Expected Rate Increase | IMO 2020 | AEO | Incoterms 2020 and more
As our most valued relation, we would like to take you with us on a look ahead to the container export market in the coming weeks and months. There is a lot to be done and that will change the market. In order to make this clear, we will give you a brief update and added some points of interest.
We informed you earlier about the new IMO 2020 emission requirements that will apply to all ships worldwide. In some areas there were already local and national requirements where the emissions could be limited by the use of low-sulphur bunker fuel from 2020, however, a much lower emissions will be enforced worldwide under the new IMO regulations whereby IMO stands for International Maritime Organization and 2020 for the year that these regulations come effective.
The IMO 2020 is an enormous challenge for all ship owners and shipping companies. Because there will never be enough affordable low-sulphur bunker fuel available, the solution must be found in technology. By means of scrubber installations, the emissions can also be reduced sufficiently to meet the new requirements. The exhaust gas cleaning scrubber system, as it is in full, will cost between 3 and 8 million USD per ship. The market speaks of approximately 840 ships, in capacity over 8 million teu, that will have to be modified.
Over the last few months, shipping companies have tried to raise rates in order to include the necessary investments in the price. Looking back, we can conclude that this has not been achieved because export volumes in general have been lagging behind and there has been sufficient space available during the summer months.
Autumn has arrived and not only has the weather changed, but the market has also changed. In the coming weeks, the first ships will be taken out of service temporarily in order to adapt to the IMO 2020 regulations. On some services these ships will be temporarily replaced by smaller ships, on other services the ships will not be replaced and there will be blanced sailings, as a result of which the available capacity will fall down and a shortage is coming on the East-West trade.
All shipping companies are facing huge investments and will turn capacity shortage into rate increases where possible. Based on the current low sea freight levels, the shipping companies are unable to make the necessary investments. IMO 2020 is not a choice but an imposed obligation and the shipping industry must move forward under this. From the past we learned capacity shortage will give shipping companies the tools to increase rates. We expect substantial increases in the short term.
A number of carriers have already indicated that they are implementing considerable increases of up to several hundred dollars per container effective as per November first. In the coming days and weeks we will personally inform you in more detail as soon as the new ocean freight becomes concrete with an updated November quotation. In view of the situation, we do not expect to be able to finalise the rates for November until the last few days of October.
At the moment it is often not even possible to quote concrete rates for November. December is even further away and more difficult to predict, but we advise you to take into account a rising rate trend for the time being.
One of our specialties is the handling of EVOA related goods. Metal, iron, plastic and paper wastes have been shipped is for decades quit easy, but in recent years regulations have made this a lot more difficult. Exports to China in particular look back on a turbulent period in which the Chinese AQSIQ authorities initially started to enforce the applicable regulations more strictly, the rules and tolerances were adjusted and the number of authorised importers and accepted ports where reduced. We would like to have your attention on the necessity, but especially the validity, of import licences for China. The licenses and quotas issued earlier this year were valid from 1 July to 31 December 2019, it is expected that the Chinese recipients will accept incoming shipments until mid-December and especially in view of an average transit time and expected capacity scarcity, we advise you to check outstanding deliveries and to book them in time.
We can assume that you are familiar with the incoterms. These are the trading conditions standardised by the International Chamber of Commerce. Terms such as EXW, FOB, CFR or CIF define in all your agreements with only 3 letters what your rights and obligations are when delivering or purchasing the goods. Usually these are rewritten every ten years and after the editions of 2000 and 2010 a new version will be published from 2020 onwards. We advise you to clarify your contracts and to mention not only the incoterm but also the version. For example, "FOB Rotterdam incoterms 2010" or "CFR Shanghai 2020". It is our recommendation to have the new edition of the International Chamber of Commerce available in your company and never forget to mention your incoterm on your invoice and contract.
Insuring your goods and transport is often overlooked. On the basis of the incoterm it is easy to determine who is responsible. In our opinion, when you are responsible, it is a matter of course to insure, especially when it comes to overseas transports. We can imagine that the value of the goods and the minimum risk of loss makes you consider not to do it, but there is a more important risk to cover than the value of your goods. When a ship decays and average gross applies you are shared responsible to the commercial value on board for all costs as there are for example the loss of the ship, environmental damage, cleaning and other related charges. A prompt bank guarantee will be requested from the responsible party or insurance company. We can issue separate insurance policies on request or assist in choosing a structural insurance cover.
BSF is in the final stages of obtaining the AEO. Authorized Economic Operator is a European standard for safe and secure custom partners. Customs sets very strict requirements for obtaining and maintaining the AEO, it makes procedures and processes more strict and complex, but you can expect customs to reduce controls, scans and fysical inspections and therefore the costs that come with them. Probably you will notice the implication of the revised and stricter procedures and trust that you will experience the positive consequences. It can also be an interesting consideration for your company to obtain AEO as it gives the most value when the entire supply chain is secured. Applying for the AEO should be done by yourself or together with a consultant, but we would like to share the knowledge gained when you follow us in the AEO.
We trust that we have informed you sufficiently, but we can well imagine that you still have questions about this message, you can always contact us and we will give you the best possible advice.