Bunkering – What is it? The definition of bunkering has changed over the years, what once was a term describing steam power is now generally synonymous with fuel. TFG investigates Emergency Bunker Surcharges and the implications of these in the freight forwarding world.
What are Emergency bunker surcharge (EBS) by shipping carriers?
Let’s clarify what the word bunker means in the logistics world. The term “bunker” has a historical origin which dates back to the industrial Revolution steamships, as the name implies to the power of steam to travel across the ocean. The first steamship produced steam by burning coal which has stored on board a container called a “bunker”. Over the years, the word “bunker” became synonymous with “fuel” and the term has stuck. So when you see the word “ bunker” you think “fuel”.
Emergency Bunker Surcharges are implemented by carriers to further cover the cost of rising fuel prices.
The two main driving forces behind the logistics industry are people and fuel. No matter what transport mode whether it be road, ocean, rail and air freight remains stationary without the capable hands at the wheel and fuel in the tank. Unfortunately, fuel costs are one of the most volatile aspects of the shipping industry. Prices change overnight, sometimes drastically and that is a game changer for everyone involved. Therefore carriers protect themselves from any unexpected cost increases which directly affect the cost calculations and margins and sometimes increase their losses. Bunker is simply nothing but fuel used in ships so emergency surcharge is simply a surcharge charged by the shipping line to counter the fluctuations in fuel prices.
The emergency bunker surcharge has been introduced by many carriers. These additional charges is “the trickle down cost” while frustrating for the shipper. Naturally, there is a backlash from shippers, some of whom claim liners should be taking responsibility for the increase in cost. To a certain extent, the emergency bunker surcharge now stands out as an independent surcharge as more and more carriers improve their rates transparency.
What is the difference between Bunker Adjustment Factor and Emergency Bunker Surcharge?
Most large ocean vessels are powered by varying types of marine fuels and oils. Oil prices fluctuate rapidly for a number of reasons everything from the weather to politics can influence the price of oil. Because fuel is a huge portion of a ship’s operating cost, ocean carriers currently do their best to mitigate these price swings with a Bunker Adjustment Factor(BAF) surcharge.
Close up tanker bunkering(refuelling) a container ship in port.
Emergency Bunker Surcharge (EBS) is a last minute fee that occurs when actual market fuel prices are higher than was originally anticipated by the carriers.
EBS prices vary according to fuel prices. They can also vary based on the type of container being moved and the trade lane that the freight is moving in. Carriers may choose to only implement EBS’s on certain lanes, whichever are most affected by the increasing cost of fuel.
Shippers generally know ahead of time what the traditional BAF surcharge is because they are updated on a quarterly basis, but emergency bunker surcharge often pops up last minute.
How much do emergency bunker surcharges cost?
Costs vary by cargo and container type and whether the cargo is dry or reefer. Costs also vary by carrier. The costs appear to range $50-$60 USD for 20’ dry containers and $90-180 USD for 40’ dry containers. The carriers normally send out emergency bunker surcharge announcements of the exact charges.
Why are carriers announcing Emergency Bunker Surcharges right now?
Carriers are announcing EBSs right now for a number of reasons. The main reasons are high fuel prices, new emissions stands and declining spot rates.
- High Fuel Prices
Rising fuel prices are causing issues all across the global supply chain, even leading to strikes and demonstrations in some sectors.
- New Low Sulfur Emissions Standards
The goal of the regulation according to the IMO is to “significantly reduce the amount of sulfur oxide emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts.”
- The decline in Spot Rates and Financial Losses
Rising bunker and vessel charter costs, coupled with weak freight rates and continued supply side pressure from the delivery of new containerships, all weigh down on carrier’s margins
Future of bunker fuel surcharges
There is a long-standing debate over who should carry the financial burden of liner operating costs, like bunker fuel prices. Do they fall on the shippers or the carriers? This is leading to the call for more transparent and long-term solution for the emergency bunker surcharge. Shippers want liners to take more responsibility for these cost increases and have criticized the announcements, saying they were implemented to cover carrier losses and not fuel.
Whilst unexpected EBS’s may be frustrating to shippers, ocean carriers have no control or influence over fuel costs, and it is fair for them to pass some of that operational cost burden onto their customers.
All carriers have protective surcharges in place to protect against fuel price increases. These protective surcharges rarely reflect the decrease of oil so they can be a useful income source for carriers in between increased decreases in fuel prices.