2020: Freight Costs Will Rise

2020 will see higher global freight costs, especially for containerised goods. A swathe of factors is converging to see higher freight costs apply to nearly all global routes, with the longest routes – like those from Europe to Australia – likely to see sharply higher costs.

Information supplied to customers of major shipping lines and freight forwarders in recent weeks has focussed on the Low Sulphur Fuel Oil (LSFO) rules being introduced by the International Maritime Organisation (IMO). Newsletters seen by IndustryEdge indicate that most lines have introduced surcharges to cover the increased cost of supplying LSFO.

From 1 January 2020, all container shipping lines are required by the IMO to significantly limit sulphur emissions by switching to fuel with a sulphur content no higher than 0.5 per cent. This compares to the current cap of 3.5 per cent. The new regulations are being introduced to reduce the amount of sulphur oxide emissions and thereby to contribute to improved air quality and lower ocean acidification risks.

Because shipping is continuous, surcharges are being introduced from 1st December 2019. With LSFO costing around USD200/t more than normal shipping or bunker fuel, the impact will be significant.

Low Sulphur Fuel Oil Surcharge: USD, AUD & NZD per TEU & tonne

Route

USD/TEU*

USD/tonne#

AUD/TEU*

AUD/tonne#

Europe to ANZ

288.00

14.40

417.00

20.85

North America East Coast to ANZ

249.00

12.45

360.85

18.00

North America West Coast to ANZ

120.00

6.00

173.90

8.70

Australian Coastal

55.00

2.75

79.70

4.00

New Zealand Coastal

43.00

2.15

NZD68.25

3.40

Source: IndustryEdge research & estimates

* TEU is twenty-foot equivalent unit              # implied 20 tonnes per TEU

These initial estimates are likely to adjust as the LSFO takes effect and the impact on fuel prices adjusts over time.

Other pressures are also contributing to rising freight costs and appear to be locked in for 2020. Freight costs have increased by capacity management activity by the major shipping companies. Several have voided routes, increasing capacity utilisation in the short term.

This item was first published in the November 2019 edition of Pulp & Paper Edge (Edition 170).

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