Shipping lines currently use HSFO (High Sulphur Fuel Oil) in the majority of regions, which contains a maximum sulphur content of 3.5%. The new cap on sulphur content from 1st January will be 0.5%.
Shipping lines have three options available in order to comply with the new regulation:
- Use only compliant LSFO fuels (Low Sulphur Fuel Oil) – this will be at a higher cost than HSFO (market analysts estimate the increase in cost for this fuel type could be up to 40%)
- Use clean gas LNG as an alternative to LSFO
- Retro-Fit scrubbers (exhaust gas cleaning systems) onto vessels to reduce emissions. Some of the newest vessels have been built with scrubbers already installed. The cost to retro-fit ranges from USD 5-10 million per vessel, depending on the size of engine.
With the planned scrubber installs, estimates are this accounts for 18% of global demand for container shipping so there will be a large demand for compliant fuels.
Compliant LSFO has already been made available for testing by some vessels, and a forecast by the International Energy Agency (IEA) advised that the refineries will have capacity to produce the volume of fuel required.
If shipping lines are not compliant as of 1st January, they face fines from local government authorities within the areas they are operating.
Europa Air & Sea view is that it’s too early to put exact figures on how much fuel and shipping costs will increase by, although costs will certainly increase.
In preparation for 1st January, vessels being retro fitted with scrubbers will be taken out of circulation for a period of around 8 weeks. In addition, other vessels will need to have their fuel tanks decontaminated for the vessel operator to be compliant.
Europa foresee this will result in irregular capacity during the coming months, which could have an adverse effect on importers, during the traditional peak season.
Ask the team at Europa Seafreight for more information.