IMO 2020 – How Regulations will impact the Shipping Industry

IMO 2020 – How Regulations will impact the Shipping Industry

We would like to inform you about the upcoming regulations that are set to take place on the 1^st of January 2020.

As from 1 January 2020 all commercial and container ships have to reduce the emission of Sulphur Oxides into the atmosphere with 85%. The IMO has reported that because these emissions can cause health and environmental problems. The so called “bunker fuels” that contain high levels of Sulphur generally are, MDO-MGO (Marine Diesel/Gas Oil) – IFO-HFO (Intermediate and heavy Oil) and MFO (Marine Fuel Oil).

How are shipping lines preparing for IMO 2020 regulations?

Most of the responsibility to meet the IMO2020 regulations lies in the hands of carriers, i.e. the shipping lines that carry the cargo. The shipping lines must ensure that their fleets comply with the regulations. To meet these regulations, shipping lines have 3 main options as below:

• Purchase cleaner, low-Sulphur fuel

Switch from using traditional bunker fuels (High-Sulphur Fuel Oils, HFSO), to using
Marine Gas Oils (MGO). These new MGO’s can cost up to 50% more than the HFSO oils already being used.

• Install Exhaust Gas Cleaning Systems, known as “Scrubbers’

“Scrubbers” can be installed to reduce emissions of Sulphur Oxides while using HSFO fuels. These scrubbers are designed to remove Sulphur Oxides from the ship’s engine and boiler exhaust gases.

Installing scrubbers can costs between $5-$10 million.

• Switch to Liquefied Natural Gas (LNG)

If ships choose to switch to using low Sulphur fuel such as LNG an issue can be that LNG tanks fitted will take up more physical space. As a result this will reduce the amount of shipping containers that can be carried. Also, due to the likely drastic increase in demand for LNG fuels, the price of LNG may increase as much as 50%.

What does IMO2020 mean for shippers and how will this affect shippers, shipping costs and end consumers?

Shippers don’t need  to make any drastic changes to their process, but they do have to be aware of the price hikes will definitely take place in 2020. This price increase will be passed onto shippers and in the end be passed on to end consumers. Also any past cost increases along the supply chain has been inevitably passed to the shippers, which increases the landed cost of goods.
Then the port-to-port seafreight costs will increase and will be passed on to the party that is paying for the seafreight. The party that ultimately pays for the seafreight depends on the IncoTerms that goods are sold.

The increased costs of fuel could also increase vessel transit times, where ships sail at slower speed to conserve fuel.

Finally, there will be no avoiding the price increases in 2020.  Monitoring and understanding the situation and anticipate is the best thing to do. Shippers must work to hold Carriers accountable, Carriers must be as transparent as possible in any prices rises.

Shippers can push their freight forwarders or shipping lines for details on how the bunker formula is calculated so that shippers get assurance they are only being passed on the costs directly related to IMO2020.

Should you have any questions or concerns, please contact:

André Snijder/tel. + 31 10 4032839/ a.snijder@slavenburg-en-huyser.nl

Mariska Barth/ + 31 10 4032886/ m.barth@slavenburg-en-huyser.nl