What is IMO2020 & Low Sulphur?
The International Maritime Organization is an agency of the United Nations, responsible for the safety and security of the shipping industry and for regulating the environmental impact of ships. The IMO has set a regulation to limit Sulphur content in oil to less than 0.5% effective the 1st of January 2020. The current global limit for Sulphur content in fuel oil is 3.5%.
IMO 2020 Implementation
Shipping lines have the following options available to them in order to be compliant:
- Use compliant fuel (0.5%)
- Maximise FO 0.5%
- No investment but it is more expensive
2. Clean the Emissions from Sulphur
- Install Scrubbers(Expensive to install)
- Use high Sulphur FO 3.5%
3. Find an Alternative Fuel Oil
- Use LNG
- Needs Investment, still at the beginning of
- For newly built vessels, retro-fitting existing
vessels not economically viable
Stockwell will continue to inform our customers of changes to the industry and continue in making them aware of the potential impacts. Customers must be aware that the increased costs associated with these measures will be passed on, starting with the Carriers themselves, in order to recover the costs throughout the entire shipping and supply industry. Several major carriers (shipping lines) have already been implementing a Low Sulphur Surcharge (LSS) out of NEA for almost a year at a cost of around $40-80 USD/TEU. There are multiple options for the carriers to recover the increased fuels costs, such as:
- Higher All-In freight rates
- Low Sulphur Surcharge
- Current or Similar BAF mechanism with an upwards revision
Implementation and compliance are estimated to see an increase in costs of USD$160/TEU.
Impacts & Predictions
As we enter the new global sulphur cap regulation the industry braces itself for the challenges ahead. This new regulation is predicted to significantly reduce the sulphur oxides that emanate from ships.
With predictions that IMO 2020 will have teething issues Guy Platten, Secretary General of the International Chamber of Shipping (ICS), said in a message to the industry on the eve of the IMO 2020’s implementation.
“The industry has been working hard to ensure that we are ready for 1st January, but we still have concerns over safety and the availability of compliant fuels in every port worldwide. This is a pressing issue.
“Shipowners rely on many other stakeholders in the marine fuel supply chain, particularly bunker suppliers and oil refiners, to ensure we are all able to fully comply with the new regulations. We need the supply side to fully contribute to a smooth changeover so that we do not have any incidents due to incompatible fuels and we can ensure safe operations for our seafarers,” said Platten.
“I would like to think the vast majority of shipowner will fully comply, and the new regime will be strictly enforced by Port State Control authorities globally.
“What we want is to make sure it is a level playing field – any shipowner would want that – and there is a uniform approach to compliance around the world. If you have not got a level playing field and people are able to gain from the system, that’s not fair.”
“We believe this major change is both timely and needed, however, this does not mean it is without inherent risks,” he finished.
So far IMO has significantly added to the cost of moving freight and as it begins to fluctuate importers are worried about the impact this will have on the cost of their supply chain going forward.
For more information on IMO 2020, see our presentation here. Contact the team at [email protected]kwellsinc.com or call +1 213-246-2532