CNH Tours - Cultural and Natural Heritage Tours Galapagos
Thursday May 26, 2022
Fuel Surcharges Have Arrived
With the surge in oil prices over the past few months, it should come as no surprise that ships in Galapagos would start feeling the pinch. Fuel makes up a big part of a ship’s operating costs.
The price a ship owner charges for a cruise is set on an annual basis, and is usually fixed a good 12 -18 months before the start of that year. So, 2022 cruise prices are based on fuel costs calculated as far back as early 2020.
The first ship to announce the surcharge to CNH Tours was the 32 passenger Evolution – the one we had chartered for our not-for-profit fundraising trip for old friends of ours. We were given a very short notice (another characteristic of doing business in Galapagos).
Other ships have started imposing surcharges as well. The latest was the ship we use for our Active Galapagos trips - the Samba - announcing today that it was imposing a $150 surcharge for departures starting next week.
While we understand these requests, we did feel it was the ship owner’s responsibility to be as transparent as possible in fixing the amount of the surcharge. In this regard, we sent the owner of the Evolution a note asking for those details. We have copied that note below (the ship owner's response to our questions is in italics) – CNH Tours is keeping your interests in mind when doing so.
From: Marc Patry <email@example.com>
Sent: Wednesday, March 30, 2022 2:57 PM
To: Dolores (email not published for privacy purposes)
Cc: Heather Blenkiron <firstname.lastname@example.org>
Subject: RE: EVOLUTION 30-APRIL-2022 / Fuel Surcharge Notice
I hope all is well with you. We just received notice of the fuel surcharge.
While I appreciate that fuel prices are going up, and while we have been anticipating something like this from ship operators at one point (Evolution is the first), and finally, while we understand that costs must be covered, it would be nice on your part to:
- Give us more notice. Dropping this on us now, after we had paid the balance of our bill means we have to go back to all our guests and get them to pay. Half our guests are in Europe and can only wire funds – and each wire has high transaction costs. We’ll probably end up advancing much of the funds and have our guests pay me cash on site. I’m sure your team that does direct sales is feeling the same way. Ideally, this would be applied only to departures whose final balance has not yet been paid, for example.
Although we completely understand this, for the past weeks, Galapagos operators have been paying a sharp increase (60%) in gas prices due to the war. We are not entirely sure how long this temporary fuel surcharge will last (it may be weeks or months) or the rates could even decline.
- Be more transparent with the numbers. While I have no reason to believe the contrary, it would be good if your company, in an effort at ensuring full transparency, gave its corporate clients like CNH Tours some numbers to explain its calculations. By unilaterally dropping the $150 figure on us, you are also asking clients to take your word for it, and in a business relationship, it’s always good to back up any such surprise price changes with a quantitative justification. For the Evolution, you are adding a $4,800 fuel surcharge. To me, who doesn’t know the details of running a ship, that’s a heck of a lot of fuel.
For our two ships, during a week of operation we use around 4,600 gallons of diesel and have room for 48 guests in total. By having a $1.50 price per gallon increase, we have an additional cost of $6,900 per week. If we divide this by the number of berths that we are able to sell (48), we get $143. It is important to mention that in addition to this, several of our suppliers have already started charging us more as transportation costs have also increased and this has averaged to an increase of $12 per person on a weeks of operation.
- Give us a game plan for eventually dropping the surcharge. It has been my experience that once a surcharge is in place due to an increase in fuel prices, they are sticky and don’t quickly get reduced or eliminated when fuel prices go down again (if they do). For example, should fuel prices go back to where they were 4 weeks ago, will the fuel surcharge be dropped?
As stated in our communication, this is a temporary fuel surcharge which depends on what the price of gas is charged to Galapagos operators. As a company, we had budgeted US$ 2,50 per gallon (which was standard for previous years) and now are being charged US$ 4 per gallon. It is worthwhile to mention that a fuel surcharge was implemented many years ago and that when gas prices worldwide dropped, the Ecuadorian government kept the higher rates for Galapagos operators. Although we do not expect this, this time around, hopefully rates will be lowered if gas prices are lowered worldwide. Any adjustment will be notified and we will certainly modify, or remove the surcharge if the rate goes below $4 or back to $2.50.
- Establish an industry-wide surcharge policy. The fuel price goes up and down the same for all ships. We would hope that all surcharges would change at the same time, and by the same amount (commensurate with the ship’s consumption). I suspect not one company wants to be the first to apply a surcharge… This is much bigger than Quasar of course – but you might want to share that with your industry colleagues – something to work on for the future.
Many thanks for the insight and as everyone in our trade we are so sorry that just when things were recovering, war broke, stressing even more the economies of most countries around the world causing this sort of reaction all over. We are so clear that for all of us, fuel is essential for our daily lives and businesses and raising prices, is just so unpopular. We hope this measure is temporary.
Thank you for your understanding Marc. We know this is difficult for CNH and your clients.