TSA to develop new guidelines for low-sulfur fuel

The Transpacific Stabilization Agreement (TSA) has announced that U.S. exporters shipping container cargo to Asia will see changes in their overall freight costs starting Jan. 1, 2015, as current low-sulfur fuel charges are adjusted to reflect larger vessels, slow-steaming and stricter sulfur oxide (SOx) emissions standards.

TSA’s member groups are recommending a quarterly low-sulfur charge of $47 per 40-foot container (FEU) and $38 per 20-foot container (TEU) from the U.S. West Coast, and $95 per FEU and $76 per TEU from the East and Gulf coasts, effective Jan. 1.

The modified charge reflects changes in per-container operating costs from larger ships, improved fuel consumption and longer transit times as well as the shift to burning cleaner, costlier marine gas oil (MGO) mandated within North American coastal waters as of Jan. 1, the TSA says. The charge may appear as an adjusted low-sulfur component within the bunker charge in some contracts during a transition period until those contracts expire, according to TSA.

TSA’s current recommended low-sulfur fuel charge in effect through Dec. 31, 2014, is $21 per FEU and $17 per TEU from the West Coast and $24 per FEU and $19 per TEU from the East and Gulf coasts. For its westbound fuel charges, TSA says it will retain its pricing for TEU at 80 percent of the FEU level.

According to the TSA, container ships will need to switch to burning MGO during the approximately six days of sailing within the 200-mile North American coastal zone from the West Coast and 10 days’ sailing for an all-water East or Gulf Coast service to meet the stricter 0.1 percent SOx emissions limits under the International Maritime Organization’s MARPOL Annex VI treaty. Current MGO prices are $97 per metric ton higher than low-sulfur fuel now in use and $365 per ton higher than standard marine bunker fuel for a typical West Coast sailing. For East and Gulf Coast sailings, MGO prices are $340 higher than low-sulfur fuel now in use and $372 per ton higher than standard bunker fuel via the East and Gulf Coasts.

“Carriers anticipate a sharp, overnight rise in fuel costs as the stricter emissions standards take effect,” says Brian Conrad, TSA executive administrator, adding, “not only from the higher MGO price differential in any case, but also from potential short supply early on as refiners ramp up to meet sustained demand. Lines must make sure these costs are adequately reflected in their pricing structures from day one.”

In a related move, effective Jan. 1, 2015, TSA-Westbound will modify its quarterly bunker charge to reflect changing vessel and sailing characteristics, resulting in a slightly lower charge at current bunker price levels and reduced price sensitivity in formula tiers going forward.

“Our basic approach to the formula itself remains the same,” Conrad says. “It’s a straightforward translation of average vessel size, fuel consumption, sailing time and utilization, with adjustments for container imbalances and other factors, into per container costs for fuel. As the numbers change, we have made periodic adjustments like this to more accurately reflect cost impacts.”

The TSA is a research and discussion forum of container shipping lines serving the trade from Asia to the United States. Members of the TSA include APL Ltd., Kawasaki Kisen Kaisha Ltd. (K Line), China Shipping Container Lines, Maersk Line, CMA-CGM, Mediterranean Shipping Co., COSCO Container Lines Ltd., Nippon Yusen Kaisha (NYK Line), Evergreen Line, Orient Overseas Container Line, Hanjin Shipping Co., Yangming Marine Transport Corp., Hapag-Lloyd AG, Zim Integrated Shipping Services and Hyundai Merchant Marine Co.