The International Maritime Organization (IMO) has announced new regulation for low sulfur fuel, requiring sulfur content be below 0.5pc, down from the standard 3.5pc. The regulation goes into effect January 1, 2020. Currently, the main type of oil used for ships is derived as a residue from crude oil distillation that contains high amounts of sulfur. Sulfur oxides are harmful to both human and environmental health. The regulation is intended to reduce air pollution and increase overall human health, especially for coastal communities. The IMO gave 3 options to meet compliance:
1. Blending fuels to create a lower sulfur content.
2. Installing gas cleaning systems or “scrubbers” and
3. Purchasing low sulfur fuel.
Most carriers will choose to purchase low sulfur fuel.
What does this mean for your supply chain?
Carriers need time to flush out traditional heavy fuel from their ship’s engines causing vessels to be out of service. This may cause tighter vessel space and blank sailings. In addition to the regular peak season cost, we expect to see prices increase from shipping lanes. Carriers are projecting an increase of $200-$300 per container with monthly floating bunker.
We are working closely with carriers to ensure we are pre-allocating space to mitigate shipment roll overs. We also expect carriers to undertake certain efficiency measure including consolidating their fleets and searching for shorter routes to reduce overall cost and efficiency.