The shipping industry accounts for 5% of oil demand in return for 13% of all SO₂ emissions.
Until recently the trade-off seemed acceptable since shipping is cheap and over 90% of freight is carried by sea. But times have changed. There is an increased consciousness regarding the harmful effects of fossil fuels and there is increased pressure on an industry that accounts for 2.5% of global greenhouse emissions to clean up its act.
15 largest ships in the world produce more sulfur than all of the world’s cars combined. While this figure is disputed, it is primarily because they burn different types of fuels.
The IMO has stepped up. From the 1st of January 2020, ships will be required to reduce SO₂. Sulfur content outside Emission Control Areas will be reduced from 3.5 wt % to 0.5 wt %
This is expected to reduce emissions by over 80%. IMO states that over 570000 premature deaths will be prevented in just the first five years after the implementation of the new regulation.
The resolution was passed on October 2016. This date is crucial since it marks the release of a study by CE Delft that concluded fuel availability would not be an issue.
To say that the major shipping companies slacked off would be an understatement. The Industry adopted a wait-and-see approach and began reacting in earnest only towards the end of 2018. This is when the IMO approved a ban prohibiting the carriage of non-compliant fuels on ships that did not have a compliant scrubber facility.
Maersk (the world’s largest container shipping company) initially in the anti-scrubber camp had a change of heart when it realized that the VLSFO shortage could cause a substantial increase in costs. They have since gone in for the installation of Scrubber technology but with less than 10% of its 650 odd ships expected to undergo retrofitting, it still leaves about 600 ships that would need an uninterrupted supply of VLSFO.
MSC (the 2nd largest Container shipping company) and Evergreen are expected to have a much higher percentage of vessels installed with Scrubber technology.
With the deadline fast approaching, what options do shipowners have
Global customer-facing business now has environmentally conscious customers, and they have an inherent interest to protect their brand. Insurance is another reason why companies might comply, though it is still a gray area whether non-compliance could invalidate certificates and relieve insurers of their obligations.
Since it is only the emission that is regulated, ships could technically carry higher sulfur content fuels provided they have an appropriate scrubber system installed.
IMO has insisted on compliance with no grace period for the transition. However, they have not laid out what sanctions are to be. The IMO itself cannot enforce the rules; responsibility for compliance rests with individual member states.
Since the start of 2019, Tokyo and Paris MOUs have begun issuing warning letters to vessels, not in compliance with 2020 regulations. This is just a reminder for them to get their house in order.
Within Hong Kong water, any Master/ Vessel using non-compliant fuel will be liable to a fine of up to 200,000 dollars and imprisonment for 6 months. Improper record-keeping would make one liable for up to 50,000 dollars and imprisonment for 3 months.
Singapore has banned open-loop scrubbers (as opposed to closed-loop scrubbers) and declared that violators that burn high sulfur fuel could face as long as two years in prison.
Shipowners that fail to comply with the regulation have to urgently undertake the following steps:
#1: Find out what local regulations are for your vessel’s run.
The IMO has approved a standard format –– fuel oil non-availability report, which can be presented by ship’s to port state if that only non-compliant fuel was available for a vessel to use.
#2: Communicate beforehand with port authorities regarding individual problem cases.
The first few months are critical since Authorities will be particularly stringent.
#3: Prepare for delays and contingencies caused by arrests and detentions.
Communicate closely with local P&I Clubs and insurers regarding potential problems before they arise.
#4: Find alternate bunker ports.
Shortage of compliant fuel could result in routes being redrawn to find the most convenient bunker port.
#5: Inform ship’s crew, especially the management, about the below risk and challenges that they could face.
#6: Inform shippers of increased costs through surcharges or bunker adjustments factors.
The rule changes will have an economic impact!
S&P Global Platts, an energy consultancy, conducted a study which put the cost of the rule changes on the global economy at $1 trillion over five years. Goldman Sachs estimates that in 2020 alone, consumers can expect up to 240 billion dollars in extra costs.
With all the uncertainty in the world today with BREXIT, trade wars, Conflicts in the middle east, among others, it may just be IMO 2020 that has the biggest impact on economic growth.
The effect of climate change will, however, be far more catastrophic and the sulphur regulations (though not dealing with carbon emissions) is a vital step that the industry has to take.
The world will have to put off getting richer for a little longer.
Neiloy George is Business Development Manager at Nautix Technologies. He has over 16 years of experience at sea having served in both the Deck and Engine departments. In his spare time, he writes about software and technology issues related to the maritime industry.
He currently lives in the Black Forest in Germany. He moved there for the cake and stayed back for his wife and two kids.
Nautix Technologies is a modern maritime software company that provides next-generation SaaS products to ship owners and technical managers. Check our website nautixtech.com to learn about our Early Adopter Program. Contact us to find out more: firstname.lastname@example.org.
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