The IMO – the International Maritime Organization – is an agency of the United Nations that is responsible for the safety and security of shipping, and the prevention of marine pollution by ships.
On January 1, 2020, the IMO is reducing the maximum allowable sulphur content of marine fuels (a.k.a. bunker fuel oil) from the current 3.5% to 0.5%. This is likely to impact the shipping supply chain – with respect to both cost and supply – as the industry prepares to meet the new requirements.
What will this change mean?
Over the years, steps have been taken to reduce the sulphur content – the chief air pollutant in crude oil – in other types of transportation fuels. This next move simply brings marine fuel in-line with the lower sulphur requirements already in place for other fuels.
Analysts estimate that less than 1% of the worldwide shipping fleet is currently operating within the “IMO 2020 Rule” limit for sulphur emissions and that implementation of the rule will have a pronounced impact on the industry.
The relatively low supply of low sulphur fuel oil (LSFO) and relatively high demand for it will mean oil that meets the IMO 2020 rule will be considerably more expensive than existing marine oils for the foreseeable future – not to mention hard to come by.
This leads to three possible outcomes:
Stack scrubbers. Ships can have these units installed to reduce emissions by stripping sulphur as fuel burns. The downsides are that it costs in the millions of dollars and up to one year to retrofit an existing ship with a scrubber. One estimate forecasts that less than 15% of the global fleet will convert to onboard scrubbers by 2020.
Ships switch to using non-traditional fuels. Liquid natural gas (LNG) and methanol are much lower in sulphur than bunker fuel oil. But their current availability is not great enough to meet anticipated demand, and since retrofitting ships to use these fuels is cost prohibitive, they will be of use only to newly built ships.
Modify refineries to accommodate the lower sulphur requirement. This is already being done by new and existing refineries but, again, supply will not be sufficient in time to meet the 2020 deadline.
Fundamentally, there are not enough scrubbers, LNG burners, or LSFO to enable the shipping industry to fully comply with the regulation by 2020. A mechanism for legal non-compliance will likely need to be devised. If this doesn't happen, illegal non-compliance will likely ensue.
There may be impacts to your company if you move items by sea. Our analysts are watching the developments around the IMO 2020 Rule closely and can field your questions on how this may affect your business. Still have questions?
You can also check out the IMO's 2020 Rule FAQs resource for more information.
Information provided by: Freight Forwarding Dept. - Cole International