Here are a few of the initial announcements on fuel surcharges to compensate carriers for the IMO2020 rule requiring 0.5% sulfur fuel or equivalent scrubbing equipment. The current gap is $171.00 between MGO and VLSFO as seen on this graph from shipandbunker.com where you can add several grades to the graph. It’s a 20-port average reported here. A useful site.
You can see from the article that the firms are soft-pedaling the surcharges to keep from losing too many shippers. Probably a good strategy at the start. I believe long term as refineries gear up for LSFO that the spread will narrow.
And of course you don’t have to buy MGO, you can use the dirty fuel which is cheaper.
It’s clear that Maersk is making bets as a venture capitalist on young firms with unique value propositions. They have made an investment, via Maersk Growth, in ZigZag, a London-based firm.
I had never heard of ZigZag before. They offer a SaaS (Software as a service) that allows manufacturers and retailers to manage returns in a one-stop manner. Their services include hard logistics assets like access to warehouses and sortation centers and access to carriers, as well as just the software.
The story indicates some of what they do. We all know that returns are a unique type of operation, whose nature differs with the type of industry. HP has been doing it for many years in the printer division. But I was interested to find out that there is a lot of interest among clothing manufacturers or retailers.
Apparently people buy clothes, use them for a while, and then return them, even for no refund. There is also a temptation for retailers to get rid of stale inventory by simply throwing it in a landfill, a sustainability issue. Easy returns offers an opportunity for a firm that can handle these problems efficiently and in a sustainable manner. (I presume there might be an incentive to cheat; but certainly a specialist could do a better job because it’s their core business).
I doubt that ZigZag will be merged with Maersk. However, the bet makes sense when you understand that a lot of what Maersk carries is clothing manufactures from the Far East. If ZigZag can help these clients it could make a difference in the clients’ bottom line, and Maersk would be able to say they helped with the supply chain problems.
The ONE ocean carrier group has decided to arbitrage the price of Low Sulfur Fuel Oil (LSFO) vs High Sulfur Fuel Oil (HSFO) by not installing scrubbers on their vessels. That means they will have to use the LSFO everywhere it’s required, mostly in the special ECA emissions control areas set up by a variety of countries.
ONE plans to use fuel price surcharges to offset the difference in price of the fuels. Many firms are deploying price surcharges December 1. Surcharges have attracted a lot of unpleasant words from shippers, who will have one more thing to take into account to determine total landed cost. ONE may need to charge more than some of the firms that are installing scrubbers, such as Maersk, Evergreen, and MSC. It may be a disadvantage.
But, on the supply side, refiners are starting to produce the LSFO, and bunkers providers are going to inventory it. It’s possible the price differential may not be as steep as the $200 per ton currently predicted. There certainly will be some fluctuation in the price difference, and not only in global indexes; it may vary for region to region and provider to provider.
There could be an interaction with routes. Certain routes may offer opportunities to buy LSFO at lower prices; if they’re convenient, the cost hit may not be as bad as that predicted for the industry as a whole. Perhaps ONE knows something we don’t about their routes and bunker providers.
Apparently the scrubber producers and installers are backlogged at present, so it’s not possible to get one installed promptly. Over time this demand will fall, and maybe one can install a scrubber cheaper later on, an example of the learning curve phenomenon.
But rather than tag ONE management with ‘too slow too late’ decision making, we need to see how the whole picture plays out. There are lots of moving parts in the problem of how to meet IMO2020’s 0.5% sulfur requirement.