Tariffs are not the only thing that is set to shake up the shipping industries. The International Maritime Organization (IMO) is setting out to make changes to the sulfur content that is allowed in the fuels being used by ships. This change is said to be one of the biggest changes that the oil and shipping industries has seen in decades.
In January 2020, the IMO will ban ships from using fuels with a sulfur content above 0.5% which is a drastic change from the 3.5% that is allowed now. The only ships that will be allowed to burn high-sulfur fuel would be ships fitted with sulfur-cleaning devices. These devices are called scrubbers. These may be presenting their own set of problems as well. There have been environmental groups that have looked to ban the use of these devices over the uncertainty that the waste water gets pumped into the sea. Although users of these devices have argued that there is no research to confirm this, analysts believe there is still the possibility of tighter restrictions. Another option for ship owners would be sources of cleaner fuel such as liquefied natural gas.
The ship owners are not the only ones who will be affected by this change. Oil refineries will face their own costs needed to adapt to the new specifications. Some majors in the industry have reported that they are already producing the low sulfur fuels. However, some are concerned that smaller ports will not be able to keep up with the need for compliant-fuel supplies. To combat these concerns the IMO has approved a “fuel oil non-availability report” which can be used if only non-compliant fuel was available.
With all the changes the fuel being used will be more costly. With the price of fuel rising it is suspected that ocean going freight costs will also increase. This impact could be felt from mid-2019 onwards. According to Goldman Sachs, “The total impact to consumer wallets in 2020 could be around $240 billion.” In fact, two of the largest container shipping lines have reported that implementing these changes could incur extra costs of roughly $2 billion.
The shipping industry is not the only one to see price increases. This could also impact Group 1 base oil production, with minor impact on Group II or Group III. It is important that buyers are aware of how their supplier will shift operations with the new regulations and how this will impact their specific supply capabilities.
One major side effect from the shipping industry is the release of sulfur oxides, which is a greenhouse gas produced from the ships consumption of fuel. These emissions can cause several harmful side effects on land including respiratory illnesses such as lung cancer and asthma. The IMO is expecting this change to reduce the amount of pollution caused by ships.
Although the tariff situation continues to be uncertain, this change is certain. Ships will be expected to have implemented this change or they will face the consequences. Contact your ChemCeed Sales Representative today to find out how they are dealing with the new regulations.