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Bankruptcy warning for container lines if they fail to pass on IMO 2020 costs

Against a backdrop of a gloomy outlook for container trades Bimco analyst Peter Sand warns a failure by lines to pass increased fuel costs from the IMO 2020 sulphur cap could result in bankruptcies.

In his latest outlook report for container shipping Sand warned of a tough year for the mainline container trades with a number of pitfalls ahead including the impact of the US – China trade war and signs that the Europe containerised market is “saturated”.

“Nevertheless, the dominant theme of 2019 will be the sharing of the higher costs that are expected in various forms towards the end of the year, as the starting line for the IMO 2020 sulphur cap approaches,” the report from Bimco said.

Whether container lines opt to use low sulphur fuel oil or fit scrubbers to continue using high sulphur fuel oil after 1 January 2020 they will face significantly higher costs per unit. Last September the third largest container line CMA CGM estimated the additional cost to be $160 per teu on average as result of complying with the sulphur cap.

Read more: CMA CGM say sulphur cap to cost an additional $160 per teu

A failure by lines to recoup these costs from shippers could be disastrous Sand warned. “Unless these costs can be passed on to the end consumer through the whole supply chain, profit margins in the container shipping industry will be reduced everywhere; a failure to recover the extra fuel costs in full may even result in outright bankruptcies in the container shipping industry.”

Most major container lines have announced surcharge mechanisms, such as new bunker adjustment factors (BAF), to recoup the costs of complying with the sulphur cap but these have been met with an angry reaction from shippers and forwarders describing the surcharges as “blatant profiteering”.

Read more: Forwarders lash out over container line sulphur surcharges

Worryingly for container lines this has all come against a backdrop of a gloomy market outlook. “The ability of the container shipping industry to pass on these increases depends greatly on its negotiating power and a fundamentally strong freight market,” Sand said.

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