The International Maritime Organization is going ahead with a global sulfur cap of 0.5% on marine fuels starting on January 1, 2020.
Containerized ocean carriers are already working on calculation-based bunker cost models that will be implemented starting in January 2019.
To quickly recap, with the global sulphur cap implementation, containerized carriers have 3 options to operate:
- Purchasing 0.5% low sulphur marine fuels.
- Utilizing Scrubbers – to be retro-fitted to current fleets.
- Utilizing LNG-powered new generation container vessels.
Each and every item on this list has pros and cons.
Obviously, low sulphur marine fuels would be the number one preferred choice, as there are over 5,300 container vessels currently voyaging around the world, and you cannot simply add scrubbers or transition these vessels to LNG. A central challenge for this option is the significant price difference between the low and high sulphur marine fuel, and limited availability at terminals.
Scrubbers are a pretty good, cost-saving way to adapt the 0.5% low sulphur cap. However, with expected scrubber production/installation, only 193 vessels are expected to have these scrubbers by January 2020.
On the other hand, it is very expensive to switch to LNG instead of marine fuel for current fleets, so we will primarily be seeing newly-built vessels use LNG. Currently, there will be 20 of these vessels by January 2020.
Based on these parameters, major carriers like Maersk, MSC, CMA, and others are working on a standardized formula for their bunker charges that will be reflected to customers.
Unsurprisingly, it doesn’t seem likely that carriers will have one standard way of calculating these charges, but hopefully, they will be consistent in the way they apply the new bunker charge.
This is a great opportunity for ocean carriers to let their customers really understand the way they calculate their bunker cost, and support it with a calculation that can be applied to the entire shipping industry without any “special deals.”
One of the main reasons why ocean carriers have been losing money for years is bunker prices vs. pricing strategies.
Bunker prices represent 30-50% of an ocean carrier’s operating cost, depending on the vessel’s size. If carriers stop underquoting each other, at least under their bunker cost, they can operate with much healthier financials.
As a customer, you may think this means “no more very cheap rates.” However, at the same, this will mean healthier carriers, better customer service, and more availability. Also, with the number of carriers operating globally shrinking over the past decade, this trend could reverse if carriers start to be profitable on an annual basis.
We will see if carriers are able to use this opportunity, or once again lose themselves with market share drives.