What about the Sulphur / IMO 2020?

From January 2020 there will be new rules on the permitted amount of sulphur in marine fuel: the IMO 2020.

This has been decided by the Marine Environmental Protection Committee of the IMO (International Maritime Organization). The measures are intended to reduce sulphur emissions and thus improve the environment. What exactly does it mean for shipping? And for shipping your containers?

With the IMO 2020, it hopes to reduce the negative impact of shipping on human health.

Why the IMO 2020?

Ships carry large quantities of goods across the world's oceans - and trade by sea continues to grow. The largest container ships can carry more than 20,000 containers and the largest bulk carriers can carry more than 300,000 tonnes of goods (such as iron ore). So powerful engines are needed, and they emit pollutants and other harmful emissions. Currently, all modern commercial vessels run on fossil fuels such as MGO (Marine Gas Oil), MDO (Marine Diesel Oil), IFO (Intermediate Fuel Oil), MFO (Marine Fuel Oil) or HFO (Heavy Fuel Oil). These fuels together are known as 'bunker' fuel. They have a high sulphur content that is quite harmful to the environment.

With the IMO 2020, it hopes to reduce the negative impact of shipping on human health. A ship that is more energy efficient burns less fuel and emits fewer harmful substances. The regulation focuses on reducing sulphur emissions. Reducing sulphur emissions helps, among other things, to prevent acid rain and combat ocean acidification. The IMO states that between 2020 and 2025 more than 570,000 premature deaths can be prevented thanks to the new regulation.

What measures are in place for shipping?

Global rules limit the sulphur content of marine fuels to 0.5 percent. Currently, a sulphur limit of 3.5% still applies. As a result, shipping has to take measures. This can be done by installing emission control systems or by switching to a cleaner fuel.

Use of scrubber/dryers

This way they can make use of so-called 'scrubbers'. This is a method to remove pollutants from the ship's exhaust (a so-called emission cleaning technology). This allows the ships to continue to use fuels with a higher sulphur content. However, the installation of these machines is possible to a limited extent and can be expensive. Moreover, the availability and price of fuels with a higher sulphur content after 2020 are uncertain.R

Switching to non-oil based fuels

Newer ships can switch to non-oil based fuels, such as liquefied natural gas. This is feasible for ships with appropriate specifications. However, the infrastructure to support the use of oil is currently limited in size and availability. Experts predict that by 2020 around 250-500 ships (or a maximum of 10-12% of the global container fleet) will either be equipped with pollution abatement technology or be capable of burning LNG (source: Origine Clarksons Research - June 2019).R

Switch to fuel with very low sulphur content or MGO

As a third option, they can switch to a very low sulphur fuel (VLSF) or marine gas oil (MGO). These fuels comply with the new rules. The costs, availability and specifications of new fuel for use in marine engines are still uncertain at present.

What is the impact of IMO 2020?

The rules apply worldwide and across the industry to fuels used on the high seas. Therefore, the Regulation affects ship operators, refiners and the global oil markets. Certain environmental control areas (ECA zones) are subject to even stricter regulation with a maximum sulphur content of up to 0.1%.

Who controls the execution? And are there any fines?

Ships 'bunkering' fuel oil must be given a receipt with the sulphur content on it. They must also obtain an international IPR (Air Pollution Prevention) certificate from their flag state. Port and coastal states can use port state control to check whether the ship complies. They check logbooks, use 'sniffing equipment' and drones. They can also assess plumes of smoke and other techniques to identify possible violations. Depending on the jurisdiction, there are high fines, ship seizures or even imprisonment for the captain in case of violations.

The global container transportation industry expects to have to invest some USD 24 billion to meet the new requirements.

What exactly does it cost?

It is estimated that more than 90% of the world's fleet will be dependent on the right fuels when the rules enter into force on 1 January 2020. Shipping companies and ship owners will therefore have to invest in technologies and operational matters. This is because it takes a considerable amount of money and time to prepare ships for the required standards. They also have to negotiate with bunker suppliers about the availability and price of low-sulphur fuel.

Many of the shipping companies such as CMA-CGM, ONE, OOCL, Maersk and APL have announced that they will pass on these investments to customers. They do this by making adjustments to their fuel surcharges or by creating new surcharges such as the Environmental Fuel Fee (EFF).

How does this surcharge differ from BAF?

For the time being, the use of fuel oil on board ships is unavoidable. Oil prices fluctuate sharply and to counteract these fluctuations, shipping companies charge Bunker Adjustment Factor (BAF) as a surcharge on top of sea freight costs. This BAF is usually in line with the movement of oil prices, just like the fuel for our cars. When oil prices rise, BAF goes up and when oil prices fall, BAF often goes down as well. Although the BAF is designed to absorb increases in bunker related costs, the compliance costs for the new rules are nowhere foreseen. The additional or new surcharges should therefore cover these costs.

What are the consequences for the tariffs?

It has been calculated that the expected increase in costs will have an impact on the overall prices of container transport and on freight rates. The starting date of 1 January 2020 still seems a long way off. However, we expect many shipping companies to adjust their rates and/or surcharges as early as the third and/or last quarter of 2019.

Does the IMO 2020 have other implications for transport, such as capacity and lead time?

In principle, there are few or no changes to the timetables. Delays may occur due to reduced availability of fuels, although we cannot yet foresee this. Technical modifications to the vessel (e.g. installation of a scrubber) may cause delays or capacity reductions.

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