As you are aware, as of January 1st 2020, the International Maritime Organization (IMO) will implement a new regulation for a 0.5 % global sulphur cap for marine fuels.
Under the new cap, ships will have to use marine fuels with a sulphur content of no more than 0.5 % (VLSFO Very Low Sulphur Fuel Oil) against the current limit of 3.5% (IFO380 Intermediate Fuel Oil) in an effort to reduce the amount of sulphur oxide.
The already existing Emission Control Areas (ECAs) will remain at the 2015 standard of 0.1% sulphur content.
There are currently three options for meeting the IMO’s 2020 sulfur limits.
- Carry on Low Sulpur fuel oil 0.1/0.50 %
- Install new build scrubbers or retrofit scubbers (filters) allow the ship to continue to use HSFO
- Converting to LNG
While we all can look at the bright side of this regulation with the intention to make the industry greener.
Simultaneously, we have to be aware that also in 2020, there will probably be a significant price difference between the IFO380 and the new VLSFO. As an indication: The actual difference between IFO380 and VLSFO is around 200 USD / mt average (Bunker Prices: IFO380 Price Rotterdam, Aug 2019).
There is no doubt that this new regulation will increase freight rates at least at a temporary stage. The cost of compliance with the new regulation will be significant and shipping lines will pass through the extra costs to the shipper. Depending on the source, the rate increase is predicted between 8 and 20%, but the exact impact is still uncertain.
Extra cost will most likely be in effect as from 01/11/2019