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BUNKER INDEX :: Price Index, News and Directory Information for the Marine Fuel Industry
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Hapag to introduce new MFR mechanism to calculate bunker charges

Shipper estimates annual fuel costs will rise by around $1bn in 'the first years' after 2020 sulphur cap.

Hapag-Lloyd containers on board the Antwerpen Express. Image credit: Hapag-Lloyd

Updated on 08 Oct 2018 12:18 GMT

Hapag-Lloyd announced on Monday that it will be establishing a 'Marine Fuel Recovery (MFR) mechanism', which it will use to calculate bunker-related surcharges from the start of next year.

It follows recent announcements by container lines such as CMA CGM and Maersk that have previously stated that they will be reviewing their fuel surcharge policy.

Hapag-Lloyd explained that the new mechanism has been developed as a result of stricter regulations approved by the International Maritime Organisation (IMO) that will see the new global sulphur cap for compliant fuel lowered from 3.5% to 0.5% in 2020, requiring ships to use more expensive low-sulphur fuel oil.

Based on the assumption that the spread between high-sulphur fuel oil (HSFO) and low-sulphur fuel oil (LSFO 0.5%) will be $250 per tonne by 2020, Hapag-Lloyd estimates that its additional annual costs will be around $1 billion in "the first years".

The new MFR mechanism is to be gradually implemented from January 1, 2019, and replace all existing fuel-related charges.

The MFR is said to be based on a formula that combines consumption with market prices for fuel oils - taking into account various parameters, such as the vessel consumption per day, fuel type and price (specific for HSFO, LSFO 0.5% and LSFO 0.1%), sea and port days, and carried TEU.

According to Hapag-Lloyd, the MFR "takes price fluctuations better into account" as it features improved coverage of upward and downward bunker price changes.

"Overall, it aims for transparent calculation of costs," Hapag-Lloyd noted.

Commenting on the MFR, Rolf Habben Jansen, CEO of Hapag-Lloyd, remarked: "We embrace the level playing field and environmental improvements resulting from a stricter regulation, but it is obvious that this is not for free and will create additional costs. This will be mainly reflected in the fuel bills for low-sulphur fuel oil, as there is no realistic alternative for the industry remaining compliant by 2020. With our MFR, we have developed a system for our customers that we think is fair, as it allows for a causal, transparent an easy-to-understand calculation of fuel costs."

Hapag-Lloyd is currently consuming around 1.1 million tonnes of bunker fuel per quarter. Following the merger with the Middle East boxship operator United Arab Shipping Company (UASC) in May 2017, Hapag-Lloyd used 2.2 million tonnes of fuel during the first half (H1) of 2018 - up 29.4 percent on the prior-year period.

The Hamburg-headquartered firm also saw the average price it pays for marine fuel jump 23.4 percent to $385 per tonne in H1.

At this average price level over a 12-month period, bunker consumption of 4.4 million tonnes would result in an annual bunker bill of just under $1.7 billion for Hapag-Lloyd, whilst a future $250 increase in its average price to $635 per tonne would see its fuel costs rise to $2.79 billion - just over $1 billion more than it is currently paying.

As previously reported in August, Hapag-Lloyd is due to perform two pilot projects in 2019 where it will test exhaust gas scrubber systems on two large container ships and convert another to LNG propulsion.

Related Links:

Hapag to test scrubbers and LNG in pilot projects
Maersk to change BAF calculation ahead of 2020 sulphur cap
Sulphur 2020: CMA CGM to review fuel surcharge policy
Sulphur surcharges 'stink': Maersk BAF 'lacks transparency', says shipper group
Freight association slams 'yet another surcharge' by box carriers
Hapag sees bunker use climb 0.5m tonnes as average fuel price soars $73

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