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Key Takeaways Shippers Need to Know on IMO 2020 Regulations

In the wake of a volatile year, shippers face another contract year vulnerable to market disruptions from all sides, whether from government, labor, or mother nature.

The impact of anticipated factors, such as the International Maritime Organization (IMO) 2020 initiative, and the full implementation of regulations to reduce sulfur oxide emissions, are not entirely measured yet. So, with the market still trying to find where to settle, here are key aspects of IMO 2020 and what shippers need to know about this upcoming regulation.

Figure 1: Sulfur Emission Reduction After IMO 2020 Implementation
Figure 2: Map of 2019 Emission Control Areas (Current & Proposed)

International Maritime Organization (IMO) regulations on sulfur oxide emissions will go into effect in less than 10 months.

Carriers, shippers and many industry professionals are dealing with uncertainty over the potential effects on pricing and freight rates as they enter the 2019-2020 transpacific contract season.

The upcoming regulation marks one of the most influential events in the recent history of the shipping industry, as there is no clear indication on underlying costs for the industry after factoring in the cost of implementing low-sulfur fuel costs. Additionally, the economic impact of this transformation can only roughly be estimated by participants.

There are multiple factors in carriers’ calculation of these fuel surcharges, and how complex they all are makes transparency and building trust problematic.

  • January 1st is the official date of full implementation of IMO 2020 regulations. This will reduce sulfur oxide emissions from 3.5% / m to 0.5% / m.
  • There will be multiple ways that carriers can follow the new adopted rules. Each way will have a different advantage and cost structure. These methods are mainly: a) the use of low sulfur compatible fuel; b) the use of low-sulfur alternative fuel such as Liquefied Natural Gas (LNG); c) implementing an exhaust gas cleaning system.
  • The newly-adopted emission rules will certainly provide environmental relief and prevent pollution caused by ship emissions.
  • Conformity will lead to an increase in operational costs that carriers will attempt to transfer to transporters with new bunker cost formulas.
  • Trans-Pacific contract negotiations for the 2019-2020 season will be affected by this new regulation – and uncertainty is a major issue for this year’s cost increase.
  • Fuel costs roughly represent more than 50 percent of total operating costs, and IMO 2020 regulations will show a significant cost increase for carriers to absorb and remain operational in future.

As different carriers adopt different methods to comply with these new regulations, the price calculation structure will be different.

Shippers will benefit from a clear understanding of the price underlying the low-sulfur fuel changes. The full financial effect will not be clear until 2020, but there are multiple things shippers should consider as they incorporate IMO regulations into their thoughts as contract season ends to seek clarity. Carriers providing a clear, transparent, and reflective formula may be rewarded with commitments by shippers as industry professionals lean on expertise and clarity for their transportation networks.

As MTS Logistics, we are a “one-stop shop” for many global brands’ shipping needs.

We protect the integrity of our client’s transportation network to move goods to markets. We help shippers all around the globe reduce risk on matters and related pricing, and our team is studying the risk factors of underlying fuel surcharges over the upcoming months.

Orkun Gonen
Orkun is originally from Turkey and raised in the southern coastal city of Mersin, well known for its warm weather, and commercial marine port and free zone. Orkun’s interest in the shipping industry can be traced back to his childhood and his proximity to Mersin Port and free zone operations. He received his Bachelor’s degree in Global and International Affairs from Binghamton University. Orkun also holds a Bachelor’s degree in international relations from Middle East Technical University Ankara. He previously worked for a global container shipping line and a New York City based freight forwarder holding various positions in operations, customer service, and sales. Orkun is currently our award-winning sales executive covering and developing several areas: Texas, Kansas, Missouri, Tennessee, and New York. He travels to each of these locations every month to meet his clients, prospective clients and vendors in-person to ensure harmonious supply chains. Due to his operational background in the shipping industry, his clients appreciate his knowledge as value in their supply chain and lean on his expertise. His customer service background ensures that his clients experience a very pleasant shipping experience based on open communication, proactivity, and the satisfaction of selecting the right service. Orkun is a firm believer in trust built from the promise and delivery. He tailor fits the service specifically for each of his clients, covering all their special expectations and requirements. Fun Facts: His parents tricked him to taking classical music education and piano lessons since the age of 6. In time, he turned his attention onto other musical instruments and genres, but this eventually turned him into a music nerd playing several instruments. In his spare time, he plays piano, guitar, and drums, and goes to concerts.
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