Container lines are expressing growing optimism that they will be able to fully recoup the higher operating costs caused by a global low-sulfur fuel mandate in annual trans-Pacific service contracts.

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Container carriers and beneficial cargo owners (BCOs) tell JOC.com they are separating fuel and freight costs in annual service contracts, despite a historical preference for “all-in” contract rates. Even more importantly, carriers and shippers are developing bunker fuel adjustment factors, either proposed by the carrier or the shipper, leaving the actual cost of low-sulfur fuel as the only variable to be plugged in later this year.

Carrier Fuel Cost Recoupment Actually Good for Shippers?

Shippers always like the idea of paying less money on their imports and exports, so initially, fuel costs being separated out and passed on to shippers doesn’t sound like a good thing. However, thinking about the problems caused by these increased costs being shouldered by carriers gives reason to think of this as not only good for carriers but beneficial for shippers too.

Mongelluzzo also wrote in his JOC article:

[Carriers fully recouping higher operating costs is] a positive sign not just for carriers, but also for shippers, who could see increased blank sailings and even canceled service strings if the container shipping industry is forced to slash capacity because it can’t shoulder the billions in extra annual costs to meet the International Maritime Organization’s (IMO’s) mandate.

We just posted a couple weeks ago about the expectation of increased transhipment expected in the upcoming year because of IMO 2020. Shippers hate transhipment because of the costly delays and increased risks of cargo loss and damage that come along with it.

If carriers are fully recouping their higher fuel costs, that eliminates the need to so through fewer direct port calls, which was to be the cause of increased transhipment.

Conclusion

Maybe all the IMO 2020 carrier hysteria was designed to make shippers to see a need for carriers to recoup these higher fuel costs. Even if it was, that doesn’t make the recoupment any less necessary.

Though it sometimes feels like the way of the international shipping industry is carriers versus shippers, it should not be viewed that way. Carriers provide the service importers and exporters need to be, well, importers and exporters. In any industry, healthy service providers are optimal for consumers of that service.

Shippers thought record low freight rates were great. However, those low rates became costly when they played into Hanjin’s collapse — delaying cargo for many, many shippers — shrunk carrier competition, or decreased sailings.

Similarly, shippers don’t like seeing these fuel costs fall to them. However, avoiding the decreases in service and carrier competition and likely increases of costly issues on shipping container moves probably makes this cost worth it for shippers in the long run.