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Drewry launches Cost Impact Calculator for shippers post-IMO 2020 regulation

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Dry Bulk,

Responding to the concerns and needs of Beneficial Cargo Owners (BCOs) ahead of the IMO 2020 global emission regulation, global shipping consultancy Drewry announces the addition of a new BAF formula and fuel cost benchmarking service to complement its existing range of ocean freight procurement support services.

In co-operation with both shipper members of the Drewry Benchmarking Club and other parties, Drewry has developed an IMO low sulfur rule, “Cost Impact Calculator” based on robust market data, benchmarked BAF charges and fuel cost differentials between loops and carriers.

Lack of cost transparency: responding to the concerns of shippers

“With the compliance window to the IMO’s low sulfur rule change in January 2020 rapidly closing, our analysis of the topic has highlighted widespread unease and uncertainty among shippers,” said Philip Damas, Head of Drewry Supply Chain Advisors.

A recent survey of global shippers and freight forwarders conducted by Drewry found that three quarters of respondents had yet to receive information from their carriers on how they planned to recover the fuel cost increases widely anticipated to accompany the regulatory change. Perhaps more worryingly, over half of respondents did not consider their service providers’ existing approaches as either fair or transparent.

“These research findings are amplified by the complexity of the issues in play; the cost recovery models, the lack of cost transparency etc.,” added Damas. “Thorough preparation, information-sharing and changes to fuel charge contractual terms are now required.”

The new Cost Impact Calculator responds to these concerns through a new range of fuel cost verification services alongside Drewry's existing freight procurement and cost benchmarking products to help medium and larger BCOs better understand their fuel cost exposure and mitigate future cost increases.

Significant additional costs to be heaped on the industry

Based on independent ‘futures’ prices, low sulfur marine fuel prices per tonne will be 55% higher than current high sulfur fuels and Drewry considers that the probable ‘worst case’ scenario is that fuel costs (paid by carriers) and fuel surcharges (paid by shippers) in global container shipping will increase by 55 - 60% in January 2020.

Drewry is currently working with other shipper groups to obtain more information on current vs the likely post-IMO fuel consumption mix. Further, the consultancy has already requested detailed fuel data and BAF policy information from several carriers.

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