1. What is IMO2020?

In October 2016, the 70th meeting of the International Maritime Organization (IMO) Marine Environmental Protection Committee (MEPC) re-evaluated the 2008 amendment, confirming that from January 1, 2020, the global fuel sulfur content should not exceed 0.50%. This is so-called IMO2020 regulation.

2. Why IMO2020?

Because we have learned in junior high school chemistry, the release of sulfides into the atmosphere creates acid rain, which pollutes our environment. Therefore, we must recognize the universal truth that lucid waters and lush mountains are invaluable assets and the provisions of IMO2020 are actually the inevitable result of using this truth in practice.

3. When will IMO2020 be implemented?

According to the IMO regulations, the official implementation time begins on January 1, 2020. That is, only 70 days from now.

4. How can ships meet IMO2020?

At present, there are basically three ways:
First, install the desulfurization tower, continue to use the current fuel, after desulfurization treatment, to meet the discharge standards.
Second, use a low-sulfur fuel with a sulfur content of no more than 0.50%.
Third, operate new LNG ships.

5. What is the impacts of IMO2020 on shipping companies?

The core of IMO2020 is to reduce sulfur emissions. For shipping companies, there are several main impacts.
(1) The most obvious is the increase in costs. Whether you are building a desulfurization tower or using high-quality fuel, you have to pay more for it.
(2)The shipping company’s position supply will be affected within a certain period of time. Because each shipping company has to build towers and it takes time. This will result in the cancellation or merger of a number of schedules, which is foreseen to be concentrated in December 2019.
(3)The speed of the ship will be controlled. High-speed navigation can result in high fuel consumption which is detrimental to the cost control of the shipping company.

6 How does IMO2020 affect shippers?

The wool comes from the sheep. The shipping company will not bear these extra costs and will only pass on the burden to the owner. For the additional costs incurred by the IMO2020 regulations, the shipping company has long begun planning how to pass it on.
As early as the beginning of this year, the shipping company carefully planned the collection of LSS. You can find that there is basically the cost of LSS regardless of where the ship goes. Some boats call it CLS. However, it is an additional fee charged by the shipping company.
However, at the beginning, there have been notices from shipping companies that the cost of LSS will be adjusted in November. For example, the notice of CMA is as follows.
The new IMO 2020 Low Sulphur Regulation impacts the global shipping industry and shipping costs are set to increase worldwide. As the cost of the Very Low Sulphur Fuel Oil (VLSFO) is expected to be significantly higher than the present High Sulphur Fuel Oil (HSFO), CMA CGM will implement a new price reference for its short-term and long-term contracts.

For short-term contracts of validity 3 months or shorter, please be informed that a new monthly charge – Low Sulphur Surcharge (LSS) – will be applied on top of CMA CGM’s ocean freight charges, effective 1 December 2019.

For long-term contracts of more than 3 months’ validity, please be advised that VLSFO will replace HSFO as the price reference for the quarterly Bunker Adjustment Factor (BAF), effective 1 January 2020. The BAF is applied on top of the ocean freight charges and will still be revised on a quarterly basis with a one-month notice. Kindly note that the BAF quantum for reefer cargo will be 20% higher than that of dry cargo for the same container size, with a minimum of USD25/TEU.
This notice indicates that the LSS fees charged for consignments on short-term contracts after December 1 will be different from those currently charged. For long-term contracts, it will be implemented from January 1 next year. And this LSS will change regularly.
Earlier, Maersk and CMA have said that once the sulfur-restriction regulations come into effect, it is estimated that they will spend 2 billion and 1.5 billion U.S. dollars each year respectively. According to this notice, the shipping company will undoubtedly pass the cost to the cargo owner.
Therefore, it can be expected that the cost of sea freight will increase significantly from 2020. I personally estimate that there must be at least 15-20%.
In addition, according to the above, the impact on cargo owners in the short term does not stop there. From December 2019 to January 2020, many ships will temporarily stop operating due to factors such as the installation of desulfurization towers. This will cause overbooking and shipping cancel. Similarly, the speed of ship arrival in 2020 is estimated to decline.

7. How to deal with IMO2020?

As a cargo owner how to deal with IMO2020, I think there are several aspects to pay attention to.
(1)Reasonably plan the delivery time of the order. Try to be as early as possible. Try to ship them out before December 2019.
(2) New orders, when accounting for sea freight costs, take into account the impact of IMO2020, and appropriately increase the cost of accounting freight.
(3)Appropriately remind customers of IMO2020, so that customers know this in advance.

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