The International Maritime Organization’s low-sulfur regulation that requires all container ship and shipping companies reduce their sulfur emissions from 3.5 percent to 0.5 percent by Jan. 1, 2020, will have a cost impact on every company shipping product globally.
The challenge leading up to 2020 is the uncertainty: We don’t know what the costs will be. The reason this is becoming a 2019 challenge is two-fold.
- Four of the Top 5 container carriers have already announced new yet-undisclosed bunker formulas that will lead to higher bunker costs in early 2019. Customers will have to pay more for fuel in 2019 for the same service received today. The new, more complex formulas will then lead to the 2020 implementation of the low-sulfur fuel mandate.
- In the fourth quarter of 2019, ocean carriers will buy low-sulfur for their vessels to be ready on Jan. 1, 2020. Associated costs will be passed on to the customers in that quarter. It is rumored that low-sulfur fuel surcharge amounts will change on a monthly basis in the future vs. current quarterly changes.
At this point, there is very little concrete information available in terms of actual financial impact. Low-sulfur fuel estimated levels currently range from $150 to $450-plus per FEU.
Ocean carriers need to be transparent with the new formula for bunker fuel so that customers like Eastman Chemical will be able to “buy into” their new way of pricing bunker fuel. Anything short of not allowing customers to fully understand what is being charged will lead to suspicions of hidden rate/revenue increases as compared to true increase in cost.
There is too much anecdotal information out there, and I would hope that during 2019 more clarity and transparency will be provided to the ocean carrier’s customers in order to be well prepared for the coming change and financial impact.