Customers accuse box lines of unfair fuel charge policies

7/9/2020

Some container shipping lines are failing to discount fuel surcharges in line with their own bunker adjustment indexes to reflect the decline in oil and bunker prices during 2020, according to leading forwarders and shippers.

“Some carriers who were supposed to reduce the fuel or the bunker adjustment factors are clearly not doing it,” Dominique von Orelli, DHL Global Forwarding’s head of global ocean freight, told Lloyd’s Loading List. “Obviously this had a significant positive impact on carrier financial results in Q2, but is very difficult to explain to our customers.

“The problem will really start in July. Normally the BAF (Bunker Adjustment Factor) levels are adjusted on a quarterly basis based on an average from the last three months. So now the carriers would have to drop their price because of the crash in the oil prices in quarters one and two, and this is not what they are doing – at least not all of them.”

Jordi Espin, Maritime Transport Council policy manager at the European Shippers’ Council, also said that while bunker prices had fallen due to lower shipping demand and the drop in crude oil prices, shipping lines were failing to reflect this in BAFs charged to shippers.

“Shipping lines are setting prices at whatever levels they want,” he added. “Then they are also creating new surcharges ad hoc and unexpectedly.”

Dramatic fuel price decline 

Bunker prices have declined dramatically this year. IFO380 supplied out of Singapore, for example, dropped from $400 per metric tonne in January to just $155 per tonne at the end of April before climbing to $249 per tonne on June 29, according to Ship & Bunker.

Liner customers were complaining months ago that BAFs were far too high and should be cut to reflect the rapid drop in bunker prices, as reported in Lloyd’s Loading List. But the real crunch in the liner-customer relationship is coming now, not least because carriers usually pass on the cost of fuel to customers via BAFs and various Low Sulphur Surcharges (LSS) using complex methodologies – which typically means there is a lengthy lag between changes in the fuel price paid by lines being reflected in revised surcharges levied on customers.

Von Orelli said each carrier was taking a different approach to passing on fuel prices with some customers now receiving preferential treatment. “There’s a different set of rules [for different customers], although the carriers, of course, would never admit it,” he added. He said that while some carriers were honouring agreements, others were refusing to reduce BAFs in line with agreed contracts.

“It’s very inconsistent, both for us and our customers,” he added. “We believe that what carriers are doing is hard to explain to anyone. And we as DHL Global Forwarding will support carriers who stick to agreements and reflect market reality.”

European carriers resisting surcharge cuts

A number of sources suggested European carriers were taking a harder line on BAF adjustments than some Asian peers, and this was confirmed by forwarders based in Hong Kong. 

One leading operator provided details of Ocean Network Express (ONE) and Cosco bunker charges through 2020 on liner services from Hong Kong to Europe and North America. Figures from both carriers revealed major reductions, mirroring the decline in oil and bunker prices through the year, albeit with a lag.

For example, ONE bunker surcharge levied on the forwarder for shipments from Hong Kong to Europe in July were listed as ‘zero’ for a full 40 ft container, down from $304 per FEU in March and $64 per FEU in June.

The Hong Kong Association of Freight Forwarding & Logistics (HAFFA) told Lloyd’s Loading List that rates were rising not because carriers were turning fuel into a profit centre, but because so much capacity has been withdrawn from the market.

“Overall freight rates are increasing for a number of factors, especially shipping lines reducing their capacity and pushing the rate up,” added a spokesperson.

Espin said both BAFs and freight rates were being kept at artificially high levels by carriers even as service standards were declining.

“Shipping lines are behaving how they want so they are financially resilient [through the coronavirus crisis] without taking care of customer demands,” he added.

“It’s a strange scenario. Any market or industry tends to reflect customer demands, but at this point demand from customers is not being taken care of. They are behaving on their own. We understand the market is tough but we need a dialogue between customers and shippers, and this industry isn’t behaving like that. 

“For other challenges like climate as well as this, if we don’t speak to each other how do we make progress?”