The IMO’s global emissions regulations come into force in January 2020, imposing a large reduction in sulphur emissions by the 5,200 container vessels currently in operation globally.
The IMO’s global emissions regulations impact the 5,200 container vessels currently in operation globally, requiring massive compliance investment, so how will carriers recover the increased costs.
Drewry Shipping Consultants estimates container shipping lines will face an £10 billion fuel bill next year on account of the switch to low sulphur marine fuel in order to meet the International Maritime Organisation’s (IMO) new rule that caps sulphur content to 0.5% from January 1.
Goldman Sachs estimate that IMO 2020 will add £40 billion a year in increased shipping costs.
It is the largest ever regulatory change in the oil space and will have a massive effect far outside of shipping, as much as £220 billion of added costs across global supply chains.
Carriers are looking to pass on the extra fuel costs to shippers, with the expectation being they will cut service levels if the additional charge are not picked up.
IMO surcharges are already appearing, with the first recently announced by Yang Ming.
Drewry’s assumption is that carriers will have more success in recovering the cost and do not anticipate that there will be major disruption to supply.
In their view most shippers accept that they will have to pay more but expect any increase to be justified with a credible and trusted mechanism.
There also could be a push by lines to equip ships with scrubbers to avoid the premium pricing on low sulphur fuel, which is expected to peak in the New Year.
Vessel demolition rates could speed up, too. “If events follow this path, the supply-demand balance will look very different from our current forecast,” said Drewry’s “The worst-case scenario, when most shipping lines cannot operate close to breakeven and some potentially face bankruptcy, would actually be a far quicker route to rebalancing the market.”