IMO 2020 comes into force in January 2020, it is the largest ever regulatory change in the fuel sector, forcing the container shipping lines to invest heavily in solutions that will reduce their sulphur emissions by 85%
From January 1st, 2020, the International Maritime Organisation (IMO) Low Sulphur Regulation will be in effect, which means the 5,200 container vessels currently in operation globally will have to reduce their sulphur emissions by 85%, using liquid natural gas-powered vessels, scrubbers or Very Low Sulphur Fuel Oil.
All these methods of IMO2020 compliance require significant investment by container shipping lines, which they are eager to pass on to shippers, in the form of surcharges.
Drewry Shipping Consultants estimates that container shipping lines which switch to low sulphur marine fuel will face an £10 billion fuel bill next year, while Goldman Sachs estimate that IMO 2020 will add £40 billion a year in increased shipping costs.
IMO 2020 will have a massive effect far outside of shipping, with experts predicting that as much as £220 billion could be added to costs across global supply chains.
Carriers are looking to pass on the extra fuel costs to shippers, with the expectation being they will cut service levels if the additional charge are not picked up.
The clean, low-sulphur compliant fuel currently costs about 50% more than the currently used fuel and is expected to spike massively in the new year, staying high throughout quarters one, two and possibly three.
Most major shipping have already announced Bunker Adjustment Factors (BAF), effective 1st January 2020, which are being factored into contracts with their largest shippers (BCOs).
Maersk Line has indicated a ‘high acceptance’ by customers in their contracts, accounting for around half of the Danish shipping giant’s volumes.
Drewry’s is confident that carriers will have success in recovering the cost and do not anticipate that there will be major disruption to supply.
In their view most shippers accept that they will have to pay more but expect any increase to be justified with a credible and trusted mechanism.
There also could be a push by lines to equip ships with scrubbers to avoid the premium pricing on low sulphur fuel, which is expected to peak through the New Year.