TSA Eastbound Bunker Fuel Charge

Bigger, Faster, Cleaner: The Changing Economics of Fuel


More than any other single operating cost component, fuel has disrupted and redefined container carriers’ historic business models since the global downturn.

Fuel accounts for 60% or more of total voyage operating costs for a typical scheduled container service. Even small changes in fuel costs have dramatic impacts on service levels and/or carrier balance sheets.

Marine bunker fuel (CS 380/IFO 380) is the primary type of fuel burned by containerships at sea. Over the past two decades, as global trade, manufacturing and crude oil demand have all increased, bunker fuel prices have steadily risen while also experiencing short-term volatility.

Bunker fuel is among the lowest-level diesel fuel distillates. From a refiner’s viewpoint it is a relatively thick, dirty fuel that builds deposits in refinery pipes and equipment and generates relatively low margins, yet is purchased and consumed in large volumes worldwide.

Bunker fuel prices generally track those of crude oil, but isolated factors – speculation in the crude market, refining priorities and capacity constraints, inherent difficulties for vessel operators in either storing or hedging fuel – create pricing distortions which make it impractical to include fuel costs in the overall freight rate structure.

The solution: a separate bunker charge, broken out from freight rates and allowed to float with fuel prices under a transparent formula that converts fuel price moves to per container costs. Bunker charges have been in place in the transpacific trade since the late 1980s.

The 2008-10 global downturn caused tremendous volatility in marine bunker fuel prices, before stabilizing in 2011 at relatively high levels above $600 per metric ton (MT). In late 2014, prices have recently begun drifting down again amid weaker demand and increased supply.

At the same time, container lines have come under pressure to cut vessel emissions at sea and in port.

In 2012 MARPOL Annex VI, a global treaty agreement to reduce vessel emissions, extended limits on sulfur oxide (SOx) to a 200-mile North American coastal zone covering the U.S., and Canada. Capping SOx at 1% of total emissions has required shipping lines to burn low-sulfur diesel fuel within the zone, and modify vessels to alternate between standard bunker and low-sulfur fuels as they enter and leave the zone.

A further reduction of the 1% MARPOL SOx limit to 0.1%, effective January 1, 2015, requires a shift to even cleaner, more costly marine gas oil (MGO) and/or retrofitting older ships with scrubbers or similar equipment. Current prices for MGO, burned over 5-9 days within the coastal zone during a typical transpacific sailing are $365-371.50 per ton higher than for standard bunker fuel, depending on routing.

Changes in vessel and sailing characteristics, meanwhile – larger, more fuel-efficient vessels, slow-steaming to reduce fuel consumption and emissions, consolidation of services under alliances – have produced separate fuel-related cost impacts for carriers as a result.

All of these elements factor into construction of TSA fuel surcharge formulas. New changes are scheduled for January 1, 2015.

TSA Fuel Charges

Container lines in the Asia-U.S. trade recover the fuel-related portion of their costs through separate charges that float with fuel prices at key loading ports for the trade, and are adjusted quarterly. This is done to ensure transparency and to avoid the volatility of folding fuel costs into overall rates.

Most major transpacific carriers benchmark their marine fuel charges to a TSA calculation formula that converts a 13-week average fuel price to a per-container fuel cost aboard ship for a typical transpacific sailing. Separate charges are developed for shipments via the U.S. West Coast and via the U.S. East and Gulf Coasts.

TSA low-sulfur and standard bunker charges are based on a straightforward calculation involving the following components:

- A weighted average of weekly prices posted by Bunkerworld over a 13-week period.
- Average fuel consumption (MT per day) for a typical vessel
- Average days sailing time burning bunker fuel at sea and low-sulfur fuel within coastal ECA
- Average effective capacity per vessel
- Average vessel utilization per sailing
- Adjustment in each direction to allocate costs for empty equipment repositioning.

TSA’s bunker charge has been adjusted periodically- in 2002, 2006, 2008, 2011 and, most recently for 2015 going forward- to reflect TSA membership changes and evolving trends in vessel capacity and fuel consumption, as well as service changes in routings and in transit times with slow-steaming, that effect fuel cost. The low-sulfur charge was introduced in 2012.

Charges are constructed as follows, beginning January 1, 2015:


Bunker Charge

The basic structure and calculation methodology remains intact. The charge is adjusted quarterly per formula, based on average weekly Bunkerworld MGO prices over 13 weeks ending at least 30 days prior to effective date (January 1, April 1, July 1, October 1). The initial Q1 2015 charge was calculated using an average bunker fuel price developed during a study period during the September-November 2014 reporting period.

U.S. West Coast charges are based on weighted averages of bunker prices at Los Angeles and Hong Kong; East Coast and Gulf charges are based on prices at New York and Hong Kong. The formula reflects bunker prices, consumption rates and days at sea outside the 200-mile coastal zone.

Underlying assumptions for calculating the Bunker Charge began, for Q1 2015, with average bunker prices of $612.31 per metric ton (MT) for the West Coast and $608.27 for the East Coast and Gulf. Vessel/sailing characteristics include:

                                                                      USWC                   USEC/Gulf

Avg. vessel effective capacity (FEUs)                 3,651 FEU              2,716 FEU
Avg. vessel utilization                                       90%                      90%
Avg. fuel consumption (MT /day)                       108.3                     100.9
Avg. one-way voyage days (bunker only)          16.39 days             27.18 days
Adjustment for empty repositioning*                 7.714%                  8.84%

*   Addresses fuel-related portion of repositioning costs due to sustained cargo imbalances.


The above variables produced a Q1 2015 bunker charge of $490/FEU to the West Coast and $957/FEU to the East Coast/Gulf.

The revised price sensitivity for each $20/MT move in bunker price is $12 per FEU (WC) and $24 per FEU (EC/Gulf), vs. $14 and $30 under 2011 formula.

Charges for 20-foot containers are set at 90% of standard 40-foot container (FEU) charges. Formula charges for other equipment sizes may vary; customers are urged to consult their individual carriers.


TSA Guideline Bunker Charge

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West Coast

spacer East/Gulf Coasts
BUNKER
FUEL PRICE

 
spacer
20’

spacer
40’
  BUNKER
FUEL PRICE
 
spacer
20’

spacer
40’

spacer
(Per MT)

 
 

spacer
(Per MT)

 

800.01 - 820

 

550

612

 

800.01 - 820

 

1077

1197

780.01 - 800

 

540

600

 

780.01 - 800

 

1056

1173

760.01 - 780

 

529

588

 

760.01 - 780

 

1034

1149

740.01 - 760

 

518

576

 

740.01 - 760

 

1013

1125

720.01 - 740

 

508

564

 

720.01 - 740

 

991

1101

700.01 - 720

 

497

552

 

700.01 - 720

 

969

1077

680-01 - 700

 

486

540

 

680-01 - 700

 

948

1053

660.01 - 680

 

475

528

 

660.01 - 680

 

926

1029

640.01 - 660

 

464

516

 

640.01 - 660

 

905

1005

620.01 - 640

 

454

504

 

620.01 - 640

 

883

981

600.01 - 620

 

443

492

 

600.01 - 620

 

861

957

580.01 - 600

 

432

480

 

580.01 - 600

 

840

933

560.01 - 580

 

421

468

 

560.01 - 580

 

818

909

540.01 - 560

 

410

456

 

540.01 - 560

 

797

885

520.01 - 540

 

400

444

 

520.01 - 540

 

775

861

500.01 - 520

 

389

432

 

500.01 - 520

 

753

837

480-01 - 500

 

378

420

 

480-01 - 500

 

732

813

460.01 - 480

 

367

408

 

460.01 - 480

 

710

789

440.01 - 460

 

356

396

 

440.01 - 460

 

689

765

420.01 - 440

 

346

384

 

420.01 - 440

 

667

741

400.01 - 420

 

335

372

 

400.01 - 420

 

645

717

380.01 - 400

 

324

360

 

380.01 - 400

 

624

693

360.01 - 380

 

313

348

 

360.01 - 380

 

602

669

340.01 - 360

 

302

336

 

340.01 - 360

 

581

645

320.01 - 340

 

292

324

 

320.01 - 340

 

559

621

300.01 - 320  
281
312
  300.01 - 320  
537
597

280.01 - 300

 

270

300

 

280.01 - 300

 

516

573

260.01 - 280

 

259

288

 

260.01 - 280

 

494

549

240.01 - 260

 

248

276

 

240.01 - 260

 

473

525

220.01 - 240

 

238

264

 

220.01 - 240

 

451

501

200.01 - 220

 

 227

252

 

200.01 - 220

 

429

477


Low-Sulfur Charge

The previous low-sulfur charge (LSC) formula is eliminated with the shift to an entirely different fuel.

As with the Bunker Charge, the LSC is adjusted quarterly per formula, based on average weekly Bunkerworld MGO prices over 13 weeks ending at least 30 days prior to effective date (January 1, April 1, July 1, October 1). West Coast charges are based on Los Angeles MGO price; East Coast and Gulf charges are based on New York price.

The formula retains its previous structure, based on the following assumptions:

                                                                     USWC                       USEC/Gulf

Avg. vessel effective capacity (FEUs)                3,651 FEU                   2,716 FEU
Avg. vessel utilization                                      90%                          90%
Avg. fuel consumption (MT /day)                      94.49                         78.6
Avg. one-way voyage days (MGO only)            5.5 days                     9 days
Adjustment for empty repositioning*                7.714%                      8.84%
Cost Buffer Adjustment**                               10%                           10%

*   Addresses fuel-related portion of repositioning costs due to sustained cargo imbalances.
** Addresses added operational costs associated with loading, storing and transferring between fuels
.

An initial January 1, 2015 charge is based on average price differentials of $371.50 per metric ton via the U.S. West Coast and $365 per MT via the East and Gulf Coasts during the September-November 2014 formula study period. These translate into a Q1 2015 charge of $53 per FEU (WC) and $67 per FEU (EC/Gulf); TEU charge set at 90% of FEU level.

The LSC price sensitivity for each $20 per MT move up or down in fuel prices, the low-sulfur charge is adjusted by $4 per FEU for the West Coast and $7 per FEU for the East and Gulf Coasts. 

Charges for 20-foot containers are set at 90% of standard 40-foot container (FEU) charges. Formula charges for other equipment sizes may vary; customers are urged to consult their individual carriers.

Charges may be assessed during an initial transition period as either a separate low-sulfur charge or as a low-sulfur component to the overall bunker charge, depending on terms specified in TSA Lines' individual contracts. As existing contracts expire, and by no later than May 1, 2015, all new contracts to include a separate low-sulfur charge.

NOTE: A full conversion table translating 13-week average MGO-bunker price differentials into quarterly charge levels can be found on the Bunker Surcharge Calculator page of this website.






 


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