel. The next quarterly adjustment is planned for July 1.”
Shippers pressuring carriers to drop low-sulfur surcharges have some impressive data to support their push. The price of very low-sulfur fuel oil (VLSFO) in the bunkering hub of Singapore has collapsed by 70 percent since the first week of January, according to the Oil Price Information Service (OPIS), a sister product o fJOC.com within IHS Markit.
OPIS assessed VLSFO in Singapore at $218 per metric ton on April 21, down from $740/mt on Jan. 8. In Rotterdam, low-sulfur fuel oil went for $192.50/mt on Tuesday, down 67 percent from $582.50 in early January, OPIS said.
Narrowing the spread
The closely watched spread between compliant VLSFO and high-sulfur fuel oil (HSFO), which can still be burned by ships using emissions-cleaning scrubbers, has followed a similar path. The spread in Singapore has shriveled to a mere $62, according to OPIS, down a staggering 83 percent from $359 right after the IMO 2020 mandate took effect. The Rotterdam spread has crashed 78 percent to just $60; it was $390 on Jan. 8.
The price of fuel is so low that some carriers, notably CMA CGM, are taking the eastbound routes from Europe to Asia via southern Africa. Alphaliner said in a newsletter Wednesday that a typical Suez Canal toll for a laden 20,000 TEU ship was about $700,000. At current prices, the analyst said it was enough to buy 4,800 tons of HSFO bunker (IFO 380), or about 3,600 tons of VLSFO for ships without scrubbers, way more than required to sail the 11,800 nautical mile route.
Alphaliner said CMA CGM was the only carrier to sail around Africa on the headhaul Asia-Europe trade, with Evergreen and 2M Alliance members Maersk Line and Mediterranean Shipping Co. reserving the longer route for the backhaul trades.
Bunker prices began to slide within weeks of the IMO 2020 mandate, once early logistical woes and supply issues were sorted. The declines accelerated in early March after OPEC and Russia initially failed to reach a deal to curb crude production, and then went into freefall as crude prices plummeted when energy demand vanished amid the global COVID-19 lockdown.
Analysts from IHS Markit see no recovery in crude prices — and by extension bunker fuel — until after the second quarter, when lockdown orders begin to ease and the effects of emergency crude output cuts agreed to by producers earlier this month start to take hold.
“Beyond the second quarter of this year, we anticipate that ‘stay at home’ orders will ease and production cuts will diminish the severe global oil supply surplus,” IHS Markit said in a statement Tuesday. “But until then, emergency conditions exist in the oil industry owing to the massive demand collapse.”