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Planning Projects with IMO 2020

We have received many questions from our clients in regards to the upcoming new regulations of the IMO. The new regulations, which come into effect on January 1, 2020 onwards, require all sea going vessels to reduce sulphur oxides by 85%. The new measurements are set by the International Maritime Organisation (IMO) with the aim of reducing greenhouse gas emissions, protecting public health and supporting the environment. The measurements will apply globally to fuels used in the open sea, requiring vessels to use marine fuels with a maximum sulphur content of 0.5% compared to the present limit of 3.5%.

In order to get to the required maximum levels of sulphur content, vessel operators have the following options:

1. Use scrubbers (emission cleaning technology) to remove pollutants from the ship’s exhaust, which allows them to continue using higher-sulphur fuels. The installation of scrubbers is expensive and will increase operating costs. In addition, China and Singapore have already banned open-loop scrubbers in inland port waters and coastal shipping ECAs because the environmental benefits are questionable.
2. Change from the old fuels to non-petroleum-based fuels such as liquefied natural gas (LNG) for newer vessels with appropriate specifications. The infrastructure to support the use of LNG is currently limited in scope and availability.
3. Vessel operators can also choose to switch to a Very Low Sulphur Fuel (VLSF) that complies with the new regulations. This is the most obvious choice, but the cost, availability and specifications of a new fuel for use in marine engines are still uncertain. The petroleum industry needs to adapt refineries (see shipments we handled for a new facility in Singapore last month) and this option is likely to pass the cost involved on to the market.

Many people have asked us for advise on the cost impact that these new measures will have in the coming months, but it is currently not possible to indicate an amount for the future price levels for VLSF. At this stage, all we can predict is that it will cost more than currently available fuels.

Although the new rules will only be implemented as from January 1, 2020, we anticipate freight rates to increase as early as the end of the third quarter of 2019. One of our principals, AAL, has already announced that they will implement various calculation methodologies “to fairly share the increased cost of low sulphur fuel usage with our customers” as from September 1, 2019 .

The shipping industry must prepare for a future with lower transport emissions and Central Oceans welcomes and fully supports the efforts to improve environmental protection. To guide our customers through this transitional period without disruptions, we will provide you with up-to-date information, transparency and will remain available for any questions you might have when planning for projects to come.