The International Maritime Organization (IMO) is an agency of the United Nations that is tasked to regulate the shipping industry and to ensure that vessel operators adhere to the latest guidelines. The IMO 2020 regulation stipulates that sulfur content in fuel should be reduced from 3.5% to 0.5%. In order to offset this cost for this, certain carriers have implemented a special surcharge.
The Environmental Fuel Fee (EFF) is a surcharge imposed by ocean carriers to cargo owners to offset the cost increase of operating vessels with cleaner fuels that have lower sulfur content (from 3.5% to 0.5%). The EFF was implemented by carriers effective January 1, 2020, which is also inline with the new regulations of IMO 2020.
It’s important to note that the Environmental Fuel Fee is a surcharge that is implemented by ocean carriers operating RORO vessels, car carriers, and containerized vessels, in line with the IMO 2020 requirements. In this article, we’ll be exploring more on the topic of Environmental Fuel Fee (EFF), what the typical EFF tariff is and how it’s calculated.
What Are the Environmental Fuel Fee (EFF) Tariffs?
There are no standard EFF rates, as carriers have different trade routes and vessel sizes. Therefore, each ocean carrier determines their own Environmental Fuel Fee, and applies these surcharges according to region and container type.
The average Environmental Fuel Fee is about $30 – $80 per container. The EFF surcharge for 40’ containers is typically twice that of 20’ containers. It’s also important to note that reefer containers have a higher EFF rate, as they consume more energy due to the genset.
How is the Environmental Fuel Fee Calculated?
Carriers have different ways of computing the Environmental Fuel Fee, but typically the price difference between both types of fuels is taken into account. In the case of Maersk and Hamburg Sud for example, the base formula is as follows:
Environmental Fuel Fee = Fuel Price Difference x Trade Factor
To determine fuel price with the above formula, the price difference between the high sulfur fuel and low sulfur fuel is observed. If the price difference between both fuel types is more than $50 per ton, the difference will be multiplied by a trade factor.
This trade factor is determined by each carrier independently for each region. As per carrier guidelines, the EFF has no fixed review period. This means that EFF rates are determined at the carrier’s own discretion, depending on the fluctuations of Very Low Sulphur Fuel Oil (VLSFO).
Any adjustments to the Environmental Fuel Fee will normally be announced 30 days before the actual implementation.