The International Maritime Organization (IMO) is setting up new regulations to reduce sulphur oxides emissions in international waters. Starting on January 1st 2020, all sea vessels will have to reduce sulphur emissions by 85% and switch to lower sulphur fuels.
The maximum sulphur content in fuels allowed on ships will shrink from 3.5% to 0.5%. In the Environmental Control Areas (ECA), the already existing regulation of 0.1% remains unchanged.
The Low Sulphur Surcharge is a regulation set by the IMO to reduce the amount of sulphur fuel emissions burned by sea vessels in ECA Zones (0.1% sulphur fuel content).
Yet, the LSS is only limited to certain areas: North Europe, North America, Parts of Asia.
Vessels operators have three ways of complying with the IMO 2020 regulation:
1. Install scrubbers
A scrubber is a low sulphur emission cleaning technology that filters sulphur fuels. By installing such a technology, vessels can continue using high levels sulphur fuel (3.5%) and still comply with the regulations. The costs and time needed to install a scrubber are very high which makes this option undesirable for many actors in the industry.
2. Switch to non-petroleum-based fuels
Some players have pointed to Liquid Natural Gas (LNG) as an alternative to sulphur-based fuels. However, the natural gas supply chain is not yet stable enough to meet the demand for LNG and retrofitting vessels is highly expensive.
3. Switch to Very Low Sulphur Fuels (VLSFO) or Marine Gas Oil (MGO)
Switching to VLSFO or MGO might be the easiest and most logical option since vessel retrofitting is not needed. Nevertheless, there are still some uncertainties in regards to the calculation of the costs, the global availability of compliant fuel and the engine requirments.
The port state control department of each respective state is responsible for controlling sulphur emissions. Governments will conduct checks on logbooks using sniffer devices and drones.
The impact of IMO 2020 is still very uncertain, there are many different speculations on how it will affect prices and availability of petroleum products. Other factors might also affect this prediction; this includes geopolitical events (i.e. sanctions and war), the positioning and actions of OPEC (Organization of the Petroleum Exporting Countries) and the world demand and volatility of oil.
It has been estimated that after the introduction of the IMO 2020, the majority of carriers will use alternative fuels (VLSFO/MGO) to meet legal requirements. Around 10% will install scrubbers and only a limited amount of carriers will use LNG technologies given that it is still in its early stage.
All companies involved in ocean freight will face increased fuel costs. At this stage the exact range cannot be narrowed down yet because of the explained uncertainties.
In preperation of IMO2020 most carriers started to introduce floating bunker clauses for long-term agreements in order to adapt to the fluctuating bunker costs.
Higher costs can already be expected in the fourth quarter of 2019
In the ramp up phase other fuel related surcharges could apply in orther to cover the cost of compliance. As of January 1st 2020 no extra surcharges on top of the Bunker Adjustment Factor (BAF) will be expected.
Environmental issues are of the greatest importance at Rhenus. As an active player of Globalization, the company is encouraging initiatives that aim to make transportation modes more sustainable. Rhenus is very supportive towards the IMO 2020: it will help considerably reduce carbon emissions in the freight industry.