IMO 2020’s £40 billion bill
The shipping industry – and shippers – are braced for the largest ever regulatory change in the fuel sector, IMO 2020, forcing the shipping lines to invest heavily and they are determined to recoup their costs from shippers.
The IMO’s global emissions regulations come into force in January 2020, imposing large reductions in sulphur emissions by the 5,200 container vessels currently in operation and compliance is forcing the shipping lines to invest heavily in compliance solutions, potentially adding £40 billion to global shipping costs.
The lines are determined to recoup their costs from shippers, with some imposing surcharges effective from 1st December.
Shipping Consultants estimate that container shipping lines will face an £10 billion fuel bill switching to low sulphur marine fuel in order to meet the International Maritime Organisation’s (IMO) new rule that caps sulphur content to 0.5%.
The expectation is several months of uncertainty on fuel surcharges, as carriers impose new formulas to cover the extra cost of low-sulphur fuel to meet the IMO regulations on ship emissions, to recoup some of the billions of dollars in higher operating costs.
Most major carriers have announced bunker adjustment factor (BAF) formulas to offset higher fuel costs, but there is currently little commonality in pricing or even what they are called.
Ultimately, we anticipate that there will be more commonality among the various formulas, and the number of formulas will shrink and the price differential between low and high-sulphur fuel will be the primary driver of how it gets resolved.
Before the regulatory change even takes effect the spread between high-and low-sulphur fuels in Singapore hit an all-time high on Friday, up 36% on just a month ago.
Since the beginning of the month, Maersk Line, Hapag-Lloyd, CMA CGM, and HMM have announced low-sulphur surcharges to be applied from the 1st December on containers shipped under spot rates and contracts with a duration of less than three months.
Most carriers already have BAF formulas in place for cargo shipped under longer contracts.
Yang Ming and other carriers have already stated they would have to flush vessels’ fuel tanks at least a month before the January start date, introducing interim fuel surcharges within their service contracts.
Yang Ming was the first line to announce Bunker charge for IMO2020, applicable from Asia to Europe, effective from 1st December 2019 @ USD 125 per teu.