Looking Beyond IMO's Global Sulphur Cap
Indian Transport & Logistics News|November - December 2019
The IMO's move to introduce a 'global sulphur cap' presents a significant regulatory move aimed at reducing greenhouse emissions and making shipping more environmentally responsible and friendly. We probe how shipping lines are preparing for the big move and the alternatives like LNG, hydrogen, and LEO, a blend of lignin and ethanol.
Blessy Chettiar

The deadline of January 2020 for the cap on sulphur content in fuel oil for shipping is looming. The International Martime Organization's (IMO) MARPOL Annex VI, first adopted in 1997, sought to limit the main pollutants contained in ships' exhaust gas, including sulphur oxides (SOx) and nitrous oxides (NOx). Under the revised MARPOL Annex VI, the sulphur content of fuel oil used on board commercial ships trading outside sulphur Emission Control Areas (ECAs) must not exceed 0.50 percent m/m. The current global limit is 3.50 percent m/m which has been in place since 2012.

The IMO's move to introduce a 'global sulphur cap' presents a significant regulatory move aimed at reducing greenhouse emissions and making shipping more environmentally responsible and friendly.

As the last two months close in on shipping companies, container shipping lines have been on their toes to take steps for ‘equivalent’ compliance which include LNG-powered ships, use of expensive fuel with low sulphur content or abatement technology, exhaust gas cleaning systems (ECGS, also known as ‘scrubbers’).

Implications on the environment & shipping business

As operators and ship owners comply in letter and spirit, the latest regulations will significantly bring down the greenhouse emissions, considerably impacting the environment positively. The IMO has committed to reducing greenhouse gas emissions from the world’s shipping fleet by at least 50 percent from 2008 levels by 2050, while anticipating a nearly threefold increase in the number of ships in the industry.

“We welcome the new regulation and fully support the IMO2020, and we especially look forward to having a level playing field for all vessel owners.

Regarding the environment, IMO2020 will represent a huge step forward in terms of reducing air pollution and making shipping greener. Regarding the shipping business, the new regulations will indeed have a huge financial impact. Although the exact additional costs for low-sulphur fuels are hard to predict, we estimate that there will be additional costs of roughly $250 per tonne of fuel. In total, we estimate that our annual additional costs will be around $1 billion in the first years,” said a Hapag-Lloyd spokesperson. HapagLloyd has a fleet with a total capacity of 1.7 million twenty-foot equivalent unit (TEU), as well as a container stock of approximately 2.6 million TEU.

Maersk said it “fully supports” the regulation which is expected to reduce shipping’s sulfur emissions by more than 80 percent. “IMO 2020 regulations will have a significant benefit to the environment and to health, particularly for populations living close to ports and coasts. Low sulphur fuels are significantly more expensive. External sources estimate additional cost for the global container shipping industry could be up to $15 billion because of the new regulations. The shipping industry cannot absorb this increased cost from the new regulation; it has to be passed on to the end-users of the items shipped in our containers. Our customers should expect the cost of shipping goods to rise to cover the increase,” said Steve Felder, managing director Maersk South Asia.

The preparation

The immediate plan of action for ship owners and operators is to comply with the regulations. The IMO recommended that shipping companies draw up a ship specific implementation plan for each of their ships as early as possible as they would need to start purchasing and loading compliant fuels several months before the actual transition date.

"The vast majority of all our vessels will comply with the new rules with effect from January 1, 2020 through use of fuels with low sulphur content. Scrubbers form a secondary part of our overall IMO 2020 fuel sourcing strategy to ensure compliance and spread the risk of fuel price uncertainty in 2020 – for the price spread between high and low sulfur fuels and for the price of future 0.5 percent compliant low sulfur fuels," said Felder.

Elaborating on the investments made to ensure compliance, Felder said, "We have announced joint initiatives with Vopak, Koole and PBF Logistics for 0.5 percent compliant fuel storage and processing facilities in Rotterdam (NL) and New Jersey (US). Located in key network hubs for Maersk, the three facilities combined will cater for a significant part of the fuel demand in our fleet. These activities will be an important driver in ensuring stable, reliable services for Maersk’s customers during a potentially volatile period for global shipping. Switching the vast majority of our more than 700 vessels from 3.5 percent high sulfur to compliant 0.5 percent low sulfur fuels within a short timeframe is a complex task which requires thorough preparation. We will do the switchover while the ships are in service, which will ensure very limited disruptions to our network reliability.”

Felder further informed that Maersk has tested switchover methodologies across multiple vessel classes with the objective to opt for the procedure that best delivers compliance while protecting the safety and health of their seafarers and ensuring minimal environmental impact.

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