Due to commence on January 1, 2020, the International Maritime Organisation’s (IMO) low sulphur emission regulations are overhauling fuel use in shipping.
Currently, bunker fuel causes close to 90% of SOx and SO2 emissions globally. In a bid to reduce this air pollution and minimise ocean acidification, sulphur caps have been slashed from 3.5% to 0.5%. This is in addition to already existing 0.1% cap in Emission Control Areas (ECA). While shipping lines have championed mandated caps, they are absorbing resultant costs of over $30bn.
Shipping lines are using three solutions to meet emission requirements.
The first is to use compliant fuel with a sulphur content below 0.5% (LSFO). LSFO prices have spiked as demand outgrows supply, exceeding High Sulphur Fuel Oil (HSFO) costs. For instance, marine gas oil was 47% more expensive than HS380 on 22 November in the Port of Singapore. Notably, ships using LSFO are also unable to enter ECAs.
Another option is to procure Very Low Sulphur Fuel Oil (VLSFO), such as liquefied petroleum gas, methanol, ethane, or liquefied natural gas. These fuels command an even steeper premium. Further, retrofitting engines and bunkering infrastructure to accept these fuel types is expensive and timely.
The final alternative is to use emission abatement technology. Scrubbers are an exhaust gas cleaning system that uses liquid to remove pollutants from gas streams. They yield the significant cost savings of HSFO, with companies expecting to recover capital outlays.
Scrubbers are only a short-term solution that cannot meet aggressive future caps anticipated. Further, some ports have restricted the use of open-loop scrubbers, forcing a mandatory switch to LSFO or VLSFO fuels for short distances.
Most shipping lines have combined solutions to ensure both short-term prosperity and long-term sustainability. As the industry adapts to these changes, consignees have been warned to prepare for fee revisions, schedule interruptions, potential delays and port congestion.
With carriers struggling to stay in the black, it is unsustainable for them to shoulder increasing shipping costs previously mentioned. These are being transferred onto shippers through fees like Bunker Adjustment Factors (BAF) and Environmental Fuel Fees (EFF).
Additionally, scrubber installation and vessel retrofitting could cause temporary port congestion. However, most shipping companies have planned to minimise inconvenience post-regulation by undergoing these processes well in advance.
In the short term, limited fuel supply at some ports could require boats to re-route during travels or change trade lines altogether, delaying trips and increasing blank sailings. According to the IMO, there is no alternate or exemptions to the hard deadline regardless of fuel availability.
Other operational disruptions include reduced vessel capacity as scrubbers occupy valuable cargo space and longer trip lengths if carriers slow steam to conserve fuel.
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