TSA Eastbound Bunker Fuel Charge

Fact Sheet


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 required in large volumes but generates relatively low margins, and is a relatively thick, dirty fuel that builds deposits in refinery pipes and equipment. When crude oil prices are high, refiners prefer to produce cleaner, higher-value distillates; when prices are low, so are IFO 380 margins. At the same time, shipping operations worldwide consume, in aggregate, a comparable amount of fuel each year to Germany.

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.

These patterns have posed major challenges for container lines providing scheduled service at ports worldwide, since fuel accounts for as much as 60% of total sailing costs. In the past, fuel cost was folded into freight rates like many other costs, but this approach became increasingly unworkable: Fuel price volatility can have a destabilizing effect on rates, especially in trades using long-term contracts; and volatile short-term rates tend to erode fuel cost recovery through the rate structure alone.

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.

TSA’s eastbound guideline bunker charge has been modified several times – in 2002, 2008, 2011 and 2012 – to adjust for changing TSA membership and member lines’ sailing characteristics: Larger vessels with improved fuel consumption ; slow steaming of vessels; and, most recently, mandated use of more costly low-sulfur fuel within 200 miles of North American ports.

An important element of the bunker charge is transparency. This Fact Sheet describes for the shipping public the rationale behind, and components included in, TSA’s bunker formula. It also gives them the means to 1) track fuel price data, over the reporting period and historically; and 2) use the TSA calculation methodology to verify and, to the extent possible over the reporting period, anticipate upcoming adjustments to the charge.

Bunker Charge

The TSA bunker charge formula is an equation based on a simple set of elements:

Average weekly bunker price (metric tons)
multiplied by
Average fuel consumption per sailing (metric tons burned per day)
multiplied by
Average sailing time (days at sea)
divided by the
Average loadable slots per vessel (effective FEU capacity x average utilization)

The above equation produces a gross fuel cost per FEU that is then adjusted to take into account a) additional fuel-related costs associated with repositioning empty containers westbound in a heavily imbalanced trade; and b) fuel cost historically embedded in bunker charges since they were introduced, and must be backed out.

Average U.S. West Coast weekly bunker prices reflect an average of Hong Kong and Los Angeles prices. Average U.S. East Coast/Gulf weekly bunker prices reflect an average of Hong Kong and New York prices.

Weekly average West Coast and East Coast fuel prices will be posted on the TSA website each Tuesday. Our source for bunker fuel price data is Bunkerworld, and the same weekly prices will also be available on Bunkerworld’s site at:

www.bunkerworld.com/prices/surcharges/tsa

The TSA bunker charge is adjusted quarterly, on January 1, April 1, July 1 and October 1, based on a 13-week reporting period that ends approximately 30 days before the effective date of the next adjustment (September-November, December-February, March-May and June-August, respectively).

Assumptions about average vessel fuel consumption, effective capacity, utilization and sailing days at sea per sailing reflect in each case a weighted a market share and fleet characteristics.

Calculation

The simplest way to calculate the charge is to:

  1. Track the average West Coast and East Coast/Gulf prices each week during the quarterly periods shown above;
  2. Total the prices for the applicable calculation period and divide by the number of weeks (13) to arrive at a quarterly average; and
  3. Look up the charge for that average West Coast or East Coast/Gulf price in the matrix at right.

    Note: By adding prices posted to date in a reporting period and dividing by the number of weeks to date in the period, it is possible to get a sense of the likely upcoming charge at the end of 13 weeks. Obviously, the earlier in the period this is done, the less accurate forecasting is likely to be.

    However, the elements described above also translate fuel-related cost per sailing into the bunker shown in the matrix at right, through the following set of calculations:

    1. Average fuel price x Fuel consumption/day x Days at sea = Fuel cost/sailing.

    2. Fuel cost/sailing + Westbound empty deadweight factor (WEDF) = Adjusted gross fuel cost/sailing.

    3. Adjusted gross fuel cost/sailing divided by (Effective capacity x 0.85) = Fuel cost/FEU at average utilization.

    4. Fuel cost/FEU at average utilization – Embedded cost ($80 to the WC; $160 to the EC/Gulf) = Bunker charge.

In order to calculate the cost impacts of fuel price fluctuations on an average transpacific sailing, we assume the following, based on a survey of TSA members:

Average Vessel Effective Capacity:* 

2,744 40’ containers (FEU) to the WC
1,928 40’ containers (FEU) to the EC/Gulf

Utilization:
 
88.19% to the WC
91.56% to the EC/Gulf

Average Vessel Fuel Consumption:
 
158.45 tons per day to the WC
127 tons per day to the EC/Gulf

Average One-Way Steaming Time (excluding time in port):
 
13.94 days to the WC
24 days to the EC/Gulf

Empty Reposition Share of Westbound Vessel Deadweight:**
 
7.714% from the WC
8.84% from the EC/gulf

* Vessel capacity allowing for mix of equipment sizes, out-of-scope cargo, heavy and oversize cargo, load-bearing limits on deck and hatches, bridge visibility, load sequencing for priority cargo and port rotation, etc.

** Contribution to a ship’s total westbound deadweight from empty containers being repositioned to Asia, and subsequent reduction of westbound sailing capacity, allocated to eastbound fuel-related cost.

Taking the variables and assumptions described above, TSA developed the following sample calculation of the new bunker charge in late 2008, from posted bunker fuel prices for July 18, 2008. These averaged $740.65 per ton to the U.S. West Coast, and $735 per ton to the U.S. East Coast/Gulf.

1. Calculate the fuel cost per sailing.

$740.65/ton x 158.45 tons/day x 13.94 days = $1,635,942.50 (WC)

$735/ton x 127 tons/day x 24 days = $2,240,280.00 (EC/Gulf)

2. Add the westbound allocation of total fuel cost (for empty repositions).

$1,635,942.50 + $126,196.61 (7.714%) = $1,762,139.11 (WC)

$2,240,280.00 + $198,040.75 (8.84%) = $2,438,320.75 (EC/Gulf)

3. Calculate effective capacity at average utilization.

2,744 FEU x .8819 = 2,420 FEU (WC)
1,928 FEU x .9156 = 1,765 FEU (EC/Gulf)

Knowing the total adjusted fuel cost per sailing and the effective capacity at average utilization, it is then possible in the above example to calculate the fuel cost per FEU:

$1,762,139.11 divided by 2,420 FEU = $728.16 per FEU (WC)

$2,438,320.75 divided by 1,765 FEU = $1,381.48 per FEU (EC/Gulf)

Price Sensitivity

In order to establish the fuel price tiers which trigger up or down movement in the bunker charge, we must understand the price sensitivity of ocean carriers’ operations in the Asia-US market – how fluctuations in the CS 380 fuel price affect the fixed cost of the sailing per FEU.

To test price sensitivity, TSA ran the calculation using a weighted average fuel price for the first week of June 2008 ($617.75 to the WC; $588.25 to the EC/Gulf), and compared it to the result for the third week of July, shown above:

$617.75/ton x 158.45 tons/day x 13.94 days = $1,364,481.88 + $105,256.13 (7.714%) = $1,469,738.01 divided by 2,420 FEU = $607.33/FEU (WC)

$588.25/ton x 127 tons/day x 24 days = $1,792,986 + $158,499.96 (8.84%) = $1,951,485.96 divided by 1,765 FEU = $1,105.66/FEU (EC/Gulf)

Thus, the fuel price rose by $122.90 to the WC and by $146.75 to the EC/Gulf, while carrier cost per FEU rose by $120.83 and $275.82 respectively. In other words, every $20 increase in the price of fuel translates into another $19.66 in carrier cost to the WC, and another $37.59 to the EC/Gulf.

Rounding to the nearest dollar, we see a consistent relationship between bunker fuel price fluctuations fuel cost impacts per sailing, when the basic cost calculation is applied to any fuel price: When the bunker fuel price rises by $20 per ton, container lines see a $20 increase in cost per FEU ($16 per TEU) to the West Coast, and an increase of $38 per FEU ($30 per TEU) to the East Coast/Gulf.

This forms the basis of TSA’s bunker charge tiers. It would be impractical to set the tiers in increments of less than $20; calculation would be unnecessarily complex, especially over a 13-week period as the charge level would be a constantly moving target. Although it means that the precise cost number arrived at using the full mathematical calculation shown earlier will typically be slightly higher or lower than the actual bunker charge tier price, allowing the fuel price to move up or down by $20 without needing to adjust the bunker charge provides a measure of price stability for carriers and shippers.

A final adjustment to the bunker charge tiers compensates for estimated bunker fuel cost embedded in base rates since bunker charges were first introduced in the Asia-US trade lane (see FAQ section below for details). After arriving at a bunker cost per FEU under the earlier calculation methodology, TSA’s guideline bunker charge table reflects a subtraction of $80 to the West Coast and $160 to the East Coast/Gulf in order to arrive at the final tier levels.

Using the earlier example, the calculation methodology translated average fuel prices of $740.65 per ton (WC) and $735 per ton (EC/Gulf) into bunker fuel costs of $728 per FEU and 1,381 per FEU respectively. Substracting embedded costs results in the following:

$728/FEU (WC bunker fuel cost) — $80/FEU (WC embedded cost) = $648/FEU WC bunker charge

$1,381/FEU (EC/Gulf bunker fuel cost) — $160/FEU (EC/Gulf embedded cost) = $1,221/FEU EC/Gulf bunker charge

Thus, as shown in the table below, a $740.65 per ton fuel price = a $648/FEU West Coast bunker charge, and a $735 per ton fuel price = a $1,221 per FEU East Coast/Gulf bunker charge.


Revised TSA Guideline Bunker Charge*

West Coast
spacer East/Gulf Coasts
BUNKER
FUEL PRICE

spacer
20’

spacer
40’
spacer
40’ HC
spacer
45’
  BUNKER
FUEL PRICE
spacer
20’

spacer
40’
spacer
40’ HC
spacer
45’

spacer
(Per MT)

 

spacer
(Per MT)

800.01 - 820

566

708

797

896

 

800.01 - 820

1098

1373

1545

1738

780.01 - 800

550

688

774

871

 

780.01 - 800

1068

1335

1502

1690

760.01 - 780

534

668

752

845

 

760.01 - 780

1038

1297

1459

1642

740.01 - 760

518

648

729

820

 

740.01 - 760

1007

1259

1416

1593

720.01 - 740

502

628

707

795

 

720.01 - 740

977

1221

1374

1545

700.01 - 720

486

608

684

770

 

700.01 - 720

946

1183

1331

1497

680-01 - 700

470

588

662

744

 

680-01 - 700

916

1145

1288

1449

660.01 - 680

454

568

639

719

 

660.01 - 680

886

1107

1245

1401

640.01 - 660

438

548

617

694

 

640.01 - 660

855

1069

1203

1353

620.01 - 640

422

528

594

668

 

620.01 - 640

825

1031

1160

1305

600.01 - 620

406

508

572

643

 

600.01 - 620

794

993

1117

1257

580.01 - 600

390

488

549

618

 

580.01 - 600

764

955

1074

1209

560.01 - 580

374

468

527

592

 

560.01 - 580

734

917

1032

1161

540.01 - 560

358

448

504

567

 

540.01 - 560

703

879

989

1112

520.01 - 540

342

428

482

542

 

520.01 - 540

673

841

946

1064

500.01 - 520

326

408

459

516

 

500.01 - 520

642

803

903

1016

480-01 - 500

310

388

437

491

 

480-01 - 500

612

765

861

968

460.01 - 480

294

368

414

466

 

460.01 - 480

582

727

818

920

440.01 - 460

278

348

392

440

 

440.01 - 460

551

689

775

872

420.01 - 440

262

328

369

415

 

420.01 - 440

521

651

732

824

400.01 - 420

246

308

347

390

 

400.01 - 420

490

613

690

776

380.01 - 400

230

288

324

365

 

380.01 - 400

460

575

647

728

360.01 - 380

214

268

302

339

 

360.01 - 380

430

537

604

680

340.01 - 360

198

248

279

314

 

340.01 - 360

399

499

561

632

320.01 - 340

182

228

257

289

 

320.01 - 340

369

461

519

584

300.01 - 320
166
208
234

263

  300.01 - 320
338
423
476
536

280.01 - 300

150

188

212

238

 

280.01 - 300

308

385

433

487

260.01 - 280

134

168

189

213

 

260.01 - 280

278

347

390

439

240.01 - 260

118

148

167

187

 

240.01 - 260

247

309

348

391

220.01 - 240

102

128

144

162

 

220.01 - 240

217

271

305

343

200.01 - 220

 86

108

122

137

 

200.01 - 220

186

233

262

295

180.01 - 200

70

88

99

111

 

180.01 - 200

156

195

219

247

160.01 - 180

54

68

77

86

 

160.01 - 180

126

157

177

199

140.01 - 160
38
48
54

61

  140.01 - 160
95
119
134
151

120.01 - 140

22

28

32

35

 

120.01 - 140

65

81

91

103

100.01 - 120

6

8

9

10

 

100.01 - 120

34

43

48

54

  80.01 - 100

0

0

0

0

 

  80.01 - 100

0

0

0

0


*PLEASE NOTE:  The above matrix reflects the initial basis for calculation and establishment of the TSA bunker formula. In August 2011 the matrix was changed to reflect the operating cost impacts of slow-steaming. The latest version of the matrix, for use in actual calculation of current charges, can be found on our "Surcharge Calculator" page.


Low-Sulfur Component

Similar methodology is used to calculate the Low-Sulfur Component (LSC) to the Bunker Charge. The LSC was adopted following the August 1, 2012 establishment of a North American Emissions Control Area (ECA) under the International Maritime Organization’s MARPOL Annex VI protocol, to which the U.S. and Canada are signatories. The protocol requires container vessels to switch to low-sulfur fuels while operating within 200 miles of the contiguous U.S. and Canadian coasts, plus Hawaii.

The LSC was adopted by TSA lines to recover the difference in cost for burning premium low-sulfur fuel during sailing days within the North American ECA. It uses the same basic formula as for the Bunker Charge, but uses a weighted average of low-sulfur fuel prices at five port locations: Los Angeles, Oakland, Seattle, Charleston and New York.

Two other key assumptions in the formula are changed for the portion of the sailing within the 200-mile zone:

West Coast:
Average sailing time inside the 200 mile limit = 2.698 days
Average fuel consumption during this period = 110.42MT per day

East Coast/Gulf:
Average sailing time inside the 200 mile limit = 4.22 days
Average fuel consumption during this period = 101.93MT per day

The LSC is derived from the cost difference in running the standard Bunker Charge calculation for the entire sailing as a baseline, and running a calculation which substitutes sailing days within the zone and low-sulfur fuel consumption at the higher fuel prices.

In the interest of simplicity, TSA provides a table on the Bunker Surcharge Calculator page of this site that indicates the weekly weighted average cost differentials between standard bunker and low-sulfur fuel prices, plus an accompanying matrix that translates those differentials into the quarterly LSC, which is added on to the regular Bunker Charge and takes effect at the same time.


 


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