With IMO 2020 approaching our Director of Sales, Glenn Hall, provides this update
What is IMO 2020?
International Maritime Organization (IMO) regulations to reduce sulphur oxides emissions from ships first came into force in 2005, under Annex VI of the International Convention for the Prevention of Pollution from Ships (known as the MARPOL Convention). Since then, the limits on sulphur oxides have been progressively tightened.
From 1 January 2020, the limit for sulphur in fuel oil used on board ships operating outside designated emission control areas will be reduced to 0.50% m/m (mass by mass). This will significantly reduce the amount of sulphur oxides emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts.
What is the current state of play?
The implementation of IMO 2020 has still not been finalized by carriers and how they will recover the costs of moving to low sulphur fuel. Initially carriers in the Australia and New Zealand trades indicated a 1 October start day, however this has been pushed back to 1 November by most carriers (e.g. OOCL, COSCO & ANL) although other carriers have announced a 1 December start date. For example, Maersk will introduce an Environmental Fuel Fee on 1 December and Hapag Lloyd has indicated a Marine recovery fee will also increase on 1 December.
At this point none of the carriers have advised the level they intend to apply but we do know that the levels will vary based on the number of TEU per vessel , the length of the voyage from start of the loop to end of the loop and of course the prevailing petroleum costs of the day. Carriers are also still finalizing their review periods, that again will vary. Some opting for a quarterly review, a rolling average and others a 5-week average. It has been suggested that the trigger for change will be USD40 to USD50 per M/T variance in the current setting.
Some carriers in the ASIA to USA market have given some suggestion to levels that they may apply for example Ocean Network Express (ONE) has sent out advisory notes indicating USD164 per 40ft to the West Coast USA and USD276 per 40ft to the East Coast USA. However, as they are not yet using or purchasing very low sulphur fuel oil (VLSFO) it’s been suggested that they are testing the industry on potential cost, that will ultimately be set closer to their commencement of use of VLSFO.
The industry has seen a drop in the cost of High Sulphur Fuel (HSFO) over the past weeks as production reduces and reports indicate that the gap between HSFO and VLSFO is around USD350 to 400 per metric tonne and that the additional cost to the global shipping industry will be around USD10 to 15 billion, whether that be via use of VLSFO , Marine Gas Oil (MGO) or installation of scrubbers to process HSFO fuel.
The above push back in implementation dates is based around an almost non-existent purchasing of VLSFO. Carriers have only just signed agreements with suppliers to provide VLSFO. Information from industry sources indicate that a large percentage (50%) of the industry will burn MGO. MGO is a blend of distillates that is clean and compliant and is compatible to current combustion technology in ships. 30% will use VLSFO and 20% will fit scrubbers to their vessel to process HSFO. It is expected that scrubbers are a short-term solution as LNG powered engines come into the market.
Some commentary in the industry indicates concern that the introduction of IMO Low Sulphur fuel 2020 requirement will result in a further consolidation of the shipping industry with the cost too much to bear for some of the smaller carriers that are already suffering.
We will provide further updates via our Newsletter programme, our quoting process and from discussions with our customer service and sales teams. Unless there is any significant news, the releases will come in the form of carrier announcements of confirmed dates and amounts to apply.
If you have any questions, please contact your customer service or sales contact