The oil price has been immersed in a price hike for the last four years, due, among other reasons, to increased demand at a time when the economy is growing, the geopolitical risks of the producer countries, the cuts to supply by OPEC and Russia, and the imbalance of the oil market, driving speculation.
Given such price increases, and in order to protect their operating margins, shipping companies protect their prices using the so-called EBS – Emergency Bunker Surcharge, which offsets increases in fuel prices.
The EBS is unforeseeable and is designed to cover unexpected rises in fuel prices, and is therefore applied at the eleventh hour (we are talking days or weeks). It is that unexpected fluctuation that means it is a different surcharge to the already established BAF-Bunker Adjustment Factor, which covers the costs of the fuel in the transport, but which is known by the parties contracting the service sufficiently ahead of time.
The EBS – Emergency Bunker Surcharge, is applied by TEU, even though it is not used by all shipping companies (although it is by the majority) and they do not use it for every type of containre and/or every type of routes.
Even though it is understandable that a shipping company would apply the EBS surcharge in the case of a price increase totally outside its control, the fact remains that the shippers are also clearly disadvantaged as they do not know certain costs sufficiently ahead of time. On many occasions, that means they will no longer be able to pass on the costs in their final prices to the customer as they have closed contracts, with the resulting impact on their gross margin.
This is controversial as price increases are never welcomed and because, as has already been discussed, as mechanisms already exist to offset fuel price fluctuations. Furthermore, there are more drawbacks than benefits, because it is not clear that the surcharge is strictly applied as envisaged and can be used to introduce a variable price rise according to the profitability needs of each shipping company or route. One clear example is the existing difference in the EBS applied by each shipping company, as some apply $1 per TEU for a certain route and others will apply $50 to $60 for the same TEU for the same route. This raises certain questions about the surcharge and about how an objective and measurable fact – the rise in fuel price – does not “affect” all shipping companies equally.