SeaIntel: 2015 ECA Rules Could Create a "Low-Sulfur Surcharge Price War"

Wednesday June 25, 2014

Shippers and main line carriers that use Baltic Sea feeder carriers can expect a surcharge of $160 to $190 per twenty-foot equivalent unit (TEU) when new emission rules take effect next year, according to an emailed analysis by SeaIntel.

The analysis found that the feeder carriers' bunker expenses will rise from $335 million per year to between $490 million and $518 million per year, an increase of 46 to 54 percent.

SeaIntel reached that conclusion using a proprietary bunker consumption model and an estimate for the final price of 0.10 percent sulfur bunkers of between $875 and $925 per tonne.

The estimate for cost per TEU is based on 65 percent utilisation and an assumption that the feeder carriers will be able to pass all their added costs on to customers.

A previous SeaIntel analysis found that fines for non-compliance with the new low-sulfur requirements in Emissions Control Areas (ECAs) are not sufficient to incentivise carriers to use low-sulfur fuel, particularly if authorities do not significantly step up inspections.

In the new statement, SeaIntel COO Alan Murphy said the Baltic feeder market may see a "low-sulfur surcharge price war" as feeder carriers struggle to recover extra fuel costs from their customers in a depressed market.

"We have already seen how the expected costs associated with ECA-zone compliance have had a negative impact on the RoRo-market, with vessel operators closing services that will no longer be profitable," he said.

"This may also happen in the container segment."