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Impact of Sulphur Cap on the Shipping Industry

Driven by necessity to shift from high sulphur, heavy fuel oil to more expensive, lower sulphur alternatives or exhaust ‘scrubbing’ systems, the ship operators will face cost-hike, most significant fact they have to address in the competitive market.

The question keeps popping up whether the marine sector will move to 100 percent compliance with the new IMO regulations. When cost is involved, compliance becomes an issue and non-compliance would occur wherever and whenever possible, one can expect.

According to Sea News, Marine sector can comply without needing to purchase marine gas oil. The options available:

1.     Buying VLSFO, if available;

2.     Switching propulsion systems to other fuels,such as liquefied natural gas, which is an option for new-build vessels;

3.     Installing exhaust gas cleaning facilities (termed “scrubbers”), which enable the shipper to continue to burn cheaper HSFO by washing the exhaust gases to reduce the SOx emissions.

Shipping companies are divided in their choices. Though installation of commercial scrubbers brings in advantages like being less expensive and faster installation, Maersk Line in particular is not for scrubbers though they enable vessels to continue to burn cheaper HFO from the IMO deadline. But in contrast Maersk’s  2M partner, MSC, and carriers HMM and Evergreen are proceeding with a scrubber strategy for their fleets.

With scrubber installation, there is another more difficult task: recovering the addition cost incurred on account of installation. Of course, it is said the recovery is possible within less than 12 months. But there need to be a planning for recovery in the sense that with the regulation forbidding ships to have non-compliant fuels in their tanks, scrubber-users will be forced to store the non-compliant fuel before the deadline for compliance. This adds ‘fuel to the fire’ in the sense that recovery must start before the new regulations become operational. According to Alphaliner, the number of vessels with scrubber technology installed by January 2020 will be “below 200 units” out of a global fleet of more than 5,300 vessels.

Taking into account the impact of the new regulations on the refining sector and the consequent price differential between gas oil and HSFO, Wood Mackenzie who pegs the global compliance with the new IMO regulation at 80% in 2020 says that by 2020, the price differential between gas oil and HSFO will be roughly double the 2017 differential. That makes a decision by the marine sector to opt for scrubbers commercially attractive.

After an analysis of the market impact from shifting to marine gasoil and on the impact on the bunker suppliers and ports, Sea News concludes: The operators need to consider the available options and work closely with trusted fuel and lubricant suppliers to make sure that come 2020 they can navigate the changes. In addition, industry regulators need to tackle with the lack of uniform monitoring and enforcement/penalty policies in EU in conjunction with a wide North European ECA. For that reason, industry could take advantage of the remaining time and shed light to gray areas that may inherent compliance once the legislation comes into place.

It may be recalled here that there was a proposal to introduce Experience-Building Phase (EBO) for IM) 2020, put forward by the Bahamas, Liberia, Marshall Islands, Panama, BIMCO, INTERCARGO and INTERTANKO, and the initiative was backed by the Unites States. It was rejected by Marine Environment Protection Committee (MEPC 73) which called the proposal vague in need of further defining.

It is worthy of attention that International Chamber of Shipping (ICS) has welcomed IMO progress on 2020sulphur cap implementation issues.


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