In basic terms, new regulatory rules being applied from 1st December means Shipping and Airlines costs will increase as they are required to reduce emissions further, and to do so they need to spend more money on either sophisticated technology to reduce emissions or operate at a slower steaming pace which also loses money.
Liners are announcing there will be additional charges to offset these extra costs yet, some lines are achieving their targets for IMO in different ways and as such, the market is not clear or confident on whether there will actually be a surcharge or whether the existing BAF surcharge will simply continue to be included within the freight rate. The freight rate fluctuates accordingly with market trends and demands, and so far in 2019, the rate has hit a low point whereas the Spot rate, has now actually proven to be lower than a long term fixed deal for the first time in ten years. Rate fluctuations are here today, every month and sometimes weekly - so as far as we are concerned, in a nutshell; rates will continue to fluctuate.
However, here is an official liners' announcement for clarity:-
From 1st January 2020, a new regulation will come into force to reduce air pollution from ships globally. Whereas today ships can use fuel with up to 3.5% sulphur content (outside Emission Control Areas), the new global sulphur cap will be 0.5%. The cost of compliance with the new regulation will be significant, so the cost of shipping will increase.
Update on Bunker Adjustment Factor (BAF)
As previously communicated, our revised Bunker Adjustment Factor (BAF) is designed to adjust contract rates within the duration of a contract, based on fluctuations in fuel-related costs. It applies to contracts with validity for longer than 3 months. In 2019, we have used the fuel price for high-sulphur fuel (3.5% sulphur) to calculate the BAF. From 1st January 2020, the BAF tariff will be calculated based on the fuel price for 0.1% sulphur gasoil with a fixed deduction of 50 USD/ton.
New Environmental Fuel Fee (EFF)
Effective from 1st December 2019, Maersk will introduce an Environmental Fuel Fee (EFF) on all trades, which will apply to all spot business and contracts with validity up to 3 months. The EFF tariff will be trade-specific and reflect the fuel-related cost increases that result from compliance to the IMO 2020 regulation (calculated as the price difference between high sulphur fuel and low sulphur fuel multiplied by a trade factor). The EFF tariffs will only be reviewed in case of significant fuel price fluctuations (more than 50 USD/ton). The EFF tariffs applicable from 1st December 2019 will be announced end-October 2019.