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Box lines aim to pass on higher fuel bills on to shippers in new contracts

CONTAINER shipping lines are looking to pass on higher IMO 2020 low sulphur fuel bills to shippers, while they are in the final stages of negotiating Asia-Europe annual contracts for next year

13 December 2019 - 19:00

CONTAINER shipping lines are looking to pass on higher IMO 2020 low sulphur fuel bills to shippers, while they are in the final stages of negotiating Asia-Europe annual contracts for next year.

Their success in negotiating both with shippers will go a long way towards deciding industry profitability next year, not least because Asia-Europe contract settlements will also set the scene for trans-Pacific liner-shipper contract negotiations in the second quarter of 2020, reported American Shipper.



A key element of the strategy deployed by container lines has been to lift Asia-Europe spot freight rates to improve bargaining positions with shippers. This has proven a relative success in recent weeks, aided by the successful implementation of general rates increases on November 1 and the withdrawal of capacity.



'They're jacking up the short-term rates to try and get in a better position before locking in long-term rates,' CEO of Xeneta Patrik Berglund was quoted as saying.



'The next three to four months will see massive volumes settling long-term rates before we move into the second quarter when trans-Pacific/US volumes also will be settled,' Mr Berglund added.



European shippers were currently negotiating their rates from a position of strength compared to this time last year, not least due to the implementation of IMO 2020.



'IMO 2020 is the big thing on everyone's lips,' Mr Berglund told FreightWaves TV's 'Port Report'.



'We see a major push to have floating bunker mechanisms inserted into long-term contracts for 2020 because of the uncertainty around IMO 2020 [fuel prices].'



He added: 'But we've already seen some of the carriers have started to offer 12- and 24-month rates with no bunker fluctuations. That means two things to me. Either that they're satisfied with current rate levels so they're willing to take the risk. Or they're concerned the rate level might drop so they're trying to secure rates at current levels under contracts.'



Mr Berglund expects supply and demand to be the deciding factor in the 'who pays what' debate over IMO 2020 costs. He thinks shippers with sizable back-haul Europe to Asia cargoes are particularly well-placed when negotiating bunker charges and contract prices with carriers.



'One of the biggest questions we have is how the front-/back-haul imbalance will make it difficult to spread any increased costs across carrier customer bases in a fair manner,' he said.



'The ones on the back-haul, and particularly the ones with substantial volumes, have severe leverage when negotiating with the carriers and little incentive to split the bill with front haul shippers.'


WORLD SHIPPING

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