Major Shippers See Costs Skyrocket Next Year

Date: Wednesday, November 28, 2018
Source: ShippingWatch

A number of important shippers, including Swiss Nestlé, expect their operational costs to increase in 2019 – at a rate significantly higher than in 2018.

Over the last couple of months, several prominent shippers have criticized the upcoming bunker surcharges imposed by a joint liner industry in the wake of the 2020 sulfur rules.

Not because of the extra billions of dollars which the companies can expect to pay, starting already next year, but more due to a concern that the surcharges are imposed unilaterally by the shipping lines without consulting the shippers. Or, at least that is how the shippers view it.

Apart from the base rate, the expected total cost rise includes bunker surcharges and inland costs, all of which are being strained by different factors.

The liner companies are trying to push up rates referring to the pending surcharges. Inland costs, mainly in the US but also in Europe, represent another contributing factor because of the shortage of truck drivers.

Jochen Gutschmidt, Global Freight Lead Nestlé’s corporate supply chain, explains:"Whereas a normal estimate of annual cost increases often falls in the interval of 3 or 4 percent, next year it may as well go up by as much as between 10 and 15 percent in some trades – not only driven by Ocean but all transport and other cost elements of an end to end flow," he says. "The cost increases in 2019 depend on several factors. They are highly dependent on energy prices, but also regulatory decisions, supply and demand etcetera. Looking at the total cost of moving goods from one inland location to another, one must expect an increase in costs next year of ten to 15 percent and more, very much depending on the trade."

Basically, Nestlé acknowledges the need to address the extra bill stemming from the sulfur reduction efforts, which can amount to between USD 12 and 18 billion per year.

During October, long-term contract negotiations between shippers and carriers began, meaning that October next year is also included, which is said to be the first month with the 2020 surcharge.As such, the results of the current rounds of meetings are important for the general price setting. According to market sources, this can explain why carriers are eager to communicate how costly the sulfur ban will become and how hard it will hit the industry.

But also why shippers are telling another story of how big a burden the overall costs will be going forward.But according to Gutschmidt, the circumstances are very rare this time.

"An increase of ten to 15 percent is definitely not normal, not in an essentially stable and unchanged market as we experience now. With this I mean that most market fundamentals remain very similar: Number of carriers, alliances, GDP growth etcetera. But extraordinary factors such as energy prices, trade and duty wars, carrier rate increases and congestions in the eco system, like driver shortage, are affecting prices a lot," he explains.Nestlé transports around half a million TEU every year using container vessels to ship both raw materials and, in the end, the manufactured goods.

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