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Shipping analysts Drewry believes the IMO 2020 low-sulphur rules could trigger more slow steaming and transhipment and failure by shippers to concede to carriers’ fuel surcharge demands could create risks to future service options, competition and rates.

In its latest weekly opinion report, Drewry says failure to recover more of the fuel cost from customers than in the past (estimated to be around 50%) could be ruinous for some lines, many of which are still operating with highly distressed balance sheets.

In February, Drewry Supply Chain Advisors released a whitepaper (IMO 2020 Low-sulphur Regulations) offering some pointers to shippers regarding the new fuel regulation to use in their contract discussions with carriers, and previously launched an IMO 2020 Cost Impact Calculator to assess the ramifications.

A new report by the International Energy Agency (IEA) suggests that marine gasoil (MGO) will be the preferred option for shipowners (across all maritime sectors) from next year when the new 0.5% sulphur limit becomes law. Use of very low-sulphur fuel (VLSFO), which is expected to be cheaper at the outset, will gradually become more popular as concerns over the availability of blending materials dissipate. “Some shipping companies may also be reluctant to adopt a new fuel immediately and would prefer to use MGO until they have confidence that VLSFO will be easily available in ports and stable and compatible with similar grades,” the IEA said.

Operators with a higher quota of ships fitted with scrubbers that are able to continue to use the cheaper high-sulphur fuel oil (HSFO) stand to make significant operating expense savings, after the initial retrofitting investment. Last year, the premium between HSFO/IFO 380 and MGO at the port of Rotterdam was approximately $210 per tonne (see Figure 2).

Depending on their success in raising the fuel recovery rate, carriers will inevitably seek to mitigate the anticipated higher operating expenses. One potential side-effect from the new regulations could be greater slow-steaming and use of transhipment. The logic being that as ships sailing speed is reduced and round voyages are extended carriers will drop ports from rotations to ensure that transit times to key points remain competitive. Fewer direct port calls will induce greater need for transhipment and feeder operations. Drewry research shows that in the past there is a reasonably high correlation between incidences of transhipment globally (as a percentage of total port throughput) and bunker prices (see Figure 3).

The upside from this shift towards more transhipment from a ports and terminals perspective is that this will inflate the global port throughput sum as four container movements at the quayside will be required instead of two as with direct port-to-port calls.