Nowadays, an extremely pressing situation is happening in the logistics industry: according to a study by consulting firm AlixPartners, in order to maintain margins and cope with the costs of low-sulfur regulations from the International Maritime Organization coming in 2020, ocean carriers must “impose significantly higher fuel surcharges in 2019”.
Surcharges need to increase
Consulting firm estimated the container shipping industry needs to offset $10 billion in “incremental” costs starting Jan. 1, 2020. Carriers operating Asia-Europe routes would need to increase surcharges by 40%, and those on Asia-Americas routes would need to increase fees by 33%, to maintain their financial standing, the study estimates.
Tough year for ocean carriers
In 2018, carriers began to announce fuel surcharges related to IMO 2020, much to the chagrin of shippers. Many of the surcharges took effect at the beginning of 2019, a year ahead of the low-sulfur deadline, in order to offset costs of preparation for carriers.
IMO 2020 may present the most immediate costs for carriers to tackle, but ongoing financial strife and trade uncertainty will contribute to a tough 2019 for ocean carriers.
In the following years appears that the ocean industry will continue the financial struggle. The Altman Z-score measures credit strength and bankruptcy risk, and a score of 1.8 or lower indicates a high risk of bankruptcy. The aggregate Z-score of 14 ocean carriers fell below 1.8 from 2011 to 2017, reaching a low of 1.24 in 2016, the year Hanjin filed for bankruptcy.
What does the future bring?
According to a study, although score rebounded to 2.02 last year “it’s a reminder that the industry remains under serious financial strain”. Future trade uncertainty does not bode well for ocean carriers. Weakness is expected by Maersk, particularly in China and Europe.
Given the ongoing financial strain to ocean carriers, “shippers can expect pressure from carriers seeking to recover their added fuel costs and improve profitability,” the study said.