We have met Mr Morten Nielsen – the Pool Manager of Cool Pool Ltd – during the LNG & Shipping Forum in Madrid earlier this year.  He was one of the speakers at the Forum introducing the idea and challenges of the Cool Pool.

Podcast 3 – Mr Morten Nielsen - the Pool Manager of Cool Pool Ltd

This week Lloyd’s List Editor Richard Meade is in Singapore taking the temperature of Asia’s shipping market. On the agenda: why the reshoring and near-shoring effect of the trade war is bad news for container shipping; how the box sector BAF battle is shaping up and why the looming 2020 deadline is dominating pretty much every discussion we’re having in Asia right now.


Amid a flurry of conferences and industry round tables this week in Singapore, talk has inevitably focussed on the risk posed to the transpacific container trade and the potential threat to intra-Asia markets.
The latest tranche of tariffs in the escalating Sino-US trade war will target $200bn of Chinese imports, hitting the container industry exactly where it hurts.
But as worrying as that might be, it is the big bunker questions that are currently fuelling the sleepless nights for Asia’s shipping executives (well, that and the endless circuit of parties and receptions). 
All roads lead to 2020 and the looming question how to pay for the low sulphur switch. 
Joining Richard on the podcast this week live from Lloyd’s List towers in Singapore we have our China editor Cichen Shen, containers editor James Baker and a podcast debut for our new Asia news editor Vincent Wee.
Don’t forget, you can now subscribe to the Lloyd’s List Podcast via iTunes and most other podcast providers. And make sure you are registered for a free account on Lloydslist.com so you can receive our Daily Briefing e-mail.

The Lloyd’s List Podcast: Tariffs, box woes and the big bunker question

Joining Lloyd’s list Editor Richard Meade on the podcast this week is former Affinity Research, now independent shipping consultant, Mark Williams. The two of them talk trade outlook, Chinese-fuelled optimism and why 2020 is much like ordering a decaf macchiato. 

Don’t forget, you can now subscribe to the Lloyd’s List Podcast via iTunes and most other podcast providers. And make sure you are registered for a free account on Lloydslist.com so you can receive our Daily Briefing e-mail.

The Lloyd’s List Podcast: Trade outlook and shipping's decaf dilemma

If you are a BCO or Freight-Forwarder / NVOCC, depending on the volumes that you can commit to a shipping line, there may be an opportunity for you to negotiate a fixed BAF quantum for at least a year. Especially, if your freight rate negotiation is based on a yearly tender/bid.

In the past, many shippers have resisted the practice of allowing Floating BAF as they had a suspicion that carriers may be using the BAF amount to compensate for the lack of increase in freight rates.  

Shipping lines like Maersk did try to dispel these suspicions of the customers by ending all-inclusive contract rates and charging BAF using a new formula based on which, the BAF would be determined in a simple and transparent way using calculations provided by independent, third-party shipping industry sources.

This formula was based on The Transpacific Stabilization Agreement which was a discussion group covering the majority of the Eastbound Trans-Pacific carriers. As per this agreement, bunker surcharges were based on average bunker costs in various markets.

Through extensive interaction with their customers, Maersk Line understood that this model could not work because carriers deployed larger ships across the years and the technological advances of ship design actually reduced the impact of bunker costs per container. Also, there was an imbalance between head-haul and back-haul because on the back-haul there were more empty containers.

So, Maersk Line came up with a new formula that based its calculations on

total fuel consumption × transit time ÷ by the total vessel capacity × the utilization factor.

All these factors were recalculated once a year and the BAF was recalculated every quarter based on the average of fuel prices in the past year, and separate BAF was calculated per geographical zones.

This new formula became sort of a Floating BAF so the shippers would only end up paying the variation in fuel costs if any or enjoy the benefits if the fuel cost went down.

How IMO's Sulfur Limit Cuts Affect Bunker Costs

Last October the IMO decided to cut sulfur limits for bunker fuels worldwide from 3.5% to 0.5% from the start of 2020. Industry studies are now showing that this change over can affect bunker costs which means those using a Floating BAF model in 2020 will stand to lose money whereas those with a “fixed” or “locked in” BAF may stand to gain.

BCOs may need to consider coming to an arrangement with the carriers, wherein BAF should be fixed for a period of at least 4-6 months, and any changes should be done only after that period towards a neutral index.

Although there are ways of handling fluctuations effectively, a monthly or quarterly BAF may become an administrative nightmare. Not just for you, but for other departments or even your trading partners. Taking economies of scale into consideration as new, even more efficient, mega vessels keeps entering the market one might think that both sides would be better off just negotiating an all-in CY-CY rate - without a specific BAF surcharge.

Shipping lines may have different names for this fuel surcharge – BAF (Bunker Adjustment Factor), BUC (Bunker Contribution), Standard Bunker Adjustment Factor (SBF), but whatever it is called, a pertinent question to be asked would be “how much of cost savings would you as a BCO enjoy by having a variable BAF model as opposed to a fixed BAF model.”?

The Brief #10: Should BAF be included in the freight rate or be a variable fee?

For clients who ship cargo overseas, the choice of whether to use sea freight or air freight will depend on a few factors, including:

- Distance

- Type of cargo

- Time sensitivity

- Cost consideration

- Cargo safety

- Accessibility

A customer may have various requirements influencing their decision regarding the mode of transport to be used, but essentially, it comes down to the nature of the freight, the time frame and how much the shipper is willing and able to spend.

Why Use Air Freight

Perishable goods, like flowers and fresh-produces, are often pigeon-holed into being carried by air freight because of their short lifetime. Naturally, there are many exceptions like bananas, which tend to travel on ship due their long ripening process.

North America and Europe are both huge consumers of flowers, for instance-- especially around holidays like Mother’s Day and Valentine’s Day. These flowers are sourced largely from South America and East Africa, so air freight is an obvious choice in such an instance.

Demand for cargo capacity on freight carriers tends to vary seasonally. A recent example is the unprecedented spike in demand for flowers that occurred before Valentine’s Day, which caused a scramble for freight capacity on planes flying from Kenya to Europe, where most of the flowers were sourced. Some carriers reported that the traffic moved in anticipation of the holiday soared to nearly double average rates.

Some pharmaceutical products also tend to be carried by air freight because of their temperature-sensitivity, which, if not monitored properly, can result in the product being spoiled and pallets of potential profit wasted. That means they need to be shipped within a limited time frame, with maximum visibility. However, depending on the exact nature of the pharmaceutical companies cargo, reefer containers on ships are also frequently used.

Pros and Cons of Ocean Freight

E-commerce goods like electronics, cosmetics, apparel and home goods are all good candidates for ocean freight.

This mode of long-distance transportation is a great option because it is much less expensive than moving product by air. If time is not an important deciding factor in choosing a preferred mode of freight, ocean freight is the obvious choice.

One downside of ocean freight is that it can be difficult to predict and control the timeline due to circumstances like congestion at ports, which can end up causing delays.

A prudent customer would always seek a good balance between the service quality offered, cost component, the reliability of the service provider and time frame.

It's important to always keep an eye on both the air and ocean markets as both are extremely volatile. Readily available rate data for benchmarking and market intelligence for both markets will make tendering and negotiations for BCO procurement professionals more efficient.

In many cases, depending on how market rates are moving and other market dynamics, one mode of transport can be chosen over the other. Real time and on- demand rate data is what allows professionals to react instantaneously and make the right decision that positively impacts the bottom line.

The Brief #11: A debate on air freight versus sea freight: Which should you choose?

XSI® Public Indices - January 2019

Global LNG media checked and analyzed in LNG News Flash podcast on 29.07.2019 - listen and learn all you need to know.

News Flash On 29.07.2019

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Podcast 3 – Mr Morten Nielsen - the Pool Manager of Cool Pool Ltd

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