CONTAINERS UPDATE A MONTHLY SUMMARY AND OUTLOOK. Follow our bunker charge, spot container rate. assessments and news for free.

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1 Follow our bunker charge, spot container rate assessments and news for free CONTAINERS UPDATE A MONTHLY SUMMARY AND OUTLOOK What we saw last month A few carriers are not as full as hoped, and could cause a dampening effect on the e box rates New buildings entering schedules which could lead to lower than anticipated cargo allocation percentages Increasing bunker prices are causing some carriers to announce emergency bunker surcharges The start of seems to have been a positive turning point for the majority of carriers in the spot market as box rates have moved back to levels that could keep them in the black. Volume allocations are increasing to the mid 9%s and beyond, for some, for and e. A mid-month box rate increase between $1 and $ per FEU looked achievable for some headhaul routes, but soon caution from some carriers meant rates remained steady or dropped slightly for the remainder of. The majority of carriers are reporting good utilization percentages for the coming weeks, which may lead to a e 1 rate increase. The issue remains that a few carriers are not as full as hoped, and could cause a dampening effect on the e box rates. The new alliance structures are proving to be unpredictable in their cargo loadings with some being delayed at source or at the arrival port. This is causing some difficulties for shippers and freight forwarders to manage the overall supply chain. Alongside this, some carriers are introducing their new buildings into their schedules which could lead to lower than anticipated cargo allocation percentages, as they are higher TEU vessels. Nevertheless, the container industry seems in a better position than il on box rates, but rising bunker prices are causing some carriers to announce emergency bunker surcharges. In the last couple of years bunker prices have been on an upward trajectory and look set to continue as the IMO 22 low sulfur bunker regulation gets closer. There are a lot of unanswered questions causing headaches for carriers and shippers who will have to cope with the price volatility. It will undoubtedly make it harder to calculate bunker surcharges. For example, the refining industry is still finalizing specifications and bunker ports roll out schedules for the.5% fuel oil blends. The availability of these fuels globally is still uncertain. There are other options available to carriers. For example, CMA CGM has announced it will be using LNG in its new building vessels while South Korea s Hyundai Merchant ine, is still evaluating using LNG or scrubbers. Despite that, the feedback Platts has received from the Industry so far indicates that neither scrubbers nor LNG will become major solutions by 22. Initially MGO and low sulfur fuel oil are likely to be the most widespread option. This may make it quite hard to plan ahead and negotiate contracts prior to 22. Watch our latest video on Platts container box rates historical PLATTS GLOBAL CONTAINER INDEX PCR 5 NORTH ASIA-EAST COAST NORTH AMERICA PCR 13 NORTH ASIA-WEST COAST NORTH AMERICA PCR 1 NORTH ASIA-NORTH CONTINENT PCR 3 NORTH ASIA-MEDITERRANEAN

2 North American ket Focus Carriers were hoping for better spot box rates on 1. PCR13, North Asia to West Coast North America, rose to $1,/FEU from $1,/ FEU. A few carriers were higher at $1,/FEU, but as vessel capacity became fuller for the majority of carriers throughout the first decade of, $1,/FEU became the representative box rate. On 15, PCR13, fell $1 to $1,/FEU as a few carriers needed to improve their overall cargo utilization rates. The carriers who were at $1, or higher had to follow suit or this could have meant losing their very high cargo allocation percentages. The North Asia to East Coast North America, PCR5, also had a box rate upturn on 1 to $2,1/FEU from $1,9/FEU. Some carriers were again at higher levels around $2,/FEU and Platts PCR5 assessment drew closer to this level and closed at $2,25/FEU on 1 where it has remained. The back-haul route, PCR6, rose to $65/FEU on 1 from $55/FEU, where it had been since ember 2 last year. North American Platts Bunker Charge Bunker costs have been rising steadily for North Asia to North America. The spot box rates have been quite volatile for the year and the carriers are issuing emergency bunker surcharges. One reason is that the current pricing structure does not show the increase in bunker costs in a transparent way. If we take two points on the North Asia to East Coast North America route, tember 2 and ember 3, Platts assessed the spot market, PCR5 at $2,/FEU on both dates. On the surface, it might appear the carriers are earning the same amount for the voyage. In fact the carriers were probably losing around $15, per head-haul voyage in ember as the Platts Bunker Charge element was around $33/FEU higher than in tember. Likewise for Transpacific east bound head-haul route, PCR13, it was more pronounced when comparing ober 9 and ember 17,. PCR13 was assessed at $1,/FEU for both dates, but the difference in the Platts Bunker Charge was around $48/FEU. This equated to an additional $239,75 for the head haul North Asia to West Coast North America. At the lowest level, PCR13 closed at $95/FEU on ch 27, The Platts Bunker Charge 13 was assessed at $455.18/FEU and based on an average vessel size for 1, TEU the bunker cost was close to $2.3 million to transport 5, forty-foot containers from the North Asia to West Coast North America. WC N AMERICA PLATTS BUNKER EXCLUDED CONTAINER RATE EC N AMERICA PLATTS BUNKER EXCLUDED CONTAINER RATE 1 PCR13 PBX PCR5 PBX WC N AMERICA PLATTS BUNKER CHARGE MONTHLY AVERAGE EC N AMERICA PLATTS BUNKER CHARGE MONTHLY AVERAGE 1 PBC13 PBC14 PBC13&14 PBC5 PBC6 PBC5&

3 UK and North Continent ket focus The North Asia to North Continent and UK routes, PCR1 and PCR11, had a wide-ranging set of box rates for 1 from $85-$1,/FEU. On 1 it was assessed at $1,/FEU with mid-month validity. This diverse range of box rates continued into 15 ranging between $1,1/FEU and $1,/FEU for end month validity. Again, the main reason was cargo allocation percentages but the consensus for the market rate on 15 was assessed at $1,. PCR11, North Asia to UK was also assessed in line with Europe at $1,/FEU. tember. Obviously, once the new sulfur cap is in place, the sums might be considerably bigger with either of the counterparties risking to lose that money, unless there is enough transparency. N CONTINENT PLATTS BUNKER EXCLUDED CONTAINER RATE North Continent Platts Bunker Charge It is a similar story of box rate volatility and increasing bunker costs for the North Asia to North Continent route. If we take two points on tember 17 and ember 17, Platts assessed the spot market, PCR1 at $1,/FEU on both dates. The carriers were potentially down around $22, per head-haul voyage in ember as the Platts Bunker Charge element was around $24/FEU higher than in PCR1 PBX1 N CONTINENT PLATTS BUNKER CHARGE MONTHLY AVERAGE N CONTINENT PLATTS BUNKER CHARGE QUARTERLY AVERAGE PBC1 PBC2 PBC1&2 PBC1 PBC2 PBC1& Q1-13 Q1-14 Q1-15 Q1-16 Q1-17 Q1-18 3

4 BUNKER TRENDS The US decision to reinstate sanctions on Iran was the biggest news to hit the shipping and bunker industries in, with potential implications for shipping companies operating in the region, traders using Iranian tankers and refiners reliant on Iranian crude exports. Another big development was Singapore s long-awaited decision to mandate the use of mass flow meters (MFMs) for distillate fuel deliveries from y 219. MFMs have been compulsory for fuel oil deliveries there since the start of. IMO Secretary-General Kitack Lim answered some of Platts reporters questions in an exclusive interview, confirming there is no possibility of delay to the.5% sulfur cap implementation in 22. The port of Rotterdam posted first-quarter bunker demand figures, saying sales grew 2.6% from a year earlier. But traders in northwest Europe said they had not seen this level of growth. A Goldman Sachs representative told Platts the US investment bank is seeking to help finance the installation of scrubbers as a means of coping with the IMO sulfur cap in 22, helping shipowners access up to 25% of the initial installation cost. PCR 1 N ASIA N CONTINENT IFO 38 BUNKERS PCR 1 N ASIA N CONTINENT LS MGO BUNKERS 7 1 PCR 5 N ASIA EC N AMERICA IFO 38 BUNKERS PCR 5 N ASIA EC N AMERICA LS MGO BUNKERS 7 1 PCR 13 N ASIA WC N AMERICA IFO 38 BUNKERS PCR 13 N ASIA WC N AMERICA LS MGO BUNKERS 7 1 4

5 Other stories Maersk/MSC illogical Emergency Bunker mess Guest Feature Maersk Line and MSC have introduced emergency bunker surcharges, and market rumors are that more carriers are about to introduce something similar. But the implementations announced now are not logical and seems more to be fueled by a need to do something urgently, than a need to implement a logical structure to the surcharge. If these surcharges stick, we will be left with the jungle of surcharges becoming more illogical and intransparent. First of all, it is important to note that the various freight rate indices all point in the direction that the fuel price increases are not yet fully reflected in the freight rates. Even when we take into account that there always is a lag time from the point of fuel prices changes until we see it in the freight rates, we are also beyond that lag time. Hence, in short, the carriers have a fully legitimate position that they are right now not being adequately compensated for the increases in fuel prices. But and there is a big but what is the problem with the new emergency fuel surcharges. There are basically two major problems. Both Maersk and MSC today mainly operate with pricing structures where bunker surcharges are part of the ocean freight. For Maersk it is the SBF and for MSC it is called the BUC. Maersk on their website write about the SBF: This charge covers the fluctuations in global bunker costs. Hence the SBF by its very nature already includes the recent sharp increases in fuel prices. Maersk still charges SBF even in the face of applying the Emergency bunker surcharge. Hence, logically, only one of two conclusions are possible: 1) Maersk is trying to double-charge for the increases in fuel prices, or 2) The SBF has become entirely ineffective and is de facto not being applied. My take is that it is option number 2 which is the correct one as has been evident for years, in a weak market any increases in bunker surcharges tend to be undermined by equal erosion of the base rates. The argumentation would be the exact same for MSC who is already charging BUC which in their own glossary is defined as Adjustment applied by shipping lines to offset the effect of fluctuations in the cost of bunkers, but is now also placing an emergency bunker surcharge on top of this. But this also means that we are in a situation where the carriers have acknowledged that the current bunker surcharge mechanism is broken. But instead of replacing it with a new mechanism, they put the new mechanism on top of the old broken mechanism. And then what about the new mechanism? In the case of Maersk this is simply a flat fee per container. Irrespective of the length of the journey. Irrespective of the typical vessel sizes used on different trade lanes. By the very nature of this it means that the fuel surcharge mechanism has no clear link at all with the actual fuel price impact on the individual container shipped. Hence the old surcharges, which actually did strive to have a clear link between fuel consumption per TEU on a specific trade lane, are now being supplanted by a mechanism with no such link at all. MSC is less transparent in their open communication as to the application of their new surcharge simply saying that they are introducing a worldwide temporary emergency bunker surcharge on all ocean and land-based cargo carriage with immediate effect. ket feedback is indicating that behind this are surcharges which actually do vary somewhat depending on the trade lanes. Hence what is the point of this rather long posting? It is very clear that carriers need to be able to adjust their prices to reflect changes in fuel prices. It is equally clear that the old BAF-style surcharges have become undermined over the years, which has rendered them ineffective simply because of the spillover effect between BAF and base freight. This was easy to live with when we were in a low-cost fuel environment, but the increases has made it untenable. Hence the carriers have a good case for why rates need to increase to adjust for fuel. The problem is that the way they are attempting to do it now is neither a logical nor a long-term durable solution. The changes in surcharges must be directly linked to the fuel impact on the individual containers and a fixed fee irrespective of trade and vessel size does not live up to this. Consequently, it is likely such an approach will be seen very negatively by the shippers, serving not only to undermine necessary efforts to get compensated for fuel increases, but also make it even more difficult for the carriers to implement cost-based surcharges in the future as the one being sold as cost-based right now cannot fully be said to live up to the criteria from a trade-lane perspective. What is needed is a re-introduction of a truly enforceable bunker surcharge mechanism which fairly represents fuel price change outside the control of the carriers, but with these emergency actions we seem to be headed more in the direction of illogical short-term fixes and away from a more sustainable long-term solution. Finally and this also needs to be taken into account the fundamental reason for the undermining of the traditional bunker surcharge is that the carriers have engaged in a price competition, de facto extending to include fuel surcharges. No matter of new labelling of surcharges will in itself change this aspect. Lars Jensen is a thought leader in the container shipping industry, and has been analyzing the industry since 1 where he took the position as Chief Analyst for Maersk Line. Since 211 he has been the founder of a series of companies in the liner shipping industry focused on analysis, process improvement and strategic outlook. Lars is currently CEO of SeaIntelligence Consulting and is the author of the book Liner Shipping 225. How to survive and thrive. This article was first published on his LinkedIn page: Lars Jensen Bunker supplier Aegean cuts clients credit terms Aegean ine Petroleum, one of the world s largest bunker fuel suppliers, has limited payment terms for its marine fuel customers to as little as 14 days after delivery, according to three buyers familiar with the matter. Two of the buyers said Aegean now only offers 14 days of credit to clients. A third said for one of its recent purchases from Aegean it was only granted 14 days credit, while another arranged through a broker was with 3 days credit. 5

6 Ship operators typically pay for their bunker fuel several weeks after delivery. Aegean s new credit terms will be helpful for its balance sheet, but may mean it struggles to compete with rival companies offering more generous terms. Why would you go for Aegean, when you can get 3 days credit from other suppliers? one of the buyers said. Aegean did not respond to a request for comment on its credit terms. The company missed an il 3 deadline to file its annual report to the US Securities and Exchange Commission (SEC), saying it expects a significant change in results from the previous year and needs additional time to review its financial statements. Aegean is now no longer in compliance with the New York Stock Exchange s listing requirements, and has been given a new deadline of six months from il 3 to file the report. In a statement Tuesday, Aegean said it could not predict when it would be able to file the results. The company announced a comprehensive strategic and operational review focused on maximising profitability and return on capital, including re-examining physical assets, existing footprint and the capital efficiency of every business activity in which the company is engaged and each port in which it operates. It said it expects these actions to result in significant cost savings. S&P Global Platts marine credit agency Ocean Intelligence downgraded the company s credit assessment last week to the thirdlowest possible score, saying it would remain there until the results are released and analysed. Ocean Intelligence now assesses the score of Aegean and its affiliates at Credit a matter of trust in Principals as of 15, where previously it suggested a credit limit of up to $7.5 million for the company. Only two lower scores are possible in the Ocean Intelligence range Trading not advised on any basis and Insufficient data to rate. Before last week s change, Ocean Intelligence last downgraded Aegean s credit assessment on ch 1,, from Good for credit to $1 million and above the highest possible score. The new lower score as of 15 means companies are only advised to extend credit to Aegean if they have a reliable personal undertaking from Aegean s senior officers that their money will be repaid. The bunker and shipping industries use Ocean Intelligence s reports on an advisory basis as part of their credit checks, and the downgraded assessment may affect counterparties willingness to extend credit to Aegean and marine insurers willingness to provide coverage CONTAINERS UPDATE Senior Editor Andrew Scorer andrew.scorer@spglobal.com Follow our spot box rate assessments and news for free at The names "S&P Global Platts" and "Platts" and the S&P Global Platts logo are trademarks of S&P Global Inc. Permission for any commercial use of the S&P Global Platts logo must be granted in writing by S&P Global Inc. 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