Shipping told to 'get ready' for fuel surcharge increases

Shipping community is advised to prepare itself for tariff increases as a result of the upcoming 1% sulphur requirement in North America.

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Updated on 30 Jul 2012 12:47 GMT

The Hawaii Shippers Council has advised shipping firms to expect bunker surcharges to be increased over the next few weeks as a result of new legislation regarding sulphur content in marine fuel.

From August 1, ships travelling in the Emission Control Area (ECA) within 200 miles of the U.S. and Canada coasts will be required to burn higher-priced 1% sulphur fuel, below the current global limit of 3.5%.

Please find the letter written below by Michael N. Hansen, President of the Hawaii Shippers Council.

Dear Friends,

Shippers get ready for a brand new bunker surcharge on ocean freight to cover the additional costs to be incurred by carriers switching to low sulfur ship fuels as required by an international convention, which the United States Senate has not ratified but is being imposed anyway by President Obama’s administration beginning on August 1, 2012.

The American Shipper Magazine reports that one of the world’s largest container shipping companies, Mediterranean Shipping Company (MSC), has announced it will impose a low sulfur surcharge on all international shipments in and out of U.S. ports. MSC’s new low sulfur bunker surcharge will be an additional $12 per 20-foot container and $24 per 40-foot container for cargo moving through Canadian and U.S. West Coast ports.

That’s probably a very good guide to the level of new bunker fuel charges that will inevitably be levied in the domestic Alaska, Guam and Hawaii trades by the Jones Act container carriers operating therein.

The American Shipper further reported that The International Chamber of Shipping has been “expressing concern for some time about whether sufficient fuel will be available to allow ships to comply with strict International Maritime Organization regulations aimed at reducing sulfur emissions and whether, as result of insufficient supply, the costs for those ships which are able to obtain the required fuels might be prohibitively expensive."

In response to imposition of this impending new requirement, the State of Alaska under the leadership of Governor Sean R. Parnell (R) sued the federal government in the person of Secretary of State Hillary R. Clinton in federal district court on July 13, 2012, asserting that enforcement of the North American Emissions Control Area (ECA) lowering the allowed maximum sulfur content for bunker fuel from 3.5% to 1% within the 200 mile Exclusive Economic Zone (EEZ) limits is unconstitutional.

The 1% sulfur requirement means that the shipowners will have to switch from lower cost and higher energy content residual intermediate fuel oils (IFO) to much higher cost distillate fuels – which are akin to diesel road fuel and called marine diesel oil (MDO) – for the typical modern motor ship.

The Alaska lawsuit alleges “low-sulfur fuel is more expensive, and more difficult to obtain, than the fuel currently used by many marine vessels operating in the waters off the coast of Alaska . . . . . requiring the use of low-sulfur fuel in the ECA will greatly increase operating costs for vessels that supply Alaska’s residents with basic necessities, and for cruise ships that facilitate Alaska’s tourism industry. Enforcement of the ECA will therefore have an immediate and adverse effect on Alaska’s citizens and economy.”

Alaska further claims “the extension of the ECA to Alaska was unlawful because two-thirds of the U.S. Senate did not consent to that extension as required by the U.S. Constitution. Under the Constitution’s Treaty Clause, a treaty cannot bind the U.S., and is not enforceable as domestic law, unless two-thirds of the Senate give advice and consent to the treaty.”

The treaty in question is Annex Vi of the International Convention to Prevent Pollution by Ships (MARPOL) which is administered by the International Maritime Organization (IMO), a specialist agency of the United Nations based in London, U.K. The Protocol of 1997 (MARPOL Annex VI) was adopted in 1997 and entered into force on May 19, 2005. U.S. implementation of MARPOL Annex VI is through the U.S. Act to Prevent Pollution from Ships, 33 U.S.C. §§ 1901 et seq. The U.S. Environmental Protection Agency (EPA) and the U.S. Coast Guard (USCG) through a Memorandum of Understanding (MOU) of June 27, 2011 will jointly enforce U.S. and international air pollution requirements for vessels operating in U.S. waters. These requirements establish limits on nitrogen oxides (NOx) emissions and require the use of fuel with lower sulfur content with the most stringent requirements applying to ships operating within 200 nautical miles of the coast of North America.

Former USCG Captain and maritime attorney Dennis L. Bryant in his Bryant’s Maritime Consulting blog wrote on July 17, 2012, “the MARPOL Convention (as approved by a two-thirds majority of the Senate) includes a tacit or presumptive consent provision whereby amendments to Annexes to the Convention are presumed to be approved by the party states unless a party state affirmatively objects. For example, the United States affirmatively objected to Regulations 13F and 13G of MARPOL Annex I (relating to alternatives to double hulls on oil tankers) when those regulations were proposed. Therefore, those regulations did not come into force for the United States. It would appear that the constitutionality claim in the Alaska complaint will fail based on tacit consent.”

That is because the Obama Administration chose not to submit MARPOL Annex VI to the U.S. Senate for ratification, the governing treaty provisions presume that without a Senate vote that actually defeats the new Protocol of 1997, it becomes effective under U.S. law.

Given Hawaii’s tradewind climate in the middle of the Pacific Ocean it’s not clear that the new low sulfur fuel requirements for ships will benefit the Islands’ environment any more than Alaskans think it will theirs, so perhaps a new U.S. administration would chose to submit MARPOL Annex VI to the U.S. Senate for ratification, and that future Senate would see fit to reject it.

Best regards.

Michael N. Hansen
Hawaii Shippers Council