Basis for bunker charge as published by the TSA (Transpacific Stabilization Agreement)

This is the basis listed by the TSA for the bunker charge

TSA Fuel Price-Bunker Charge Conversion Table
	Average	Bunker Charge for Next Quarter (US$)
	Weighted Fuel Price	West Coast			East Coast/Gulf
	(US$/Ton) 800.01 - 820 780.01 - 800 760.01 - 780 740.01 - 760 720.01 - 740 700.01 - 720 680-01 - 700 660.01 - 680 640.01 - 660 620.01 - 640 600.01 - 620 580.01 - 600 560.01 - 580 540.01 - 560 520.01 - 540 500.01 - 520 480-01 - 500 460.01 - 480 440.01 - 460 420.01 - 440 400.01 - 420 380.01 - 400 360.01 - 380 340.01 - 360 320.01 - 340 300.01 - 320 280.01 - 300 260.01 - 280 240.01 - 260 220.01 - 240 200.01 - 220 180.01 - 200	20' 551 540 529 518 508 497 486 475 464 454 443 432 421 410 400 389 378 367 356 346 335 324 313 302 292 281 270 259 248 238 227 216	40' 612 600 588 576 564 552 540 528 516 504 492 480 468 456 444 432 420 408 396 384 372 360 348 336 324 312 300 288 276 264 252 240		20' 1077 1056 1034 1013 991 969 948 926 905 883 861 840 818 797 775 753 732 710 689 667 645 624 602 581 559 537 516 494 473 451 429 408	40' 1197 1173 1149 1125 1101 1077 1053 1029 1005 981 957 933 909 885 861 837 813 789 765 741 717 693 669 645 621 597 573 549 525 501 477 453

And this is what the TSA has stated is the recent costs for bunker fuel

Weekly Average Price Differentials 0.1% MGO Low-Sulfur vs. Standard Bunker Fuel
	Week Of: Nov 30 Dec 07 Dec 14 Dec 21 Dec 28 Jan 04 2016 Jan 11 Jan 18 Jan 25 Feb 01 Feb 08 Feb 15 Feb 22	USWC 271 261.5 253	USEC/Gulf 213 200.5 188
	Source: Bunkerworld Reminder: Figures denote difference in price; as example, “100” means that at the load port in question, low-sulfur fuel cost $100/MT more than standard bunker fuel.

I guess if the bunker prices drop below 180 they will have to update their chart.

click here for link to their site

Bunker Prices lower than in 2007

According to the Bunkerworld tracking for TSA, the recent bunker prices are lower than they were in 2007.

click here for link

Surplus of oil products - ships used for storage

Oil has been going up due to speculation, (as mentioned in my blog of June 14, click here) and also due to the stockpiling by China.

China's stockpile increases oil prices

Since crude oil and other commodity prices plunged last year - oil tumbled from $147 last July to nearly $33 in December - China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.

Now we are seeing such a surplus of refined oil products, that..

AN INCREASING number of very large crude carrier newbuildings are being hired to store clean petroleum products as an alternative to land-based storage.

VLCCs and suezmax tankers are being chartered straight from the delivery yard before ever taking a crude cargo, brokers have reported

Even more interesting is this comment.

“

Oil demand has been so flabby in recent months, the refiners have already run the crude and are stuck with the product,” said SSY research director Mark Jenkins.

Assuming this is true, my price target of 55.00 for oil by August may not be too far off the mark. Eventually that will lead to lower bunker fuel prices.

click here for article from Lloyd's List "VLCCS NEWBUILDS USED FOR PRODUCT TANKER STORAGE"

What price for bunker fuel?

Oil has been going up.

Personally, I think there is way too much speculation going on which is driving up the price of oil. Hedge funds and others are now buying up oil, putting them in tanker ships, and (in my opinion) manipulating the market to drive up the price.

This of course, is just my opinion.

One of my friends is investing in an oil exploration venture. I have a chance to invest, but as I think the price or oil is now artificially high, I won't be investing.

OPEC says they won't be increasing production until oil hits 100.00 a barrel.

I am guessing there will be a lot of volatility in the market in the next few months.

Maersk has a negative bunker adjustment factor

Last month I said the carriers should be offering bunker adjustment factor credits if they are truly using the price of bunker fuel as their basis.

Good news. Maersk apparently is.

I input for a container from China to West Coast USA, and these were the bunker adjustment factors for April

Current charges:
(Apr)

20'dry container USD -90
40'dry container USD -120
40'high cube dry container USD -120
45'high cube dry container USD -120


They are scheduled to go up in May to a charge of around 25.00. But this is done only because the FMC (Federal Maritime Commission) requires a carrier file any increases with 30 days notice, but decreases can be done in 1 day. So when May 1st rolls around I expect Maersk will refile their charges in line with their formula.

Good job Maersk.

EU to scrutinize bunker adjustment factors

No sooner than I wrote these words in my post regarding the average price of bunker

I think it's a little hard to justify a bunker surcharge based on these figures

Lloyds List advised

Brussels to police liner sector's bunker adjustment factors

Watchdogs will “vigorously enforce the competition rules in order to prevent any attempt to compensate the fall in base rates by increasing BAFs and other surcharges and ancillary charges via anti-competitive practices”, the minutes show.

However, I think the guy at Nestle has a better idea of the problem

A prominent shipper last week called for greater transparency in the assessment of fuel levies and other surcharges.

Nestlé head of global ocean transport Brett Whitfield told an industry audience that many lines were unable to explain how their BAFs were calculated.

That reflected a wider problem among box lines of failing to understand their cost base, he claimed.

Carriers have been exempt from anti-trust regulations for so long, they don't know how it works in a competitive world.

Mr Whitfield also said carriers had not taken advantage of the opportunities available under the new legal environment, with “a lot of confusion” about how best to respond to customer requirements.

If international containership lines were smart, they would try to hire people from the airline industry, who have gone through the deregulation and pains of operating in a competitive environment.

Although, 30 years after deregulation of the airlines, they are still having lots of problems.

Average Bunker Price 2007-2009

According to the Bunkerworld Prices web-page, designed to track bunker prices for the TSA, below are the following average bunker prices from the second quarter of 2007, until first quarter of 2009.

Weekly average price IFO380 Hong Kong/Los Angeles

Quarter Average $/MT
Q1 2009 262.00
Q4 2008 297.50
Q3 2008 667.50
Q2 2008 586.50
Q1 2008 483.50
Q4 2007 474.00
Q3 2007 390.00
Q2 2007 361.50

Weekly average price IFO380 Hong Kong/New York

Quarter Average $/MT
Q1 2009 262.00
Q4 2008 297.50
Q3 2008 667.50
Q2 2008 586.50
Q1 2008 483.50
Q4 2007 474.00
Q3 2007 390.00
Q2 2007 361.50

I think it's a little hard to justify a bunker surcharge based on these figures.

Especially as the TSA started out with this assumption

TSA developed the following sample calculation of the new bunker charge in late 2008, from posted Hong Kong, Los Angeles and New York bunker fuel prices for July 18, 2008. These averaged $740.65 per ton to the U.S. West Coast, and $735 per ton to the U.S. East Coast.

I just realized the figures the TSA used are not supported by the Bunkerworld figures.

What idiot is running the show at TSA?

The carriers could save some money by getting rid of TSA and it's staff.

I don't think they need all these folks just to run the vessel sharing agreements.

TSA calculates bunker costs

The TSA (Transpacific Stabilization Agreement) web-site now details the basis they will use for calculating bunker surcharges, or bunker adjustment factors (BAF).
(UPDATE - I just realized they are calling this a bunker fuel charge. Next thing you know they will implement a ship cost charge.)

Personally, I think this exercise is mainly for the carriers to understand what they should be charging, more than for the customers.

Steamship lines have been making so much money the last few years, probably no one has been worried about their "cost accounting" guidelines. They have been more worried about finding space for all the cargo coming their way, and of course, with that whole supply/demand thing working, the rates just kept going up.

When the bottom fell out of the market, whoever set the prices just did their best, probably without having the tools to really know their costs.

In my experience, liner carriers aren't very good about cost accounting. Of course, it is very difficult because it depends so much on utilization of each sailing.
It's the same problem for the airlines. Difference is, people can be enticed by really cheap rates. Cargo isn't.

Cargo volume doesn't improve when you drop the rates. Carriers cannot (generally) drop the rates so low as to close the deal between buyer and seller.

The TSA did their whole calculation based on bunker oil around 740.00 per metric ton. Today the price is around 260.00 per metric ton.

They might have shot themselves in the foot.

History Oil Price - WTI

Many of the bunker adjustment factors charged by steamship lines have been changed to supposedly be based on a formula adjusted to the price of bunker fuel.

I realize bunker fuel price is not the same as the oil price, just as gasoline does not always go up or down the same as oil. However, let's face it, bunker fuel does come from oil.

I just happened upon an interesting site, giving the history of the spot oil price of
West Texas Intermediate (spot price in Cushing, Oklahoma, USA).

The WTI today is trading around 47.38

I had to go back 4 years to find a price even close to that low.
Here are the prices in February from 2005.

Feb. 2005 47.97
Feb. 2006 61.63
Feb. 2007 59.26
Feb. 2008 95.35
Feb. 2009 39.16

Were carriers charging bunker adjustment surcharges in 2006? I don't think so.

If they were, let me know.

Basis for Bunker Adjustment Factor

One group, the Transpacific Stabilization Agreement (from the U.S. to Pacific Rim) has changed it's formula for charging the bunker adjustment factor

The calculation will be based on the average weekly fuel prices published by independent tracking service Bunkerworld for a smaller number of load ports – Hong Kong and Los Angeles for a West Coast sailing; and Hong Kong and New York for an East Coast sailing, said the TSA.

The formula will assume average vessel size, fuel consumption and steaming time for each routing, taking into account the effective capacity for each type of vessel.

I wonder what they will do if the bunker prices drop more. I doubt anyone will ever see a bunker adjustment credit - only a charge. If the bunker prices drop more, they will probably just reduce the charge to Zero.

At least they have taken the step to adjust this on a quarterly basis instead of monthly.

It's not just steamship lines charging fuel surcharge

We forget that railroads in the U.S. are still somewhat regulated.

They have been charging fuel surcharges, but now customers are questioning if these are justified.

Some shippers want to shake things up even more. A collection of mostly small customers is taking on the rail industry’s fuel surcharges in a federal court case seeking class-action status. That case entered its evidence discovery phase as 2008 ended, so 2009 could be a crucial year of judgment on railroads’ fuel fees.

I find it a bit surprising the FMC isn't looking into bunker adjustment factors being charged by ocean carriers. After all, some people think the FMC should be abolished, and one would think they want to demonstrate they have a reason to exist.

Maersk to increase bunker surcharge - what idiots!

This is just unbelievable.

Maersk is increasing bunker surcharges on a couple of trade lanes.

Maersk Line plans to raise bunker surcharges imposed earlier on cargo moving on its services from the West Coast of South America to the Middle East and the Indian Subcontinent.

Effective April 1, the surcharges will be $270 per TEU and $540 per FEU, up from $250 and $500 levied at present, the carrier said in an advisory to the trade.

In a separate notice, the Danish carrier said it plans to implement a similar increase for the trade from Central America and the Caribbean to the Middle East and South Asia, also effective April 1.

The revised surcharges will be $500 per TEU and $1,000 per FEU compared to $470 and $940 imposed earlier.

What in world could cause them to justify this??? I guess it's because they can't get any of their rate increases to stick, so they decided to try this route. Maybe they haven't yet figured out that supply/demand thing.

They won't be increasing the BS in their services to or from Australia, because the authorities there require justification for surcharges.

I guess Maersk thinks their customers are stupid. These bunker surcharges really are BS.

What's it really gonna cost to ship?

This statement from the Economist would make one think you can ship a container from China to Europe for almost nothing.

$0.00, not counting fuel and handling: that is the cheapest quote right now if you want to ship a container from southern China to Europe. Back in the summer of 2007 the shipper would have charged $1,400.

But wait, how much exactly is the cost of fuel and handling today?

I can't be sure, but the last Bunker Adjustment Factor (which I assume is the fuel charge mentioned) was 1220.00 per 40ft container. And that's just for the bunker, the handling (generally called THC) could run you another 200 or more. So, it could be more than 1400, the cost mentioned from 2007.

The Economist doesn't even mention if the rate quoted is for a 20ft container or a 40ft container. I guess for their purposes it doesn't matter - they are assuming today the price is almost for free.

The ships are sailing at half capacity, so the carriers aren't making any money.

In response to this, tonnage is being pulled out, ships are being laid up.

That's what one does, get the supply down to more closely match the demand.

Here's one example MOL has pulled out 30 percent of their capacity.

TEN per cent more capacity is to be stripped from Japanese shipping giant MOL's tonnage starting in April in response to the global downturn, reported Nikkei, Japan's largest business daily.

This is in addition to the 20 per cent previously cut on the Asia-North America route and by 10 per cent on the other routes, the report said. Nikkei also said MOL had previously slashed Asia-Europe capacity by 30 per cent, but will not make any additional reductions.

"We plan to make an additional cut in our container transport capacity from April ahead of other shipping companies, as demand has been slumping globally since last autumn," an MOL spokesman said.

And I just got a press release from Hamburg Süd announcing capacity cuts and rationalization in their Asia to Mexico service.

Total nominal capacity will be
reduced by 2,500 TEU per week in the period from February 24 through
to August 2009. Hamburg Süd, CCNI and MSC will review the trade
prospects in June 2009. Should the trade situation improve
sufficiently to warrant additional capacity the lines will revert to
their original service set up.

Looks like everyone will see how things are going in mid-2009 before they make any more changes.

It's a real pain, and costs quite a lot of money, to move ships in and out of a service.

Maersk reduces Bunker Adjustment Factor (BAF)

Maersk announces they are reducing the Bunker Adjustment Factor (BAF) on 2 of their trade lanes.

About time.

Maersk Line announced plans to lower bunker surcharges imposed earlier on the trade from the Middle East and the Indian Sub-continent to the East Coast of South America.


Effective Feb. 1, the surcharges will be $55 per TEU and $110 per FEU compared with $80 and $160 at present, the Danish carrier stated in an advisory to the trade.

In a separate notice, Maersk said it plans to implement a similar reduction for cargo moving from the East Coast of South America to the Middle East and the Indian Sub-continent, also effective Feb. 1.

The revised charges will be $310 per TEU and $620 per TEU, down from $450 and $900 imposed earlier.

They would be better off getting rid of it in all of their trade lanes, as it must be a nightmare to correctly rate a bill of lading - which contracts it applies to, which ones it doesn't, etc. etc.

Furthermore, they look pretty stupid charging it now, considering today the WTI spot price is under 40.00.

I suspect this bunker adjustment factor is more than the ocean freight on some shipments. This kind of pricing severely reduces the credibility of the carriers.

Do they really think their customers are that stupid?

Bunker Adjustment Factors should come down

Today's price of oil at WTI Cushing Spot price is around 43.00.

Here is part of a chart with the Historical Crude Oil Prices (adjusted for inflation)
1996 $20.46 $28.01
1997 $18.64 $24.95
1998 $11.91 $15.70
1999 $16.56 $21.30
2000 $27.39 $34.16
2001 $23.00 $27.92
2002 $22.81 $27.22
2003 $27.69 $32.34
2004 $37.66 $42.80
2005 $50.04 $54.99
2006 $58.30 $62.11
2007 $64.20 $66.40
2008 Partial $97.98 $98.66

So, although the 2008 total average will probably be around 80.00 (I am just guessing), today's price is around the 2003-2004 levels.

I realize none of the carriers want to give up ANY revenue - they need every penny they can get, but I also think it is wrong to say you have a surcharge based on the price of oil, but then don't hold it to that basis.

One group has decreased their bunker surcharge, but not as much as the price of oil has dropped. It wouldn't surprise me if the bunker surcharge is more than the ocean freight, considering the market these days.

The Canada Transpacific Stabilization Agreement’s 11 member shipping lines on Wednesday dropped bunker surcharges 10.9 percent beginning Feb. 1.
The new fuel recovery charges will be:
• $292 per TEU.
• $365 per FEU.
• $411 per 40-foot, high-cube container.
• $462 per 45-foot container.
• $8 weight/measure adjustment.
CTSA’s currency adjustment factor will be remain at 0 percent in February.
CTSA member lines are APL, COSCO Container Lines, Evergreen Line, Hanjin Shipping, Hapag-Lloyd, Hyundai Merchant Marine, “K” Line, NYK Line, OOCL, Yang Ming and Zim Integrated Shipping Services.

We should start seeing other carriers and/or agreements reducing their bunker surcharges, or BAF (bunker adjustment factor) very soon. Either that, or we should see pictures of their pricing staff with egg on their face.

Why are there still bunker surcharges?

I have been meaning to check out the bunker surcharges (B/S), or also called, bunker adjustment factors (BAF), (just so they won't have to admit they are really BS).

I did a post back in September called Illogical Bunker Adjustment Factors (BAF)

Back then crude was still over $100.00 per barrel, although it had come down from it's high of over $140.00.

Today, December 12th, as per Bloomberg News, it is trading around $44.00 per barrel.

So I thought (stupid me) that surely the ocean carriers had withdrawn all their BS by now. Oh, excuse me, BAF. I did a Google search "why are there bunker surcharges". The 3rd one on the list was the site from Tropical Shipping.

It start out really promising:

Bunker Surcharge Calculation Information Announcement - Update

October 3, 2008 -- Over the past few months, the world has seen an unprecedented amount of volatility in the energies market.
However, due to recent market trends that have resulted in lower crude oil prices, Tropical Shipping will now base its bunker surcharge calculation on the eight week running average of the WTI.

The price of crude oil remains highly speculative and our estimated bunker surcharge continues to reflect that volatility. If anything should happen to cause the cost of oil to rise above its current level over a sustained period of time, or conversely, continue to fall over a sustained period of time, Tropical will once again have to assess the current market conditions and sustained market trends to determine if we need to revisit our bunker surcharge calculations at that time.

But - but, but, but

When I do go to their chart, this is what is says:

Effective Nov. 9, 2008, the bunker surcharge is based on the new estimated WTI Cushing Spot* price of $109.00

Effective Dec. 7, 2008, the bunker surcharge is based on the new estimated WTI
Cushing Spot* price of $140.00

*WTI Cushing Spot - this is a settlement point used on the New York Mercantile Exchange. It is based on the price of delivery in Cushing, OK.

So I don't know what's going on. Maybe they laid off the person who was in charge of this project. This is what they said they would do.

The process of implementing a bunker fuel surcharge increase is focused around observing trends in the price per barrel of crude oil. The time periods most often analyzed are: weekly, monthly, eight-week and quarterly averages.
The new bunker surcharge calculation will be based on the eight week running average of the West Texas Intermediate (WTI) Cushing Spot price of crude oil taken every Monday as published on Bloomberg.com (http://www.bloomberg.com/energy). The spot price is put into a chart that we use to track the price per barrel of crude oil to calculate the eight week running average.
The first Tuesday of every month we will review the eight week running average and publish a benchmark WTI Price per barrel that corresponds to a bunker surcharge amount that is presented in a Bunker Surcharge Chart on tropical.com and in our tariff. This chart will show the various bunker surcharges by equipment size based on the (WTI) price per barrel, provide an effective date for the new bunker surcharge (30 day notice) and a new estimated date for the next increase or decrease (60 day notice).

I am going to give them the benefit of the doubt, and say I don't know how to read their chart. I can always hope.

Anyway, maybe I will try to give them a call and find out what's going on.

I hate to start looking at the other carriers. It's all so depressing. They were so anxious to get this additional revenue, but of course no one thought it would go the other way. They should really be giving Bunker Adjustment Factor credits at this point.