troubled waters

Unfortunately for ocean carriers (and their customers), cocoa butter and solar power aren't viable options for fueling container ships.

According to the Transpacific Stabilization Agreement (TSA), an association of container shipping lines serving the Asia-U.S. trade lane, prices for petroleum-based bunker fuel had risen to more than $500 per ton by mid-November from $295 per ton at the beginning of 2007. That fact, and the likelihood that oil prices will go even higher, led the group's 14 member carriers to announce a change in their guidelines for applying fuel surcharges.

Until now, ocean carriers and their shipper customers typically locked in bunker surcharges for a year or more when negotiating service contracts. But with fuel now accounting for at least half of a vessel's on-the-water operating cost, locking in surcharges guarantees that carriers will continue to hemorrhage money and threatens their viability, said TSA Chairman Ron Widdows in a statement. He's not exaggerating: TSA members estimate that from February 2006 through August 2007, they spent an estimated $5 billion more on bunkers than they took in through fuel surcharges.

In an attempt to stanch the bleeding, shipping lines will no longer lock in fuel surcharges in service contracts. All new contracts for 2008 will include "floating" surcharges that adjust in accordance with market pricing, and most carriers are pushing customers to modify existing contracts to include the adjustable surcharges.