Shipping Fuel Sulfur Regulation Contributes To Higher Shipping Costs

Tue September 21, 2021

The International Maritime Organization (IMO), a special agency of the United Nations, implemented effective January 1, 2020 a mandatory limit on the sulfur content in the fuel used on board ships operating outside of “designated emission control areas.”  The reported goal of the requirement was to reduce sulfur dioxide emissions, which are potentially harmful to the environment and to human health.

The mandate requires that ship-owners either use compliant (and more-expensive) fuels or retrofit their vessels to include exhaust gas cleaning systems (“scrubbers”) to meet the lower sulfur content requirement. In addition, demand for compliant fuels is high, compounded by the fact that many ports do not have access to compliant fuels.

As an importer/exporter, the traditional view was that this regulatory change would drive up the price of shipping.

However, the onset of COVID-19 led to an oil slump. Throughout March 2020, the spread in prices between very low-sulphur fuel oil (VLSFO) and high-sulphur fuel oil (HSFO) fell steeply. There was 35 per cent fall in VLSFO bunker prices between January and early to mid-March.

When the global situation normalizes, the extra costs associated with the new rule are expected to rise. That situation is present in today's market.

The shipping industry estimates that the increased cost of fuel and ship retrofits will cost shipping lines an estimated $2 billion.  Other estimates for the global container shipping industry put the increased cost anywhere between $15-25 billion!

The article, originally published in April 2020 by ICE International Cargo Express on this little-known factor in rising shipping costs is available at:
https://www.icecargo.com.au/low-sulphur-imo-2020/