NRAs Could Help NVOs With Low-Sulfur Fuel Charge Uncertainty, Lawyer Says

SAN ANTONIO -- Non-vessel operators (NVOs) should be working with their customers to minimize any surprises coming from the implementation of revised International Maritime Organization sulfur emissions standards in 2020, said transportation industry experts during a panel discussion at the National Customs Brokers & Forwarders Association of America's annual conference on April 16.

Under the revised IMO standard, the maximum allowable sulfur content in ocean vessel exhaust will fall from 0.35 percent to 0.05 percent, said Rich Roche of Mohawk Logistics. While some new vessels may be equipped to run on liquefied natural gas, and others may be retrofitted with exhaust scrubbers, most carriers will probably begin running their ships on low-sulfur fuel. It remains to be seen how much demand there will be and how much the fuel will cost, he said.

That makes it an “interesting time right now” to go into negotiations for May 1 contracts “knowing that we have this low-sulfur fuel hanging over our heads,” Roche said. Surcharges may be coming as soon as Oct. 1, because vessels will be loading up on low-sulfur fuel in anticipation of the new requirement taking effect. In talks with carriers, NVOs should note that vessels have multiple tanks, and that “just because it’s on board doesn’t mean they have to burn it,” he said.

Regardless, costs will be going up, so “let your clients know this is a given,” Roche said. The change is going to be big, and “we don’t know what that delta is yet,” he said, adding that he’s heard it might be as low as $200 per twenty-foot equivalent unit (TEU), or up to $300 or $400 per TEU.

Negotiated rate arrangements should be looked at as a way to mitigate this uncertainty for NVOs, said Edward Greenberg of GKG Law. Recent changes to Federal Maritime Commission rules mean NRAs can be used not just for rates (see 1807190035), but for “any commercial arrangement,” Greenberg said. That means low-sulfur fuel surcharges can be put into a flexible NRA with a customer, with that customer agreeing to an increase based on low-sulfur fuel surcharges, rather than in an inflexible tariff, which requires 30 days’ notice to change.

“Thirty days is a long time for your bottom line,” said Melzie Wilson of FedEx Trade Networks, who moderated the panel discussion.