Beneficial cargo owners (BCOs) are pushing back against the introduction of bunker adjustment factors designed to alleviate the increased cost of fuel after the January 2020 emission rule change takes effect, according to analysts at Platts.
“There are still questions as to when bunker adjustment factors come into force in the market, with the lion’s share due to kick in at the start of the fourth quarter, but some BCOs have negotiated on start dates, leading carriers to concede that they will come into force as of 1 January 2020,” Platts said in its weekly rates briefing.
Most major carriers have already introduced new bunker adjustment factors that they hope will move the higher cost of low-sulphur fuel onto their customers. And while the new sulphur content restrictions do not take effect until 1 January, lines will need to be bunkering with low-sulphur fuel by the fourth quarter to ensure they are not operating on high-sulphur fuel by the cut-off date.
Some BCOs have questioned not only the methodology and transparency of the bunker adjustment factors, but also their introduction a full year ahead of the IMO deadline.
Platts added that the issue would become increasingly important as the year progresses, with demand expected to rise before this additional charge comes into force in October.
One carrier source told Platts he expected a rise in demand before bunker adjustment factor charges came into force, which would coincide with the usual summer peak season for box lines.
“Should this be the case, spot rates on major head-hauls could see some significant strength at the end of the summer months, ahead of the new sulphur-limitation regulations in 2020,” Platts said, adding that spot rates on the US trades had jumped again last week, as demand rose.
“The transpacific routes once again saw the greatest gains associated with its general rate increases, with demand picking up a bit over the course of the month,” it said. “However, import volumes to date appear to be languishing below those a year earlier.”
While the lower volumes this year could be attributed to either the timing of the Chinese New Year or the frontloading that occurred last year, the key demand driver was how fast US retailers were going through their inventory and when they would need to restock again.
“This is what is currently limiting further upside to the transpacific container lanes,” Platts said.