Member shipping lines say they need to recover higher fuel costs within 200-mile North American coastal zone.
Member container shipping lines in the Westbound Transpacific Stabilization Agreement (WTSA) have announced plans to add a new component to their bunker fuel charges to offset the added cost of burning more costly low-sulfur fuel while sailing within 200 miles of North American coastal waters.
The low-sulfur component (LSC) will be incorporated into WTSA’s guideline bunker charge, effective with the calendar quarter beginning Oct. 1, 2012, for $11 per 40-foot container (FEU) from the West Coast, and $38 per FEU from the East and Gulf Coast. It will be based on the same 13-week reporting period as the standard bunker charge and will be adjusted on the same effective dates.
The LSC is based on the following: average weekly price differentials between standard bunker and low-sulfur fuel as reported by Platt’s; a weighted average of WTSA carriers’ relative daily consumption of the different fuels; and average per-sailing days within the 200-mile ECA limit.
The component is applied by backing out from the current bunker charge the number of sailing days within the ECA per voyage, at the fuel consumption rates and prices for standard bunker fuel, and then adding back in the number of days in the zone and costs based on average low-sulfur consumption and prices. All other calculation variables used in the existing bunker charge formula remain the same.
“WTSA carriers accept the need for international standards aimed at reducing vessel emissions in coastal areas and in port,” says Brian Conrad, WTSA’s executive administrator. “At the same time, the price tag is significant for a scheduled liner shipping services, in an industry with historically low margins and in a trade facing slow demand and depressed rates.”
The United Nations’ International Maritime Organization (IMO) established its new North American Emissions Control Area (ECA) effective August 1, 2012, under the MARPOL Annex VI protocol, to which the U.S. and Canada are signatories. The result has been higher costs during the sailing days WTSA line vessels operate inside the expanded zone — a weighted average 4.3 days from the U.S. West Coast, and 4.75 days from the U.S. East and Gulf Coasts.
According to price data reporting service Platt’s, price differentials between standard bunker and premium low-sulfur fuel at the four key loading locations used to calculate the WTSA component — Los Angeles/Oakland, Seattle, Charleston and New York — ranged from $87 to $260 per metric ton as of mid-August.
“As our member carriers have adjusted to comply with MARPOL Annex VI, the relative added cost per FEU aboard ship as reflected in the charge is not huge, but the overall cost impact per sailing across the entire trade is significant,” says Brian Conrad, WTSA’s executive administrator. “A further concern is the longer-term effect on low-sulfur fuel supply and prices following implementation of the ECA.”
Price differentials tracked by WTSA have risen in recent months, particularly on the West Coast as the ECA has been implemented in August. An internal price sensitivity study reveals that for every $20 per metric ton change in low-sulfur fuel prices, component levels rise or fall $5 to the West Coast, and $7 to the East and Gulf Coasts.
Conrad says WTSA will post weekly low-sulfur prices on its website in the coming month, along with instructions that will enable customers to calculate the likely component levels for the coming adjustment, as they now do for the bunker charge.