The Path Forward: Managing the Fuel Component of trans-Pacific 2019-2020 Contracting Cycle
Request a detailed explanation of how your carrier’s trade factors are calculated
Be able to validate the assumptions including ship size, speed and industrial utilization against industry benchmarks
Understand the timing for your carrier’s implementation of the new fuel formula. Will it go into effect in January 2020 or sooner?
Understand the impact for each carriers’ all-in-rate (ocean plus bunker) based on future changes in the fuel prices, both up and down.
Ensure contracts address failure to come to agreement on how future fuel surcharges will be dealt with as well as protection in place for space commitments and price from time of implementation until the end of contract.
Be prepared to offer your own fuel formula to carriers where there is a lack of clarify
Ensure your own formula is fair for both sides
Engage industry experts where needed to provide analytical support for validation and negotiations
Reward carriers that offer clarity and transparency with commitments for cargo
2. …More than just a software, we
are logistics experts.
Vivien Cheong – Regional Sales Manager
2008-2010: Tiong Nam Logistics, Singapore, Business Analyst (HP)
2013-2015: Toll Global Logistics, Singapore, APAC Tender Management
(Acquired by Japan Post) 2015-2016: APL Line, Singapore, Sales
Representative (Acquired by CMA CGM)
2016-Present: TICONTRACT, TRANSPOREON Group Singapore,
Regional Sales
Sep 2018 TRANSPOREON Group and TIM Consult GmbH merged
Experience in Asia Pacific Region and major Shipping Trade
Lanes, in all aspects of freight and logistics, including
Commercials, Operational, Business Development, Procurement
Strategy, Go-To-Market Strategy, Across Multiple Industry
Verticals and Marketing
Public | 2
3. 1. SURVEY RESULTS
2. WHAT IS IMO 2020?
3. SOLUTIONS TO COMPLY?
4. IMPACT ON SHIPPER
5. FUEL SURCHARGE MODEL
6. ADVICE ON MANAGING IMO 2020 AS A SHIPPER
7. OCEAN FREIGHT PROCUREMENT TIPS AND TRICKS
8. WHAT IS TRANSPOREON GROUP?
Content
How to manage the impact IMO 2020 (Low Sulphur
Cap) as a shipper?
Public | 3
5. What is IMO 2020?
Why do we need IMO 2020?
The IMO is the United Nations agency responsible for
implementing global maritime regulations after they are ratified
by number of members.
On Oct. 27, 2016, its Marine Environmental Protection Committee
(MEPC) agreed to implement a global 0.5 percent m/m sulfur
oxide emission limit, effective Jan. 1, 2020. The current global
limit is 3.5 percent m/m sulfur oxide.
Airborne sulfur oxide is a dangerous pollutant, especially near
population centers, and is a leading cause for acid rain. Studies
have shown that sulfur oxide is a cause of respiratory diseases
such as asthma.
Sulfur dioxide is a non-methane volatile organic compound
(NMVOCs), an indirect greenhouse gas.IMO 2020: What Every Shipper Needs to
Know, IHS Markit, Gemini Shippers Group,
Seabury Maritime, JOC.com, Whitepaper,
March 2019
Public | 5
6. Public | 6
Solutions to comply
How different solutions will have
different cost increase.
• Low Sulfur Fuel
• Exhaust gas cleaning systems
(Scrubbers)
• Liquid Natural Gas
IMO 2020: What Every Shipper Needs to
Know, IHS Markit, Gemini Shippers Group,
Seabury Maritime, JOC.com, Whitepaper,
March 2019
7. Impact on Shippers
Public | 7
Many shippers and industry consultants have criticized the lack
of transparency and uniformity in carrier’s recent BAF
announcement. Industry consultant from Alphaliner stated in a
Loadstar article, “A long standing criticism from shippers in
that the carriers method of calculating BAF remain non-
transparent, lack uniformity, and could
involve an element of revenue generation,
rather than serving only to recoup actual
bunker costs and help carriers cope with
unexpected fuel prices fluctuation.”
For shippers, the need to project costs for budgeting
purposes across a range of carriers and trade lanes is
hampered by a lack of a standard bunker surcharge that
consider the new low sulfur requirements.
IMO 2020: What Every Shipper Needs to
Know, IHS Markit, Gemini Shippers Group,
Seabury Maritime, JOC.com, Whitepaper,
March 2019
A USD $ 15 Billion trust issues?
8.
9. Fuel Surcharge 101: What
goes into the Calculator
Public | 9
IMO 2020: What Every Shipper Needs to
Know, IHS Markit, Gemini Shippers Group,
Seabury Maritime, JOC.com, Whitepaper,
March 2019
Trade Factor x Fuel Price = Fuel
Surcharge
Trade Factors for Consideration
• Voyage length
• Ship size
• Sea days
• Port Days
• ECA Days
• Speed
• Fuel Consumption
• Basic Cost Embedment
• Asset Utilization
• Imbalance factor
10. A Model for Fuel
Surcharges in 2020
Public | 10
IMO 2020: What Every Shipper Needs to
Know, IHS Markit, Gemini Shippers Group,
Seabury Maritime, JOC.com, Whitepaper,
March 2019
Primary assumptions
• 42 days round-trip voyage, of which 32 days are at seas, and 10
in port
• 15 percent of sailing time within ECA and 40 percent within
ECA within port
• 90 percent utilization for the head haul
• 40 percent utilization for the back haul
• 21 days “off hire” for scrubber installation
• 12 percent finance cost for scrubber investment
• 5-year amortization for scrubber
• 95 percent MGO consumption compared to HFO
• 1.5 percent extra HFO consumption with scrubber installed
• Average ship in the trans-Pacific West Coast route is 8,121 TEU
as of Q4 2018
11. A Model for Fuel
Surcharges in 2020
Public | 11
IMO 2020: What Every Shipper Needs to
Know, IHS Markit, Gemini Shippers Group,
Seabury Maritime, JOC.com, Whitepaper,
March 2019
Findings
• Added cost per TEU, HH ranges from
USD 25.03 – 421.07
Vivien Calculates:
• If you are spending ~USD 100 million p.a.
on ocean freight, USD 1,000 per TEU, a
USD 150 increase = 15% increase
• You need to ask your CFO for USD 15
million dollars more
12.
13. What can shippers do?
The Path Forward: Managing the
Fuel Component of trans-Pacific
2019-2020 Contracting Cycle
1. Request a detailed explanation of how your carrier’s trade factors are calculated
2. Be able to validate the assumptions including ship size, speed and industrial
utilization against industry benchmarks
3. Understand the timing for your carrier’s implementation of the new fuel formula.
Will it go into effect in January 2020 or sooner?
4. Understand the impact for each carriers’ all-in-rate (ocean plus bunker) based on
future changes in the fuel prices, both up and down.
5. Ensure contracts address failure to come to agreement on how future fuel
surcharges will be dealt with as well as protection in place for space commitments
and price from time of implementation until the end of contract.
6. Be prepared to offer your own fuel formula to carriers where there is a lack of
clarify
7. Ensure your own formula is fair for both sides
8. Engage industry experts where needed to provide analytical support for validation
and negotiations
9. Reward carriers that offer clarity and transparency with commitments for cargo
IMO 2020: What Every Shipper Needs to
Know, IHS Markit, Gemini Shippers Group,
Seabury Maritime, JOC.com, Whitepaper,
March 2019
14. What can shippers do?
Controlling what you can control!
Own fuel surcharge mechanism
Benchmarking
Good freight procurement process and practices
Informing your CFO in advance of the potential cost increase
Keeping updated on the developments. e.g. Changes in solution,
fuel prices, new marine fuels etc…
15. 1. COST REDUCTION
2. COMMERCIALS
3. GOOD FIT
4. RISK MITIGATION
5. SERVICE RELIABILITY
6. TIME SPEND & DIGITAL TRANSFORMATION
7. EASE OF DOING BUSINESS
8. LONG TERM PARTNERSHIP INITIATIVES
9. YOUR RFQ STRATEGY ALIGN WITH YOUR COMPANY’S?
The term strategy is used to
describe a high-level plan of
actions that is formulated to assist
in the achievement of specific
targets under conditions of
uncertainty.
Content
8 strategies to consider for an effective ocean freight
procurement
16. TRANSPOREON Group: Solutions
SOURCING & PROCUREMENT PLANNING EXECUTION DATA ANALYSIS
New technologies enable new business models
& we help you to control it all in one place
SOURCING/ TENDERING
BENCHMARKING
• Optimized carriers per
lane and mode
• Much faster tendering
process
• More competitive rates
RATE MANAGEMENT CARRIER MANAGEMENT
PLANNING :
LOAD INTERMODAL
ROUTE OPTIMIZATION
ASSIGNMENT
CUSTOMER SERVICE
TRACK & TRACE
VISIBILITY
• Mobile Order
Management
• Paperless and
automatic
processes
TIME SLOT
MANAGEMENT
• Optimize loading/
unloading process
• Reduce truck cycle
time
BILLING/CARRIER
MANAGEMENT
• Current performance, e.g.:
vehicle % utilization
• Predictive analytics, e.g.: forecast rates
• Optimization, e.g.: transport network
BIG DATA
ANALYTICS
18. We’ve been
developing solutions
for transport logistics
since 2000
Founded in 2000. HQ in Ulm, Germany
500+ employees
Linking shippers & carriers in over 100 countries
Providing platform & customer service in 24 languages
Offices across Europe, North America & Singapore
1,000+ shippers in multiple verticals including steel, paper/timber,
chemicals, building materials, automotive, retail, food & beverage
Backed by Hg Capital, one of the leading global technology investors
5 support centers across time zones & geographies
Shippers
1,000+
Carriers
65,000+
Users
100,000+
Countries
100+