Sulfur regulations are not getting a lot of attention from shippers at present but that should change given that the cost impact of 2020 is expected to dwarf that of 2015, according to Norwegian shipping company Wallenius Wilhelmsen Logistics (WWL).
The decision by the International Maritime Organization (IMO) to set 2020 as the start date for the 0.5% global sulfur cap has been widely welcomed for demonstrating that shipping and its regulator are prepared to make tough choices. However, the IMO has set the shipping and refining industries a tough technical challenge of producing and sourcing the fuel necessary to meet the 0.5% sulfur maximum, WWL said.
The far greater challenge is what happens when the resulting costs become properly understood.
“As we have seen from the experience of Emission Control Areas (ECAs), these are not costs the industry will be able to absorb,” Anna Larsson.
As explained, a pattern is emerging, similar to that seen in the lead-up to the 0.1% sulfur limit of 2015 within ECAs. The industry conversation was dominated by technical considerations of how carriers would manage.
Fuel accounts for between one and two-thirds of the total cost base for most shipping companies and some reasonable assumptions about the premium compared to heavy fuel oil put the increase at anywhere between 40-70% for low sulfur fuel.
As such it is hard to avoid the conclusion that even if shippers have not felt the effects of sulfur regulation until now, they are more likely to feel it in 2020, Larsson further argued.
“One of the biggest challenges leading up to 2020 is the uncertainty: we simply don’t know what kind of fuel or other compliance options will be available or what the cost will be,” Larsson stressed.
“To handle this uncertainty, we have chosen to spread the risk and increase flexibility. The WWL ‘four-stream’ approach accepts that there will not be a one-size fits all solution.”
From a shipper perspective, the worst situation would be working with a carrier who doesn’t see what the fuss is about and has done nothing to engage with the issue.
Vessel owners that simply “wait and see” not only put shippers at a disadvantage but also increase the risk of supply chain disruption.
Starting the conversation early means having the best possible chance of mitigating the regulatory impact, Larsson concluded.