Rising fuel prices: Predictable pricing model at Hamburg Süd


Hamburg sud rising fuel prices: A new International Maritime Organization (IMO) regulation on sulfur-dioxide emissions in the ocean-going shipping industry will enter into force on January 1, 2020. The regulation aims to reduce the harmful emissions of the roughly 50,000 merchant ships worldwide by more than 80 percent. Although it is universally viewed as a positive and important step for the environment, its implementation will result in significant additional expenses. In preparation for this change, Hamburg Süd will revise the Bunker adjustment factor (BAF) effective as from January 2019, ensuring a higher predictability towards costumers.

Three technical options are available for complying with the IMO’s specifications on sulfur-dioxide emissions:

  • Switching to low sulfur fuel with a sulfur content of max 0.5 percent rather than the fuel used today with max 3.5 percent of sulfur;
  • Retrofitting vessels with scrubber technology that purifies the ships’ exhaust gas;
  • Or using liquefied natural gas (LNG)

All three options are associated with significant costs. Industry experts expect that the container shipping industry will incur additional costs of up to USD 30 billion, whereby installing LNG technology usually only makes sense for new buildings and the capacity for installing scrubber technology is currently limited. For these reasons, Hamburg Süd will primarily comply with the new regulations by switching to low sulfur fuel.

It is already foreseeable that the prices for the then-required fuel will rise significantly due to the high demand starting in January 2020, and might possibly even double. This will lead to additional costs that the carriers will not be able to absorb. For this reason, Hamburg Süd will work with a revised Bunker adjustment factor effective as from January 2019. One advantage for customers is that the incurred fuel costs will be listed transparently as a single transitory item. This methodology will enable customers to track and calculate how changing bunker costs will impact overall freight costs, enabling them to optimally plan their supply chain.

Source Hamburg Süd

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