January 1st 2020 will be when the IMO (International Maritime Organisation) will enforce its new Sulphur cap, but 2019 is the year we will see the majority of changes that come in to effect as preparation for the more stringent regulations, so its best we start familiarising ourselves with what exactly is going on and what it actually means.
Currently, the global sulphur cap is 3.5%, and shipping lines are currently averaging at 2.7%, easily meeting requirements with the current fuel types in use. Come 2020 though, that cap reduces to 0.5% in an effort to reduce the impact these huge vessels have on global pollution. So, big changes need to be made to in order for the further 2%+ reduction to be met. Some shipping lines, surveys suggesting around 1 out of 5, will look to fit exhaust gas cleaning systems (better known as scrubbers) which will allow them to carry on using the same fuels as they do now. Others will be looking to use either LNG (liquefied Natural Gas) or create their own blended oil fuel products to fall in line, but creating these blends will most probably be difficult.
It’s likely that the large majority will opt to using MGO, simply because it will be the easiest route and requires no initial investment from the lines themselves. It’s easier, but it’s more expensive than current fuel, averaging at having a $250 + premium per Metric Ton and as such will lead to higher bunker (fuel) costs for the shipping lines. Not only that, with the expected increase in demand for the fuel, the premiums will only climb higher.
So, what does this all mean to anyone shipping their goods?
In a nutshell it means increased costs. Whichever method a shipping line is choosing, whether it be retro fitting vessels with scrubbers, purchasing new vessels all together or looking into a new fuel source, it all comes at an extra cost to the shipping line, and a cost they cannot be expected to absorb. Already we have seen some shipping lines adding surcharges to cover these increases, and will continue through 2019 as they adjust in preparation to the 2020 deadline. No shipping line is exempt from the new regulations, so the unfortunate increase in costs will be a reality across the board. It doesn’t mean that nothing can done though, at Banks & Lloyd we will endeavour to scour through every viable option at every point in your goods journey to find potential savings and help minimise the impact this will have.
If you have any questions or concerns regarding the matter, then don’t hesitate to get in touch.