What is changing?
The new regulation from the IMO, active from January 1st 2020, is being introduced to reduce air pollution from ships globally. Today ships can use fuel with up to 3.5% sulphur content (outside Emission Control Areas), the new global sulphur cap will be 0.5% by using low sulphur fuel oil (LSFO).
It will reduce sulphur pollution from shipping by more than 80%, and therefore have a very significant positive impact on the environment and human health.
How will the change affect you?
The cost of compliance with the new regulation as per 1st January 2020 will be significant since the cost difference between LSFO and IFO 380 (most commonly used fuel) is up to $250/ton, which will give a yearly extra cost to carriers of multiple billions of dollars. It is also expected that the volatility of fuel costs for shipping will increase as the regulation to use LSFO enters into effect.
Fuel rate will be based on the difference between the average IFO380 and the actual bunker costs from the previous quarter. This difference (when surpassing a certain hedging point, plus or minus) will be multiplied with a ‘trade factor’, depending per trade on variables like transit time, distance, capacity, occupation, consumption and imbalance, in order to come to a BAF per TEU.
Therefore in the coming months, as carriers begin to adapt to the regulation, cost for ocean shipments will ultimately rise.
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