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As a complement to this piece, we strongly suggest you read as well our update on the Red Sea and Suez Canal disruptions.
Addressing climate change requires a global effort, impacting various sectors including shipping and transportation. The industry is adapting to new climate regulations established by entities like the United Nations Maritime Organization (IMO) and through regional initiatives. This adaptation is expected to influence both shipping companies and their customers. With the upcoming inclusion of the shipping sector in the EU's Emission Trading System (ETS), several companies have introduced surcharges for trips to and from EU ports. According to HSBC, the ETS could add 1-5% to freight rates, with these surcharges more than likely being passed on to customers.
Why Surcharges are Increasing
In recent years, the global shipping industry has faced numerous challenges that have led to an increase in surcharges for ocean freight. These surcharges are additional fees imposed by carriers to cover various costs associated with transporting goods by sea. The rising surcharges can be attributed to several factors.
One of the main reasons for the increase in surcharges is the post-covid pandemic impact. After a surge in demand that prompted carriers to increase their available services and supply, the economic downturn after the recent stabilization and post-pandemic financial crisis that has decreased demand is having a significant impact in the profitability for ocean carriers, who are left to find ways to minimize their losses and stabilize their operations.
Another factor contributing to the rising surcharges is the implementation of new regulations and environmental initiatives. One such regulation is the EU Emissions Trading System (ETS) surcharge, which aims to reduce greenhouse gas emissions from the shipping industry. This surcharge is imposed on carriers operating within the European Union and can have implications for Oceania's trade as well.
Additionally, the recent expansion of the Panama Canal has also led to surcharges for ocean freight in Oceania. The widened canal now allows larger vessels to pass through, opening up new trade routes and increasing shipping efficiency. However, this expansion comes at a cost, and carriers have introduced surcharges to cover the expenses associated with using the Panama Canal. Added to this, the recent drought around the Panama Canal has added to the strain and costs of maintenance for the route, prompting carriers to find alternatives like the Suez Canal for their services.
Overall, the increase in surcharges is a result of various factors such as growing demand, regulatory requirements, and infrastructure developments. As these surcharges continue to rise, it is important for shippers to understand their implications and prepare for the potential impact on Oceania's trade.
EU Emissions Trading System (ETS) Surcharge: Implications for Oceania's Trade
The EU Emissions Trading System (ETS), effective from 2024, introduces a cap-and-trade mechanism for the shipping industry. It mandates that ship operators buy and surrender allowances for their CO2 emissions. The ETS covers:
- 50% of emissions for voyages between EU and non-EU ports
- 100% for intra-EU journeys and emissions while docked at EU ports.
Starting from January 1st, 2024, companies must cover 40% of their emissions, increasing to 70% in 2025, and 100% from 2026 onwards. Each allowance permits only one ton of CO2 emission. This scheme, part of the EU's broader strategy to reduce greenhouse gases, now includes the shipping sector, requiring strict monitoring and reporting of emissions.
The EU Emissions Trading System (ETS) surcharge is a carbon pricing mechanism that aims to reduce greenhouse gas emissions from the shipping industry. Under this system, carriers operating within the European Union are required to purchase carbon allowances to cover their emissions. This surcharge has implications for Oceania's trade as well, especially for shipments to and from the EU.
The ETS surcharge can lead to increased costs for carriers, which may be passed on to shippers in the form of higher freight rates. This can have a direct impact on Oceania's trade, as exporters and importers may face higher transportation costs when trading with EU countries. It is important for shippers in Oceania to be aware of this surcharge and factor it into their budgeting and pricing strategies.
To mitigate the impact of the ETS surcharge, shippers can explore alternative transportation options, such as using carriers that operate outside the EU or considering other modes of transport. Additionally, implementing sustainable practices and reducing carbon emissions in the supply chain can help minimize the surcharge's impact and contribute to a more environmentally-friendly trade.
Panama Canal Surcharges: Affecting Ocean Freight in Oceania
The recent expansion of the Panama Canal has brought significant benefits to the shipping industry, allowing for larger vessels and increased trade volumes. However, this expansion has also led to the introduction of surcharges for ocean freight in Oceania.
Carriers now incur additional costs when using the widened Panama Canal, including higher toll fees and increased waiting times. To cover these expenses, carriers have implemented surcharges specifically for shipments to and from Oceania. These surcharges can impact the overall cost of transportation and potentially affect Oceania's trade.
Shippers in Oceania should be aware of these Panama Canal surcharges and consider them when planning their supply chain and logistics strategies. Exploring alternative trade routes, such as transshipment options or direct services, can help mitigate the impact of these surcharges and ensure more cost-effective transportation.
Additional Ancillary Charges by Carriers & Fuel Surcharge: Its Impact on Oceania's Trade
In addition to the EU ETS surcharge and Panama Canal surcharges, carriers also impose various ancillary charges and fuel surcharges that can impact Oceania's trade.
Ancillary charges are additional fees imposed by carriers to cover various operational costs, such as documentation, security, and handling. These charges can vary between carriers and can add to the overall cost of shipping. Shippers in Oceania should be aware of these ancillary charges and factor them into their budgeting and pricing strategies.
Fuel surcharges, on the other hand, are directly linked to the fluctuating price of fuel. As fuel prices rise, carriers may implement fuel surcharges to offset the increased costs. These surcharges can have a significant impact on Oceania's trade, as they can lead to higher freight rates and transportation costs. Shippers should closely monitor fuel surcharges and consider negotiating contracts with carriers that provide more stable pricing arrangements.
To mitigate the impact of additional ancillary charges and fuel surcharges, shippers can explore options such as contract negotiations, consolidating shipments, or optimizing their supply chain to reduce transportation distances.
By understanding these additional charges and their impact on Oceania's trade, shippers can make informed decisions and effectively manage their logistics costs.
What Shippers Can Do
As the surcharges in ocean freight continue to rise, shippers in Oceania can take certain steps to mitigate their impact and navigate the changing landscape of international trade.
- Stay informed about the latest developments and changes in surcharges. Regularly monitoring industry news, engaging with industry associations, and maintaining open communication with carriers can help shippers stay ahead of the curve and anticipate potential cost increases.
- Explore alternative transportation options and trade routes. This can include considering different carriers, utilizing multimodal transport, or exploring transshipment options to bypass surcharge-prone routes. By diversifying their transportation strategies, shippers can minimize the impact of specific surcharges and maintain competitive pricing.
- Negotiate contracts with logistic partners like Kerry Logistics to secure more favorable pricing arrangements. Long-term contracts or volume commitments may provide shippers with more stability and protection against sudden surcharge increases.
- Focus on optimizing your supply chain and logistics operations. By streamlining processes, improving efficiency, and reducing transportation distances, shippers can minimize costs and potentially offset the impact of surcharges.
Proactive planning, staying informed, exploring alternatives, and optimizing operations are key strategies that shippers in Oceania can employ to navigate the upcoming surcharges in ocean freight and ensure the continued success of their trade.
Range of Surcharges by Major Carriers for Inbound and Outbound Oceania Trade
The following table provides an overview of the minimum range of surcharges imposed by major carriers for inbound and outbound Oceania trade. Please note that these surcharges are subject to change and may vary based on specific trade lanes, volumes, and carrier agreements.
| Route | ETS Surcharge DRY (EUR) | ETS Surcharge REEF (EUR) |
|---|---|---|
| Outbound Oceania to Europe | 12 - 30 | 19 - 43 |
| Inbound Europe to Oceania | 19 - 46 | 29 - 68 |
These figures are subject to change based on market conditions and regulatory updates. At the moment, we have received indication from major carriers but this is subject to change before the effective date. For the most current information, please refer to the carriers' official communications or visit their websites.
Additionally, feel free to contact us for more information or strategize for the best solution for your case.
Why Partner with Kerry Logistics
Selecting Kerry Logistics as your trusted partner isn't just a choice—it's a strategic move towards ensuring your success. Our commitment to excellence is not just a promise; it's a guarantee. With a global network that's both vast and meticulously managed, we stand head and shoulders above the competition. This means you benefit directly from unparalleled service quality, ensuring your supply chain needs are met with precision, efficiency, and minimal hassle.
Are you ready to elevate your logistics game and experience seamless support tailored to your unique needs? Let's discuss how we can bring unparalleled value to your business.
