TSA Lines Develop Westbound Low-Sulfur Fuel Guideline

New formula addresses changes to vessel and sailing characteristics, and the shift to more costly 0.1%-emission marine gas oil.

 U.S. exporters shipping container cargo to Asia will see changes in their overall freight costs beginning January 1, 2015, as current low-sulfur fuel charges are adjusted to reflect larger vessels, slow-steaming and stricter sulfur oxide (SOx) emissions standards.

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

TSA’s current recommended low-sulfur fuel charge in effect through December 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 said it will retain its historic pricing for 20-foot equipment at 80% of the FEU level.

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 ten days’ sailing for an all-water East or Gulf Coast service, to meet stricter 0.1% 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, they 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. TSA-Westbound will base its West Coast charges on Los Angeles loading prices for MGO, as reported weekly by Bunkerworld; East and Gulf Coast charges will be based on New York loading prices.

“Carriers anticipate a sharp, overnight rise in fuel costs as the stricter emissions standards take effect,” explained TSA executive administrator Brian Conrad, “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 January 1 TSA-Westbound will be modifying 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.

For comparison, at 13- week price averages now in effect for Q4 2014, the modified bunker charge would be $663 per FEU for the West Coast and $1,316 for the East and Gulf Coasts, versus $673 and $1,325 under the current formula. Each $20 change up or down in the 13-week fuel price average produces an adjustment to the charge of $14 per FEU for the West Coast and $34 for the East and Gulf Coasts, versus $19 and $37 under the current formula.

“Our basic approach to the formula itself remains the same,” Conrad said. “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.” Conrad indicated that further details on the new bunker and low-sulfur formula changes will be posted on the TSA-Westbound website and communicated by the lines directly to customers prior to January 1.

Source: TSA Westbound

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