The new IMO 2020 regulation is about to become a reality. Below please find a brief summary of this new regulation and how this may affect your business. We will endeavour to keep you updated as and when more information becomes available and encourage you to reach out to your local AAW Global Logistics representative should you wish to discuss this topic in greater detail.
What is IMO 2020?
The International Maritime Organisation (www.imo.org) has ruled that from 1 January 2020, marine sector emissions in international waters be significantly reduced. The marine sector will have to reduce sulphur emissions by over 80% by switching to lower sulphur fuels. The current maximum fuel oil sulphur limit of 3.5 weight percent (wt%) will fall to 0.5 wt%. IMO 2020 regulations will see the largest reduction in the sulphur content of a transportation fuel undertaken at one time.
How can vessel operators comply with the IMO 2020 regulation?
Vessel operators have the following three options in order to comply with the new IMO 2020 regulations:
- Install Scrubbers: Vessel Operators can use Scrubbers (emission cleaning technology) to remove pollutants from the ship’s exhaust, which allows them to continue using higher-sulphur fuels. However, the process of installing Scrubbers is limited and expensive due to space and capacity constraints and will increase operating costs. In addition, the price and availability of higher sulphur fuels after 2020 remain uncertain
- Switch to non-petroleum-based fuels: Vessel Operators can switch to non-petroleum-based fuels, such as Liquefied Natural Gas (LNG). This is feasible for newer vessels with appropriate specifications. However, the infrastructure to support the use of LNG is currently limited in scope and availability. Experts predict that by 2020 approximately 250-500 vessels, or a maximum of 10-12% of the global container fleet, will either be equipped with pollution cleaning technology or will be able to burn LNG [Source Clarksons Research – June 2019]
- Switch to a Very Low Sulphur Fuel (VLSF) or MGO: Vessel Operators can switch to a Very Low Sulphur Fuel (VLSF) or MGO that complies with the new rules. The cost, widespread availability and specifications of a new fuel for use in marine engines are still uncertain. The petroleum industry needs to adapt refineries and supply chains and is likely to pass these costs on to the market
- The cost of freight will increase as the marine sector will need to use more costly fuels
- These additional costs will be recovered through increased BAF levels or IMO 2020 specific surcharges with each carrier implementing their own formula.
- IMO 2020 will apply to both Full and Less Than Container Loads but will not apply to airfreight
- The financial impact will be felt from the fourth quarter of 2019 and could last several years, as the refining and shipping sectors adapt. At this point in time we are unable to get accurate indications of how these additional costs will be passed on however we will send through further details as soon as the IMO 2020 recovery measures have been set
- IMO 2020 is one of the biggest changes in the shipping industry’s history
- No shipping line company can absorb such a dramatic increase in costs
- Bunker Adjustment Factor (BAF) will see changes as early as the 1st of September, with January 1st being the global hard start to IMO 2020
- Should you require further information on IMO 2020 please refer to http://www.imo.org/en/MediaCentre/HotTopics/Pages/Sulphur-2020.aspx