Shippers from China still have no real insight of expected surcharge levels, as low-sulphur fuel prices emerge from the limited bunkering available in some hub ports, suggesting a premium of more than 30% over heavy fuel oil.

It is very likely that these prices will change rapidly as demand for low-sulphur fuel increases significantly in the fourth quarter, impacting freight rates in 2020.

Some expect the new fuel will add 10 to 15% to 2020 rates, but as the 1st January 2020 implementation date of the International Maritime Organization (IMO) low-sulphur mandate draws closer, the wide variance in the price spread between low and heavy sulphur fuel oil is making the situation very difficult to read.

Any certainty is impossible until the fuel is actually being used and we get more of an indication of the actual costs and the price spread between high- and low-sulphur fuel, as these will guide the level of bunker adjustment factor (BAF) surcharges that the carriers will seek to impose.

Should carriers be unable to recoup those additional costs, it is likely that they will cut capacity further through blanked sailings and reduced services.

According to energy analysts at IHS Markit, refiners will be able to supply half of the global low-sulphur marine fuel demand in 2020 with new very low-sulphur fuel oil (VLSFO) bunkers. The remaining demand for low-sulphur fuel compliant with the IMO mandate will be satisfied with marine gasoil (MGO), which is essentially diesel fuel.

IHS Markit sees “diesel prices rising sharply and HSFO prices plummeting,” due to what will be a sharp pullback in demand, with the price spread between light and heavy oil products widening significantly.

Demand for the cleaner fuel is only expected to pick up at the end of this year, just before the new IMO 2020 sulphur cap comes into effect.