Ocean Carriers Prepare for IMO Low Sulfur Rules
New International Maritime Organization (IMO) rules requiring ships to use fuel with less than 0.5% sulfur will take effect on January 1, 2020. With the IMO rejecting requests to slowly roll out the prohibition over a trial period, ocean carriers must ramp up plans in order to comply.
The IMO currently prohibits the use of fuels with more than 3.5% sulfur, except when the ship’s equipment includes scrubbers to reduce sulfur emissions. The new rules drop that percentage down dramatically. The IMO is also banning carriage of high-sulfur fuels beginning March 1, 2020. These new fuel rules are accompanied by tighter regulations. Ships breaching the IMO policies will face fines and can be impounded.
A collection of trade groups, as well as the Bahamas, Panama, Liberia, and the Marshall Islands, had asked the IMO to add an “experience-building” period, but the organization’s Marine Environment Protection Committee refused. The U.S. had also supported delaying the regulations, but in October 2018, the MEPC chair said the proposal was too vague.
How Industry Is Preparing
Shipping and oil-refining industries have been working to accommodate the standards since 2016, when they were first set. Yet the low-sulfur rules require the marine shipping industry to invest heavily in conversions. The cost of complying with the new rules was estimated at $60 billion in 2017.
There are many concerned parties. For example:
Cleaner fuel producers (e.g. oil, distillate, and diesel) will see increased demand, which will prompt a jump in prices in the winter months of an American presidential election year.
Airlines are concerned that jet fuel supplies will fall as refineries work to meet shipping industry demand.
Those shipping with the likes of Maersk Line, CMA CGM, Hapag-Lloyd, or OOCL will face new surcharges in 2019 as these lines pass on costs to customers.
Full and Effective Enforcement
Proponents of the “experience-building” proposal were invited to submit more concrete ideas at the MPEC’s next meeting in May 2019. However, as Reuters noted, this is a tight time frame for the regulations to be reviewed, as the IMO has stated it will not delay the rules’ implementation.
A U.S Coast Guard official told Reuters the United States would continue to work with others to develop a “pragmatic” approach to propose in May 2019.
Nevertheless, Roger Strevens, chair of the Trident Alliance — a coalition of shipping companies that has pushed for enforcement of the sulfur rules — told Reuters that the IMO has sent “an unmistakable signal” of its commitment to “full and effective implementation.”
“The focus now shifts to preparation, both on the part of the industry and of the enforcement authorities,” Strevens said.
Preparations vary. Members of 2M and THE Alliance in December announced reconfigurations of their capacity and port calls. THE Alliance replaced its FE1, PSI, and PS2 services with a route reaching eight destinations between Europe and Asia. The alliance also added a Pacific Northwest route running from China to Tacoma, Washington. Similarly, 2M planned to drop eight ports of call but add six ultra-large container vessels to several of its Asia-Europe services.
The routes may take longer, but they were expected to help reduce fuel costs, which would help offset the higher prices of low-sulfur fuels.