High cost of cutting marine pollution
November 20, 2018 - In a bid to clean up the world’s shipping industry, the International Maritime Organisation (IMO) has ruled that the amount of sulphur allowed in bunker fuel must be reduced from 3.5% to 0.5% by 2020.
Fuel costs are shipowners’ single most significant expense and shipping accounts for 90 per cent of world trade. The shift to cleaner fuel is expected to add US$13-$15 billion a year to the industry’s fuel bill -- costs which the industry will pass along to its customers.
The average price of bunker fuel has risen steadily this year, climbing by 32 per cent since April, from $370 to $490 per tonne in mid-October. IMO-compliant fuel is expected to add $150-$200 per tonne.
How carriers recoup the rising cost of fuel will be crucial to their profitability. Carriers have little option but to pass it on to shippers as a “Bunker Adjustment Factor” (BAF).
From 2020, Danish shipping giant A.P. Moller Maersk will be paying an extra $2 billion a year for low-sulphur fuel, hiking its annual fuel bill to around $5.4 billion. Maersk, the world’s largest carrier, estimates its BAF will add between $45 to $1,025 to the cost per twenty-foot equivalent unit (TEU) shipping container. Hapag-Lloyd, the world’s fifth largest container carrier, estimates increased costs of $115 to $333 per TEU.
Shipowners have limited ways to comply with the rule change. They can buy IMO-compliant fuels, or they can install expensive sulphur-reducing scrubbers. A third option is to slow down -- container vessels can cut fuel consumption by as much as 37 per cent by slowing by 1.5 knots (2.8km/h).
Whatever happens, the impact will affect trade in everything from commodities like oil, soybeans and steel, to items that move on container ships, like TVs, smartphones, furniture and clothes.
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