The International Maritime Organization (IMO) has sent a recommended framework of protocols to ensure safe ship crew changes and travel during the Covid-19 pandemic to all IMO member states, the UN and other stakeholders.

The protocols outline how crews can join a ship, starting at their residence, and how a crew member can disembark and reach his home – often in a different country.

The framework of protocols was proposed by a broad cross section of global industry associations which has consultative status with IMO, including BIMCO. It includes input from the International Air Transport Association (IATA).

The IMO urges governments and national authorities to designate all professional seafarers and marine personnel as “key workers” and grant them with the necessary exemptions from the local rules that restrict movement, to allow them to join or leave the ships, among other things.

The 61-page document is aimed at all the stakeholders in the process, including shipowners, shipping companies, maritime administrations, customs, health authorities, airport authorities and several other organizations.

“It is an important step that we provide these protocols, to demonstrate that transferring crews can be done safely. It is however down to all the nation states to implement the required measures during a crisis that is still escalating in many locations. It will therefore require continued consultation with governments, to avoid a potential breakdown in supply-chains which will harm everyone,” said Lars Robert Pedersen, BIMCO Deputy Secretary General.

The lack of access to commercial flights is an additional challenge that needs to be solved.

Source:
https://www.motorship.com/news101/regulation-and-classification/imo-backs-protocols-to-facilitate-crew-changes

The sulfur regulation from the International Maritime Organization (IMO) that came into force on 1 January 2020 took the center stage in the shipping industry at outset of the new decade. Four months on, the spotlights have turned to the coronavirus and the OPEC+ oil price war.

The outlook for global economic growth remains bleak as the world is faced with the largest recession since the Great Depression in the 1930s.

Commodity prices have declined across the board and most recently, the West Texas Intermediate (WTI) reference oil future drew headlines as it crashed into negative territory at $-37.63 per barrel on 20 April 2020. The sliding oil prices have driven down bunker fuel prices, which hold mixed implications for the shipping industry.

“From a shipowner’s or charterer’s perspective, the lower bunker prices provide a glimmer of hope in bleak times. Perhaps less hopeful are the bunker suppliers, who must now supply bunker fuels at a fraction of the price seen four months ago,” says BIMCO’s Chief Shipping Analyst, Peter Sand.

The International Energy Agency (IEA) is projecting oil demand to collapse in the second quarter of 2020 with a drop of a staggering 23.1 m/bpd compared to last year, and a drop of 9.3 m/bpd for the full year of 2020. The massive supply-demand imbalance has led to a steep uptick in crude oil stockpiling, which will continue to drag on the oil product prices in the months to come. The OPEC+ cuts amounting to 9.7 million barrels per day (m/bpd), officially in motion since 1 May 2020, have caused prices to tick upward once again. But in the short-term, it will not be enough to balance out the unparalleled demand destruction.

An infected bunker fuel market
In a matter of months, the oil and bunker fuel markets have been turned upside down. Oil market volatility is at an all-time high, as implied by the oil volatility index (OVX), even exceeding the volatility of equity markets. The simultaneous supply and demand shocks have sent bunker prices racing towards previous low levels with very low-sulphur fuel oil (VLSFO) trading at $246 per MT on 5 May 2020 in Singapore.

The current upheaval has collapsed marine gas oil low-sulfur (MGO LS) prices at the fastest pace in recent memory, even exceeding the demise of the Great Financial Crisis and oil crash in 2014. Since the MGO LS price peaked in Singapore at $744 per MT on 8 January 2020, the price has declined 67% in 84 workdays, settling at $243 per MT on 5 May, essentially a market breakdown in a couple of months.

In 2008, the MGO LS price peaked at $1,360 per MT and before starting a prolonged descent, bottoming out at $354 per MT after 174 days, a 74% collapse from the peak. While it took over two years to settle at a new peak at $1,075 per MT on 11 April 2011, the prices never recovered to previous high levels. Past crises and price shocks serve as a reminder that the recovery is nowhere as rap-id as the collapse, and although the nature of the current crisis is different from the previous ones, a price recovery is not likely to follow a sharp v-shaped curve.

“Marine bunker fuel prices in Singapore have collapsed at the fastest rate since the Global Financial Crisis. If the past is anything to go by in this case, the ascent from the doldrums will be nowhere near the same rate as the descent from the peak,” says Sand.

The post-IMO 2020 reality
High-sulfur fuel oil (HSFO) can also be used in some power plants, but the scrubber-fitted fleet still generate the bulk of demand for HSFO. As of May 2020, the scrubber-fitted fleet stands at 2,893 ships, or 2.9% of the combined fleet in terms of ships, but equal to 15.6% of total fleet when looking at deadweight ton (source: Clarksons).

Bunker sales in Singapore illustrate how HSFO is still in demand, constituted by scrubber-fitted ships. Sales for Q1 came in at 12,716 tonnes, 83% of which were low-sulfur fuels, while 17% was HSFO. In total, 8.8 million tonnes of VLSFO were sold, a jump of 83% from the fourth quarter of 2019. This dramatic change in bunker sales is similarly seen in the ports of Rotterdam and Panama. In Rotterdam, the largest bunkering hub in Europe, the low-sulfur to high-sulfur bunker fuel sales ratio came in at 74% to 26%, with VLSFO accounting for 42% of total sales. In Panama, 93% of the 1.3 million tonnes of total bunker sold was VLSFO.

The Panamanian bunker sales highlight the issue of HSFO unavailability. Bunker suppliers have adjust-ed to the IMO 2020 demand, cleaning tanks and storage to accommodate low-sulfur fuels, which is making it increasingly difficult to source HSFO in the spot market. When combining the hassle of sourc-ing HSFO and the VLSFO-HSFO spread at extraordinarily low levels, it is likely that some scrubber-fitted ships could even opt to burn VLSFO.

“Bunker sales in major bunkering hubs underscores the transformation that IMO 2020 sulfur regulation has brought with it. Prior to the implementation, the industry was worried about the availability of low-sulfur bunker fuels. Now in April 2020, the availability of HSFO seems to be the most pressing issue in some places – next to that of quality,” Sand says.

Source: BIMCOLow bunker prices are supporting earnings
Although scrubber owners have seen their investment payback period extended substantially in recent weeks, it is not all cloudy days when looking past the scrubber economics. The lower bunker fuel prices are partly buoying earnings amidst challenging markets conditions.

The VLSFO prices in Singapore averaged $245 per MT in April, a massive cost saving from the January average of $664 per MT. If assuming bunker consumption of 40 MT per day, shipowners are set to save $16,760 per day when going by the averages of January and April. With the lower cost of sailing, some companies have started to sail around the Cape of Good Hope on the Asia-Europe back-haul instead of paying steep toll dues to transit the Suez Canal.

“The depth of the coronavirus crisis and the shape of any potential recovery will ultimately determine how the oil and bunker prices develop in the coming months. With OPEC+ cuts implemented, oil demand must now recover to counteract the massive supply overhang,” says Sand.

(Source: BIMCO)

Shell has carried out trials with 19 shipowners to test its new 0.5pc sulphur content marine fuel in preparation for new International Maritime Organisation (IMO) rules next year.

The shipowners took part in the trials at ports across the world. Shell will be carrying out further tests with customers at New Orleans, Rotterdam and Singapore.

The trials are being conducted in advance of the IMO’s sulphur cap, which will limit ships to burning fuels with 0.5pc sulphur content from 1 January next year, down from the current cap of 3.5pc.

The new fuel performed correctly and the switch did not require extra workload for engine crews, Shell said.

The company has tested its 0.5pc fuel on one of its own vessels — the Silver Carolyn — out of Singapore.

Last month, Shell launched a new lubricant designed to be used in conjunction with 0.5pc marine fuels in two-stroke engines.

The shipping and bunker sectors spent years in preparation for the historic changes imposed by the International Maritime Organization’s global low sulfur mandate, IMO 2020.

But no sooner did the new rules kick in than market participants had to urgently confront a collapse in crude oil prices and obstructed tradeflows, as the world was gripped by the deadly effects of the coronavirus pandemic, and lockdowns and social distancing became the new norm.

“IMO 2020 has got lost somewhere. But that’s how shipping is. There’s always something around the corner,” a shipbroker said.

The IMO 0.5% sulfur limit rule, planned years back and finally implemented from January 1, 2020, forced shipowners to either switch to cleaner marine fuels or continue using high sulfur fuel oil (HSFO) but install scrubber units.

Alternative fuels are also a solution but their reach still remains limited, with very low sulfur fuel oil (VLSFO) emerging as the chief marine fuel choice. Refiners adjusted their crude slate accordingly, and suppliers increasingly invested in storage and barge infrastructure to boost availability of such fuels to quench the shipping sector’s thirst.

VLSFO blends have risen to the forefront despite some initial concerns about a drastic escalation in bunker fuel quality issues worldwide due to their use, particularly related to sediment and sludge formation, cold flow properties and stability.

Rising VLSFO consumption comes even as some environmental groups have said that VLSFO blends with high aromatic content contribute to significant black carbon emissions and should therefore be banned as their consumption is detrimental to the environment.

With some of the challenges of IMO 2020 still not fully resolved, the plunge in crude oil prices has come as a rude shock to many, with demand destruction hitting players in the oil and bunker industry hard.

OPEC expects global oil pandemic demand destruction of 6.8 million b/d year on year in 2020 to 92.82 million b/d, with April seeing the largest downturn at about 20 million b/d, according to the organization’s April monthly oil market report.

Still, oil output from Saudi Arabia is expected to remain elevated, when there is no such real requirement on the consumption side.

“We are heading for a period of massive supply-demand imbalance, where the oil supply is high, but major economies are in lockdown. With land-based oil storage potentially approaching full capacity fast, it is limited how much additional oil can be imported,” BIMCO, the world’s largest international shipping association, said in a statement recently.

Go deeper: Podcast – Q1 earnings give snapshot of pandemic’s impact on oil demand

Risk-loving oil traders have already time chartered VLCCs for floating storage, either because they could not sell and had no option but to store cargoes, or in anticipation of higher returns in coming months.

To cater to IMO 2020 demand, there are companies that have also been stockpiling low sulfur fuel oil (LSFO) material, both on landed tanks and on floaters, reflecting the steepening contango in the LSFO market in major bunkering hubs such as Singapore.

The contango at the front of the Singapore marine fuel 0.5% swaps curve, for example, widened to average $9.56/mt for the month of April, from the March average of $5.11/mt, S&P Global Platts data showed. During April, the outright value of Singapore marine fuel 0.5% cargo dropped 25.96% to average $214.84/mt as compared to the March average of $290.17/mt, Platts data showed. From May 1-11, the average outright value of the product was $221.62/mt.

But floating storage will also eventually run out if the contango remains supported, sources said.

“It’s like you have a sick man already and you punch him in the stomach,” a shipowner said explaining the predicament of some players in the industry.

Meanwhile, some trading and oil companies with huge exposures to VLSFOs and inappropriate bunker fuel hedging tools are getting hurt, while shipowners who opted for scrubbers as an IMO 2020 compliance solution for their vessels are contending with the prospect of poor payback economics as the price difference between 3.5% and 0.5% bunker fuel has narrowed dramatically.

Last year, some industry sources estimated the VLSFO-HSFO spread would shoot up and remain elevated, well over the $300/mt mark for a sustained period of time in 2020.  But that has certainly not played out.

“I never really expected this kind of VLSFO-HSFO spread,” another shipowner source said.

“If you don’t have good processes in place, you will be in trouble,” a credit risk manager said, adding that banking was also putting a “circuit breaker” on lending, particularly after the Hin Leong debacle, amplifying the devastation.

When Singapore’s Hin Leong sneezed 

A case in point is Singapore’s embattled Hin Leong, which recently became the subject of an investigation by the Singapore police force for its conduct, or rather, misconduct.

The investigation came after Hin Leong’s managing director Lim Oon Kuin, or OK Lim, and his son and company director Lim Chee Meng said in two separate court filings for bankruptcy protection dated April 17 that the company suffered about $800 million in futures losses over the years that were not reflected in the financial statements.

OK Lim said in one filing that payments made by Hin Leong Trading or HLT to satisfy margin calls for derivatives losses were reflected as “accounts receivables” and he had given instructions to the finance department to hide the losses and told them that he would be responsible if anything went wrong.

“Further, over the years, HLT had, on my instructions, sold a substantial part of the inventory and used the proceeds as the general funds of HLT, even though the inventory was the subject of inventory financing provided by bank lenders,” Lim said.

Ongoing developments at Hin Leong, which came to the limelight as banks grew impatient to recover their loans from the company amid the coronavirus pandemic, have had huge repercussions.

The situation has driven the Maritime and Port Authority of Singapore, Monetary Authority of Singapore and Enterprise Singapore to issue a joint statement in April saying that the country’s oil trading, bunkering sectors and banking system remained resilient despite the challenges posed by a drop in global demand for energy as well as developments related to HLT.

Hin Leong’s subsidiary, Ocean Bunkering Services, was Singapore’s third-biggest accredited bunker supplier by volume in 2019, and the biggest in 2018, according to MPA. OBS was heard to have cancelled all its bunker spot sales for delivery from April 18 onwards.

As the HLT situation unfolds, two new players – Minerva Bunkering and TFG Marine – have been granted bunker suppliers’ licenses in the Port of Singapore last month and are likely to play a pivotal position in filling the void.

Still, the industry remains anxious, as conditions in the world’s largest bunkering port are ripe for consolidation, including exits, sources said.

“IMO 2020 was challenging enough and now there are other issues,” a bunker supplier said. “But it’s going to be okay as long as you can sit in the game long enough.”

In the end, the words of Winston Churchill might resonate with many, given the current circumstances.

“Success is not final; failure is not fatal: it is the courage to continue that counts.”

Source:
https://blogs.platts.com/2020/05/12/shipping-bunkers-coronavirus-trade-imo-2020/

The International Maritime Organization has drawn up a roadmap to help countries implement procedures to relieve ship crews. Worldwide, tens of thousands of seafarers are stuck on board because they are unable to disembark or fly home due to strict coronary measures.

The 55-page 12-step plan was drawn up by a broad coalition of international shipowners’ associations and shipping organisations. The book provides governments with a blueprint to facilitate crew changes and ship crew repatriation. The protocols lay down the responsibilities of governments, shipowners, carriers and seafarers.

In two weeks’ time, some 150,000 seafarers worldwide need to be relieved in order to comply with international maritime regulations on working conditions according to the IMO. Tens of thousands of them are currently stuck on board due to travel restrictions.

Safety at stake

Apart from the need for shipping companies to comply with international rules and contractual obligations, employment contracts cannot be extended indefinitely without impacting the health and welfare of ship’s crew and ultimately on the safety of ship operations.

‘The problem is simple, but the solution is complex. So we have taken our responsibility, drawn up protocols and are now working with governments to implement them’, says Guy Platten, Secretary-General of the International Chamber of Shipping (ICS).

Accidents on board

Platten: ‘If we can’t free our seafarers from their covid-19 blockade, this will be a huge disruption to trade and, more importantly, the risk of accidents and psychological problems on board will increase. Postponement is no longer an option.’

Read the 12-step plan here.

This article was first published (in Dutch) on Nieuwsblad Transport, which is also published by SWZ|Maritime’s publishing partner Promedia.

The IMO’s (International Maritime Organization) new Sulphur regulations, IMO 2020, will have far-reaching consequences for the global trade community. During the 17th session of MEPC (Marine Environment Protection Committee) meeting at London on 28th Oct. 2016, International Maritime Organization (IMO) took a landmark decision which will enforce a new regulation from 1st of Jan. 2020.

According to this regulation, the marine sector emissions in international waters will be slashed even outside the emission-controlled area: ECAs (Emission Control Areas; The Baltic Sea Area, The North Sea area, The United States, Canada, and the United States Caribbean Sea area).

The ships now have to reduce their Sulphur emission by over 80% – 85% by switching to Lower Sulphur Fuel.

The current maximum fuel oil limit of 3.5% m/m will fall to mere 0.5% m/m. This regulation will see the largest reduction in the Sulphur content of the transportation fuel under taken at any time in the history.

IMO 2020: The basics, the challenges, and how to lessen its impact on you

What is IMO 2020? (Sulphur cap)

Due to the high level of pollutants in the exhaust of the bunker currently used to power some 60,000+ ships globally, the IMO is going to implement a new regulation regarding these fuels on January 1, 2020. The regulation will require ships to use a fuel that’s better for the environment or undergo physical upgrades to accommodate either of two alternate solutions, effectively reducing Sulphur emissions by more than 80%.

Ships and carriers use heavy fuel oil that contains Sulphur. During the combustion in the ship’s engine, the fuel emits gases that contain Sulphur which harmful to the environment and its ecosystems. To reduce this pollution IMO has passed the regulation that puts a 0.5% cap on Sulphur in marine fuels. This regulation will be implemented from 1st January 2020 and it is a major step towards Sustainability.

Compliance with this new standard will primarily be achieved through the burning of low-Sulphur fuel, although compliance choices include other methods like the use of scrubbers and liquid natural gas (“LNG”) as fuel. Under this regime, the primary responsible party in the freight market will be the vessel owner or operator.

Ships and carriers will gradually limit SO(X) emissions by replacing the current fuel IFO380 with Very low Sulphur fuel oil (VLSFO) or using Liquified Natural Gas (LNG) as fuel or by installing exhausted gas cleaning systems (ECS) for their existing fuel.

The move towards a greener future may cost for surely but it won’t cost our environment!

This has been done to curb pollution and make the industry greener and world more sustainable.

Duration of disruption may last around for 3 years down the line but alternative scenarios range from one to five years, Disruption still underway if HSFO-LSFO spread incentivizes previously uneconomic refinery optimization.

Implications & Possibilities (post IMO implementation)

So the next question is Why this reduction? & Why now?

One of the pillars of IMO is MARPOL (prevention of Marine Pollution in international waters). The ships use the lowest grade of fossil fuel today. Most of the marine fuels which are used on-board ships, use high Sulphur up to 3.5% m/m. The burning of this fuel in ships are main engines, boilers and generator engines and produces exhaust containing Sulphur oxide (SOX) which then reacts with water, oxygen and other chemical to form Sulphuric acid n secondary inorganic aerosols.

Sulphur is also ozone depleting substance which cause harmful rays reaching to earth surface, this done mixed with water and other compounds of atmosphere and turn into the acid rain which is harmful not only to the environment but also to humans – causing diseases lie asthma, lung cancer, stroke and other pulmonary diseases.

Actually, this is not at all recent. If you follow the previous IMO holdings the first reduction came in 2005 by set a limit of 4.5% m/m of Sulphur cap. Later in the year 2012, it was further reduced to 3.5% m/m. The decision to make it 0.5% m/m in 2020 was taken way back in 2008 and it got ratified in 2016 in the 17th session of MEPC meeting.

So, this is not sudden. Ship-owners got ample to prepare for this regulation. Following a typical business mind set-up, most of the shipping companies did not expect regulation to come so early even after the resolution was adopted 28th Oct. 2016. Shipping companies still believed that implementing such a strict regulation will not be possible at least till 2020. However, as the time approached, everyone realized the Doom’s day is near.

Here are the available options for vessel owners:

1. Switch to a low-Sulphur fuel
2. Implement on-board scrubbers that process the exhaust created by current fuel
3. Convert fuel supply to liquid natural gas (LNG)

The IMO will allow each carrier to select the option that works best for its fleet. In development for more than five years, the regulation—referred to as IMO 2020—may cost the industry upwards of $15 billion in 2020. If a carrier opts for scrubber installation or engine conversion to accommodate LNG, these processes will cost approximately $1 million per ship, with each upgrade taking between 30 and 60 days, depending on the size of the vessel.

Landmark set of regulations that will cost carriers $15 billion per year

Now everyone is rushing to the shipyard for fitting different equipment or retrofitting to ensure they comply with IMO 2020 and not get fined or detained by different regulatory authorities.

Hence, we are looking at such a hype for IMO 2020. One of the biggest impacts are operating and preparation cost of the ships.

To understand the impact on the ship-owners, let first understand – how current ship-owners can comply with this regulation:

Reduction in Sulphur content done by – Fitting an exhaust gas cleaning system which will treat the exhaust and reduce the SOX emission to the desirable limit value. Shifting to a cleaner compliant fuel such as low Sulphur oil Shifting to alternate fuel such as Liquefied Natural Gas, Methanol, Ethanol or Bio-fuel using Shore Power in port.

While complying with this new regulation the shipping company will have following impact:

• Huge cost in fitting an exhaust cleaning system which can go from 6-12 M USD per ship depending upon the size of the ships.
• Maintenance and operation cost of exhaust cleaning system
• Higher fuel bill if switching to cleaner and compliant fuel
• For company having fleet of 200-250 ships, the cost can go up to 1.5 B USD when using liquefied natural gas as a fuel which is costly and the owner needs to modify the engine and boiler for consumption of LNG which will incur additional cost this all can cost up to 20-30 M USD per ship to the owner
• Apart from these investments, to procure technology or the compliant fuel, the ship-owner will need to invest in training of the seafarers for the technology fitted on board such as exhaust scrubber etc.
• Clean and dedicated tank for low Sulphur fuel
• Make arrangement to store liquefied natural gas on board ship
• Make arrangement to bunker liquefied natural gas on board ship
• Fuel oil transfer line modification to avoid contamination of fuel – to acquire compatible grade of lube and cylinder oils
• Modification in engine and boilers to burn LNG fuel
• Comply with documents and paperwork of the compliant fuel

While complying with this new regulation, the petrochemical refineries will have following impact:

• Expected to witness price spikes in 2020 as refiners and chemical producers adjust to the new environment
• Key petchem feedstock naphtha outlook hinges on balance between marine fuels and gasoline
• Propylene/OlefIns production likely to be affected
• Rising container freight rates expected to have minimal polymers impact on total cost
• Aromatics producers hope for wider product margins, but full impact remains hazy
• Chemical shipping tankers eyeing LSFO to fundamentally improvement
• For chemical shipping tanker segment supply-demand balance may improve
• Shipping market will expect more LNG demand after the mandate implementation
• Methanol will be more expensive due to unfavourable density and energy levels

Reducing sulphur emissions by utilizing low sulphur fuel oils in shipping vessels will help reduce greenhouse gas emissions by at least 50% by 2050 compared to 2008 requirements. That’s 8.5 million metric tons annually

Surcharges passed on to shippers

Once carriers implement their solution, it is expected that they will charge an additional fee per container thought to be between $100 and $300, based on load factor, vessel size, route, and other factors. In trade lanes where surcharges would exceed the actual shipping costs, some carriers may opt to implement a smaller surcharge.

New fuel will likely cost more than current bunker fuels and fuel surcharges will likely be added by carriers & its expected to increase freight rates by at least 15% to 30% in 2020

As carrier begins to adjust their rates, then down hierarchy players such as NVOCCs, LSPs, Trucking, Warehousing etc. will also need to update freight tariffs accordingly.

Near term concern: Capacity issues in Q3 and Q4 will outweigh the surcharge

While the per-container surcharge is a factor that has been discussed, the immediate issue has nothing to do with the added costs that will be passed on to shippers. The real issue is the disruption caused by the new regulation.

If carriers choose to outfit their fleets with scrubbers or convert them for LNG consumption, the ships will need to be dry-docked until work is completed—older ships will be decommissioned and scrapped. It’s simply too cost prohibitive to retrofit older vessels.

All of this could create a capacity shortage that will last into the peak pre-holiday season. Worse, it may last months, certainly into early 2020, and perhaps more than a year.

The cost of IMO 2020 non-compliance on government authorities

Individual countries are responsible for monitoring compliance and enforcing the new regulations. Both the state of registry of a ship and port states have rights and responsibilities to enforce compliance. According to the IMO, ships of all sizes will need to use fuel oil that meets the 2020 regulations.

At this time, the IMO does not allow exemptions to the regulations. That said, if a ship cannot obtain compliant fuel oil, they can complete a fuel oil non-availability report (FONAR). The port state control can take this into account when processing, but this does not qualify as an exemption for that vessel.

Impact of IMO 2020 Non-Compliance on the business trade

Vessels are integral to the energy trade. Refiners, shippers, suppliers, owners and vessel operators cannot afford the penalties of non-compliance. A vessel provides economies of scale to transport feedstock (crude or other feedstocks) or refined products to market. Each party is incented to avoid delays in the supply chain and avoid unnecessary delays, penalties or fines.

Business trade efficiencies would be hurt based on being caught for non-compliance.

• The first cost is FINANCIAL. As with the case in the U.S. Virgin Islands, the shipowners and operators incurred a penalty. The $3 million was meant as a signal to other potential offenders. Some owners and operators may be able to cover the $3 million without issues. Most cannot and will suffer financially.
• The second cost is to REPUTATION. The energy supply chain is based on relationships and working with reputable parties to provide for feedstocks or deliver finished products. More and more, energy companies are getting savvy in only dealing with players that have a good reputation. Still recent in the minds of refiners are the issues with fraudulently issued Renewable Identification Numbers under the Renewable Fuels Standard program. There are numerous cases of fraud by the U.S. Department of Justice for those that tried to deceive. These individuals and companies were placed on “blacklists” and circulated amongst the reputable companies.
• The third cost of non-compliance is TIME. The Ocean Princess was anchored at the port in the U.S. Virgin Islands and detained along with the crew while the investigation was underway. That represents a huge cost to the supply chain where each party tries to run lean, just-in-time inventory. A detained ship means that product was either not delivered or picked up according to schedule. That imposes other delays downstream in the process, affecting overall inventory and increasing costs unnecessarily.

How can you prepare?

With IMO 2020 just around the corner, it is essential that all parties seek to implement robust compliance plans and due diligence of their counter-parties—including charter parties, fellow shippers, vessel owners and operator and bunker fuel sale counter-parties.

• Shipping early to avoid the capacity shortage, and arrange for domestic storage if required
• Optimize flexibility in the event your first or second option are blank sailings
• Diversifying shipments so that no single carrier has all of your product and understanding how using multiple carriers can work for you in periods of limited capacity
• Considering air freight for certain shipments
• Reconfirm allocations and forecasts for coming months to help prepare in advance

For all of its good intentions, IMO 2020 is adding new layers of stress to a system that has already endured many months of stress due to the U.S./China tariff war—and will surely endure many more. Like the ones caused by the escalated tariffs, the changes caused by IMO 2020 will require importers and exporters to work with logistics experts to find solutions that preserve the integrity of supply chains and the profitability of their businesses.

Preparing for a New Marine Freight World

With the new regulation soon to go into effect companies must ask themselves what is to be done. Companies must plan and think about managing their supply chain effectively. It’s paramount that shippers, refiners, marketers and traders prepare now so fines don’t mount, and trade flows aren’t further disrupted. Refiners must focus on relationships with suppliers and other logistics companies now to negotiate term deals for fuel.

Final thoughts

The new IMO 2020 regulations reducing sulphur oxide emissions to less than 0.50% will have a significant impact on today’s shipping industry. But it’s important to remember that these regulations are not the first sulphur oxide emissions standards. Previous requirements did not cause a significant fuel shortage or permanently increase prices.

There is no doubt, this new regulation has a significant positive effect on the environment.

However, the increased cost of cleaner ocean freight shipping would get passed along to the shipper and eventually to the consumer.

Credits: Alphaliner, BCG, Google Images, MARPOL & IMO