IMO Low Sulphur 2020 Mandate: what will be the consequences for the importers?

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The global limit on sulfur content for all marine fuels will be lowered dramatically in 2020. The IMO Low Sulfur Mandate requires sulfur fuels cap to be reduced from the previous allowed 3.5% to 0.5%. The global refining system is not yet equipped to make this volume change once the regulation goes into effect in less than a year.

Carriers will mostly have two options: burn fuels that meet this criteria or install scrubbers. OOCL has taken the stance that they will switch fuels because scrubbers take what is released into the air and place it right back into the ocean.  There are two types: one retains some of the Sulphur in holding tank and releases some into the ocean and another releases all of it back into the ocean.  Wanting to protect the oceans and thinking another mandate will eventually come, they decided to start sourcing low sulfur fuel. So far only 3 major producers committed to making low sulfer fuel and will sel them from key ports in Singapore.

The cost projected for the industry to meet the regulations is between 15 to 30 billion.

Points to consider:

  • It is unknown how the mandate will be managed and implemented.

  • Compliance is currently only in very few ports

  • Insurance ratings will be impacted by non-compliance

  • At the end of this year we’ll start seeing rate increases (estimated around $100 to $200 per TEU).

  • With further understanding of the increase above, peak season may be higher and longer as shippers may try to ship ahead of time to avoid costs, which could result in higher peak season rates and congestion.

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