The IMO 2020 cloud seems to be dissipating. There had been much confusion leading up to the January 1, 2020 implementation date of the global mandate.
In 2018, the International Maritime Organization (IMO) developed a strategy to reduce greenhouse gas emissions. Shipping carrier vessels must meet the mandate by limiting bunker fuel to 0.5% sulfur content instead of the 3.5% used today. This, of course, comes with a cost. The costs to become IMO 2020-compliant are too big for ocean carriers to bare alone. For instance, Hyundai has reported scrubber installation costs of $5 to $8 million per ship.
There are various strategies carriers can take to reduce greenhouse gas emissions and meet the 0.5% sulfur content mandate.
Carriers can choose to pay a premium for low-sulfur fuel oil (LSFO) with 0.5% sulfur, use liquefied natural gas (LNG) or install scrubbers on their ships. Scrubbers will allow the vessel to continue use of high-sulfur fuel oil (HFSO) with 3.5% sulfur content. The LSFO is the less popular of the two because of the unknown LSFO cost, nor is it clear how much LSFO supply is available. Therefore, most carriers have chosen scrubber installations. As mentioned above, scrubbers will allow the buying of cheap heavy high-sulfur fuel. Most important, scrubbers reduce sulfur oxide (SOx) emissions which help save our climate.
Ocean carriers have started to pull ships out of rotation to retrofit with scrubbers.
The associated costs are being passed down in the form of surcharges. These charges can be confusing. There are many factors included in the calculations, such as the TEU capacity on a ship, headhaul vs. backhaul, the price of fuel, and the trade lanes involved. January 1, 2020 is around the corner, so carriers have begun to release their fuel cost recovery methods.
Because of the complexity of charges, I’ve highlighted a few key takeaways:
- Mediterranean Shipping Co.:
- Bunker Recovery Charge (BRC): $200-360 per TEU.
- Low-Sulfur Surcharge: $11/21 per TEU.
- Charges to be updated monthly.
- Effective October 1 – December 31, 2019.
- Environmental Fuel Fee (EFF): according to Maersk’s customer advisory, the EFF will be “calculated as the price difference between high-sulfur fuel and low-sulfur fuel multiplied by a trade factor”.
- Applies to all spot business and contracts with validity up to 3 months.
- Surcharge will be reviewed if there is a fuel price fluctuation of more than $50/ton.
- Effective December 1, 2019.
- Marine Fuel Recovery (MFR) charge: calculation considers vessel consumption per day, fuel type & price, days at sea and port, and the carried TEU.
- Hapag will begin using LSFO in Dec. to ensure compliance by Jan. 1, 2020 .
- Surcharge will be reviewed quarterly (or monthly if fuel price fluctuations are above $45 per ton).
- Effective for sailings as of October 1, 2019.
- Ocean Network Express (ONE):
- ONE Bunker Surcharge (OBS): $82 per TEU to USWC ; $138 per TEU to USEC.
- Surcharge will be adjusted quarterly.
- Effective October 1 for contracts in effect since January 1, 2019.
In summary, it’s best we have transparency in times of much-needed change to improve our climate.
Carriers, BCOs, NVOs, and all members of the supply chain need to know how the rising costs will impact their business. One of the more ambitious goals that I am happy to learn of is that of the Getting to Zero Coalition. Their goal is to have a fleet of zero-emission vessels by the year 2030. This coalition brings together members from the maritime, energy, infrastructure and financial divisions. Much of the world’s coast lines represent this coalition. The call to action for decarbonization is being heard.