GLOBAL: IMO 2020 COULD ‘MAKE OR BREAK’ CONTAINER CARRIERS’ MARGINS, WARNS ALIXPARTNERS

In its recently-published 2019 Global Container Shipping Outlook, consultancy firm AlixPartners has warned that ‘IMO 2020 weighs heavily on an industry struggling to generate sustained profitability’ and carriers will have to impose ‘significantly higher fuel surcharges’.

AlixPartners said the implementation of the IMO 2020 regulations will ‘pose a daunting challenge for carriers’ as ‘it’s unclear whether refiners can produce enough low-sulphur fuel to meet increased demand in 2020 and beyond’.

‘Scrubbers can help carriers comply with the new limits, but concerns are growing among carriers that the supply of scrubbers won’t meet demand,’ said the report. ‘This fundamental change to such a large component could make or break carriers’ margins depending on how successful carriers are in passing along fuel-cost increases.’

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If the carriers are to maintain their margins, argued AlixPartners, they ‘will have to impose significantly higher fuel surcharges in 2019 and beyond.’

However, the consultancy firm warned that there would be ‘no guarantee that those charges will stick or that they’ll be able to realize recovery in a timely manner’.

The consultancy firm maintained: ‘According to our analysis of large carriers that publish bunker adjustment factor (BAF) rates (tracked by maritime research consultant Drewry), carriers plying the  Asia–Europe route in 2018 would have had to increase their BAF rates by 40%, or $270 per forty-foot equivalent unit (FEU), to achieve the same financial result; carriers working the EBTP route would have needed to increase of 33%, or an additional $150 per FEU.’

The report continued: ‘We estimate that the new fuel rules could expose carriers to as much as $3 billion in additional costs on the EBTP and Asia–Europe routes alone, which account for about 20% of container-shipping trade volume.2 The industry as a whole could be looking at as much as $10 billion in additional exposure, based on 2018 prices. And if tight supplies of LSFO trigger higher prices, fuel costs could climb even higher, making the difficult task of cost recovery even more urgent.’

Click here to download the AlixPartners’ 2019 Global Container Shipping Outlook.

Source - GLOBAL: IMO 2020 COULD ‘MAKE OR BREAK’ CONTAINER CARRIERS’ MARGINS, WARNS ALIXPARTNERS