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Maersk Passing on Compliance Costs With Higher Freight Rates

Maersk Line is set to pass on costs to customers for increased fuel prices made necessary from mandated decreases in the fuel sulfur content, and others are likely to follow.

The world’s largest ocean cargo carrier said it will institute a new bunker adjustment factor (BAF) surcharge to recover the company’s costs of compliance with a global sulfur cap that enters into force on Jan. 1, 2020. Maersk noted that the regulation was developed and adopted by the International Maritime Organization (IMO), an agency of the United Nations.

Maersk said the BAF replaces Maersk Line’s current Standard Bunker Adjustment Factor surcharge. It consists of two key elements: the fuel price that is calculated as the average fuel price in key bunkering ports around the world, and a trade factor that reflects the average fuel consumption on a given trade lane as a result of variables such as transit time, fuel efficiency and trade imbalances.

Combining the two factors gives customers greater predictability of their costs both before and after 2020, the company said. To allow customers to familiarize with the changed formula, Maersk Line’s BAF surcharge will be introduced on Jan. 1, 2019.

Under the regulation, the new sulfur content of bunker fuel content must be 0.5% compared to the current 3.5% fuel sulfur content ceiling. To become compliant, ship owners will have to invest in compliant fuels, liquid natural gas or scrubber technology, Maersk noted. This is aimed at lowering global shipping’s sulfur emissions, a source blamed on contributing to respiratory disease and acid rain, by more than 80 percent.

“We fully support the new rules,” Vincent Clerc, chief commercial officer of Maersk Line parent company A.P. Moller – Maersk, said. “They will be a significant benefit to the environment and to human health. The 2020 sulfur cap is a game changer for the shipping industry. Maersk preparations to comply are well underway and so are our customers’ efforts to plan ahead. The new BAF is a simple, fair and predictable mechanism that ensures clarity for our customers in planning their supply chains for this significant shift.”

However, the company said the regulation will bring increases and uncertainty to fuel costs for shipping. The BAF surcharge is designed to recover increases in fuel related costs and will be charged separately from Maersk Line’s freight rate.

According to industry estimates, more than 90 percent of the global vessel fleet will be relying on compliant fuels when the sulfur rules take effect, Maersk said. This will also be the case for the Maersk Line fleet, despite a recent investment in a limited number of scrubbers.

Based on expected differences in price between current 3.5% bunker fuel and compliant 0.5% fuel, external sources estimate the additional cost for the global container shipping industry to comply could be up to $15 billion. Maersk Line said it expects the extra fuel costs could exceed $2 billion.

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