TSA Says There Are "Serious Questions" Over 0.10% Supply

The last time that further sulfur limits were imposed was in 2012.

Member container lines in the Transpacific Stabilization Agreement (TSA) said that there are serious concerns over initial price differentials for marine gas oil (MGO) in 2015. 

The majority of ship owners say they will turn to MGO for compliance with tighter Emission Control Area (ECA) regulations coming into force on January 1, 2015 limiting the sulfur content of marine fuel to 0.10 percent by weight.

The last time that further sulfur limits were imposed was in 2012, when sulfur content in fuel used in the open ocean was limited to 3.5 percent. 

“As in 2012 when we first established the component, carriers are again exposed to a sudden, dramatic increase in fuel costs that they cannot possibly absorb,” said TSA executive administrator Brian Conrad.

“Serious questions remain as to whether an overnight surge in demand for a relatively scarce fuel will be fully met and what a ramp-up on this scale will mean initially for prices"

In response to the expected price surge, the TSA said that it had revised upwards its recommended low sulfur surcharge. 

"Recent estimates suggest added annual cost per carrier in the hundreds of millions of dollars, so it is critical in the current environment that lines act quickly to mitigate such a large impact,” Conrad said. 

In the absence of firm loading prices for MGO in Asia, he said, the new formula will base its East and West Coast charges on weekly loading prices for New York and Los Angeles. 

He also noted that current contracts where a low-sulfur component is folded in will be phased out over 2015-2016, in favour of the new, separate surcharge. 

The TSA first revealed details for its surcharge early this month.