Panalpina has developed a globally competitive pricing mechanism for bunker fuels that provides simplicity and transparency for Ocean Freight customers. It will ease the transition towards new fuel types that comply with the stricter sulfur limit coming into effect on January 1, 2020.
The ocean freight industry is already dealing with the impact of increased costs, as the January 2020 deadline nears when new rules from the U.N. International Maritime Organization (IMO) will limit the sulfur content of bunker fuels to 0.5 percent in most parts of the world.
A quick FAQ is available here: New low-sulfur regulation – what you need to know
How are carriers coping with the increased cost related to the new sulfur limit?
Panalpina experts estimate that in the long term, more than 90 percent of carriers will be using low-sulfur fuels and that less than 10 percent will be using alternatives to comply with the new regulation.
Carriers are passing on the increased costs to cargo owners and third-party logistics providers such as Panalpina. However, there is less clarity in terms of what mechanisms they use and how bunker price developments are passed on. As a result, Ocean Freight customers are often faced with complexity and a lack of transparency when it comes to pricing.
What can Panalpina bring?
Panalpina offers its customers one single pricing mechanism for bunker fuels that uses an aggregated, competitive average of underlying ocean carriers’ freight rates. Customers benefit from simplicity and transparency with all bunker tariffs used by Panalpina for all major trade lanes.
How does Panalpina calculate costs for Ocean Freight customers?
Panalpina provides Ocean Freight customers with an all-in port-to-port rate. This rate covers components including: the bunker tariff, origin and destination charges, documentation fees, terminal handling fees, currency adjustments, and specific trade lane surcharges, for example related to canals and safe passage. The bunker tariff tied to fuel prices is often the most significant and volatile part of shipping costs, making up roughly a third, or sometimes even more, of the total price for ocean freight.
How does Panalpina’s pricing mechanism for bunker fuels work?
Panalpina has developed a transparent and competitive bunker mechanism that ensures that its Ocean Freight customers always get the best deal related to fuel costs on any given trade lane. Called the Pantainer Bunker Tariff, Panalpina’s very own bunker mechanism can be applied in changing market environments as the new sulfur limit comes into force.
The Pantainer Bunker Tariff is calculated per specific trade lane based on two parameters:
Fuel price x Trade factor = Pantainer Bunker Tariff
1) With the exception of the trade lanes from Asia to South America, the fuel price is always based on the three-month average price of the IFO 380 index in Rotterdam, which is reviewed every three months. The IFO 380 currently refers to fuel with a sulfur limit of 3.5 percent. In the course of the second half of 2019, but not later than January 2020, the IFO 380 will be replaced with an index that reflects the price for fuel with a sulfur limit of 0.5 percent or less.
2) The trade factor is a proprietary multiplier based on different variables on a specific trade lane, such as average capacity, transit times, average fuel consumption per day at sea, and trade imbalance of carrier partners.
The Pantainer Bunker Tariff is calculated for FCL, LCL as well as reefer shipments and adjusted every quarter to reflect fuel price developments in the market.
How can customers get more details?
Panalpina will update its bunker tariffs for all major trade lanes at the latest two weeks before the beginning of each quarter, thus offering customers a high level of transparency.