The IMO (International Maritime Organisation) has made a commitment to reduce sulphur emissions from shipping lines by 85% and will seek to achieve this through the introduction of the IMO2020 regulation, a sulphur cap on fuels.
From 1 January 2020, the sulphur cap for fuels used by vessels will decrease from 3.5 percent to 0.5 percent in non-emission controlled areas and 0.1 percent in emission controlled areas, from the current 1.0 percent.
In order to comply with the new regulation, shipping companies are already beginning to make changes. Many are looking to adopt low sulphur fuel for their fleets. However, this fuel is significantly more expensive than the current fuel used within the industry.
There are also a number of major capital investments being made across the industry, with some lines investing in LNG to power future container ships, which notably will result in a 99% reduction in Sulphur emissions.
In some instances, shipping lines are also installing ‘scrubbers’ to their vessels, engine cleaning systems which will filter the sulphur from the fuel. As with the other alternatives, these are an expensive investment, with the installation of one scrubber costing anywhere between 1 million and 5 million Euros according to sources.
As a result of the additional expenses that they will face, shipping lines have advised that consequently, the new regulation is likely to impact on overall freight costs.
Whilst most major shipping lines had already previously confirmed that they will (and indeed, already are) apply additional charges to offset higher fuel costs, a number have also begun to release details of transitional / ‘emergency’ surcharges that will apply as a result of the introduction of the IMO’s sulphur cap, with many announcing that the additional charges will apply from 1 December 2019.
CMA CGM have confirmed that they will introduce a Low Sulphur Surcharge (LSS). The LSS20 tariffs have been calculated using the price difference between high sulphur fuel and low sulphur fuel average prices of October.
Meanwhile Maersk (and its subsidiary Hamburg Sud) will apply an Environmental Fuel Fee, which will be calculated as the price difference between high sulphur fuel and low sulphur fuel multiplied by a trade factor.
Hapag-Lloyd have confirmed that they too will introduce additional charges as of 1 December 2019, referred to as an IMO 2020 Transition Charge (ITC), which will be valid until further notice. Switching from high-sulphur fuels to the new low-sulphur fuel will inevitably result in higher fuel prices in the short term. Volatility is also expected to increase, particularly during the transition period. Given these circumstances, we will implement the ITC (IMO2020 Transition Charge) to cope with the additional costs as well as to have a sustainable and transparent method of pricing our services for our customers," Hapag-Lloyd CEO Rolf Habben Jansen said in a statement.