Shipping companies are facing the toughest freight rate negotiations with their customers in years as they contend with various challenges, not least among these the rising price of fuel with the entry into force of the IMO sulfur regulation last January 1, according to the Baltic and International Maritime Council (BIMCO).
“As the industry prepares for the sulphur regulation to take effect in January, a combination of factors, from trade wars to weaker economy fundamentals, is putting shipping companies in a difficult position ahead of negotiations with clients and customers over freight rates that must compensate for a jump in the price of fuel,” said BIMCO in its December 2019 bulletin.
“The whole shipping industry is already offering very cheap transportation on a global scale and nowhere are freight rates impressive,” said BIMCO’s chief shipping analyst, Peter Sand. “With an expected rise in bunker costs at the start of the year because of the new sulphur regulation, the shipping industry itself does not make the kind of money to absorb those extra costs and still remain profitable, or even break even.”
He added, “Come 2020, the fuel cost will simply be so much higher. It will be vital for shipowners and operators to communicate the need for customers to pay the extra costs—the lion’s share of those costs—from day one.”
He further said that upcoming negotiations between shipping companies and their customers will be tough and not favorable to the shipping companies.
“When do you, as a shipping company, have a strong negotiating position? Only in strong markets. It will be challenging, to be honest, because fleets seem to be growing faster than demand these years and it has been the case for all major shipping sectors in 2019. It is fair to say that 2020 will bring everyone more challenges,” Sand said.
“It will be an enormous challenge, and I fear that we will be seeing many red figures for both container and dry bulk shipping companies at the start of the year.”
Photo by Kai Pilger on Unsplash
