Changes for vessel carriers have already started at the beginning of the new decade. The International Maritime Organization's (IMO) 2020 sulfur cap began on January 1, 2020, which is impacting vessels and supply chains around the world.
IMO 2020 Impacts on Supply Chains
The IMO 2020 sulfur cap places a new burden on vessel owners who must comply with sulfur emission limitations. Compliance with IMO 2020 requires ship owners to decide between switching to very low-sulfur fuel oil (VLSFO) or installing expensive Exhaust Gas Cleaning Systems (EGCS) (US$3M to US$10M startup cost for large vessels) that will allow vessels to use high-sulfur fuel oil (HSFO) while remaining compliant to IMO 2020 emissions policy. The third option available to ship owners is the utilization of alternative low-emission fuels like liquefied natural gas (LNG). Each fuel option comes with its own cost and availability considerations.
The IMO 2020 sulfur cap has brought about a shift in fuel pricing with VLSFO spiking recently to over $500 per ton. HSFO, comparatively, is selling at a 50 percent discount to compliant fuels. This should allow for ship owners who have fitted their vessels with EGCS to utilize less expensive fuel and provide them with a financial advantage over competitors who are using VLSFO fuels. However, the availability of HSFO is dropping as more storage operators clean out HSFO tanks to provide more room for LSFO supplies.
IMO 2020 will undoubtedly impact shipping costs as compliance will require vessel owners to adapt to the changes. This policy change has already impacted fuel costs and availability with more uncertainty on the horizon. Bottom line? Always plan ahead and stay on top of current news by subscribing to our newsletter.
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