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Switch to low-sulphur fuels will have major impact on sea freight

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Switch to low-sulphur fuels will have major impact on sea freight

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From 1 January 2020, the shipping industry will be subject to stringent regulation regarding sulphur emissions. From then on, fuel oil may contain only 0.5% sulphur, while this is currently 3.5%. This measure has major consequences for shipping companies. They have to make serious changes to their way of working to meet the new rules.

 

Worldwide agreements

Polluting shipping is a major issue everywhere. The fuel oil used is responsible for many greenhouse-gas emissions. The International Maritime Organisation (IMO), the UN organisation for shipping that has 177 member countries, has therefore decided that from 2020 fuel oil may only contain 0.5% sulphur. This should reduce sulphur emissions from shipping by 80%.

 

Solutions for reducing sulphur emissions

Shipping companies are choosing from various options to comply with the new sulphur emissions regulations. The two most obvious are:
  1. Replacing the current fuel with low-sulphur fuel. This is the simplest solution. However, this fuel is expensive.
  2. Fit ‘scrubbers’ to remove sulphur from the exhaust gases. But this is a time-consuming and costly job. Installation of the scrubbers requires downtime for a ship of some six weeks. The benefit of this is that operators may still use the cheaper fuel oil.
Currently, 5% of all ships are fitted with scrubbers. The market is expecting a massive run on these exhaust-gas systems next year. The remaining ships will (for the time being) switch to low-sulphur fuel on 1 January 2020.

 

Towards a single fuel surcharge

In a number of shipping zones, low-sulphur fuel is already mandated. These are the so-called Emission Control Areas (ECAs). They include the North Sea and (a large part of) the coastline of the US. You currently pay a Low Sulphur Surcharge (LSS) of $20 per TEU to cover this. This charge is designed to compensate the higher fuel costs. But ECAs are now being implemented in parts of China too. The LSS is commonly charged on to suppliers by shipping companies operating along these lanes.

 

The way in which the higher fuels costs are charged on is expected to change next year. A number of shipping companies have already announced they’ll be applying a single fuel surcharge rather than a number of different ones. This surcharge is intended to compensate the costs already incurred by shipping companies of complying with the IMO regulation that takes force on 1 January 2020. These will therefore be higher than the current LSS of $20 per TEU.

 

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