Maersk will seek fuel recovery from all customers

A new method for calculating fuel charges introduced by Maersk Line on Monday is part of an initiative by the company to have freight rates for all customers reflect current fuel prices.

Today, the company has full floating bunker adjustment factor (BAF) built into only about 55 percent of its business, and only about 10 percent to 15 percent of shipments in the transpacific. The goal of the company will now be to obtain recover on fuel costs on 100 percent of its shipments.

Full participation "is the only fair way to do it, otherwise it is not fair to those who do pay it," said Vincent Clerc, vice president for pacific services at Maersk.

"It's an interesting sale, this surcharge. In a way everyone understands it. They are paying it in other parts of their supply chain," he said, noting that other transportation providers such as airlines and trucking companies commonly have floating fuel charges.

"Somehow they have gotten away without paying for it for the ocean, and that has been more of an anomaly in terms of common practice," he notes. "Some do not understand why they have not paid for it before -- but if you can get a free lunch, why pay for it "

He notes that shipping companies shoulder the risk of investing in vessels and terminals without a guarantee that volumes they anticipate will come through, but "the short term risk on fuel prices is not part of the risk that we should shoulder and it is only fair that we pass it on -- especially given the margins that we have in this business."

Maersk will now seek to obtain recovery of bunker costs on the other 45 percent of its business where it does not have full floating bunker

recover.

Clerc said some products do move at rates that reflect current bunker costs, even though they do not have rates with formal bunker adjustment factors.

For example, some commodities such as waste paper and scrap are booked on a spot basis with bunker costs built into the total price. And contracts for agricultural commodities such as produce are usually negotiated just before the beginning of a short harvest season and reflect current oil prices.

Getting the full floating BAF accepted by shippers on the Pacific is particularly important, Clerc said.

"We are in the unusual position where even though market demand is slowing down, we are looking at a substantial tightening of supply and demand because supply is going away," he noted.

Maersk, for example, reduced its capacity a year ago on the Pacific by close to 30 percent by eliminating four strings of ships.

This year, he expects demand growth for all carriers on the Pacific will be flat to up 2 percent this year, but that supply growth will be reduced three to 5 percent.

"That's quite a tightening of supply and demand on a trade that size," he said.

"If we do not agree with the shippers on the mechanism to hedge for these changes in fuel prices -- and the small adjustments that these imply today -- it will result in more tonnage going away and much more larger increases for the shippers and it is going to hurt the economy more."

Maersk believes that its new formula for determining bunker surcharges is fair and transparent.

Surcharges will be adjusted quarterly to reflect the difference between current bunker prices against what Maersk calls a bunker base element?in each trade lane. That number is $333 per ton of fuel in the transpacific. For example in the transpacific, prices are based on average bunker prices in Hong Kong and Los Angeles or for services to the East Coast in Hong Kong and New York.

These are then adjusted using a formula that is made available to customers that includes factors that reflect the length of voyages in the trade, the efficiency of ships in the trade, and the balance of full and empty containers in the trade.

All these factors are made available to customers in a BAF calculator on the Maersk site.

For example, the calculator shows that at current bunker prices, shippers could expect to see a BAF surcharge of $175 on a 40-foot box from China to the U.S. West Coast or $297 from China to the U.S. East Coast. In the opposite direction, the charges would be $75 from

the U.S. West Coast to China and $127 from the U.S. East Coast China.

Maersk, however, cautions that these figures are for demonstration purposes only. The company doesn't plan to roll out the program on the transpacific until May when most, so prices will be adjusted between now and then.

It notes that if prices are reduced, the BAF will reflect that, and should bunker prices fall low enough, shippers could receive rebates.

In addition Maersk says that each year the non-fuel factors used to calculate bunker surcharges will be adjusted to reflect current conditions. For example, customers will benefit if Maersk brings larger, more efficient tonnage into the trade, if it slows ships, or if a trade become more balanced and the company has to move fewer empty containers.

"It is important to get this right this time around, and this is why we have deployed so many efforts and making this fair and transparent," Clerc said.

Source:American Shipper