About 90% of global trade moves in the approximately 51,000 ships composing the world fleet. In the meantime, the insatiable demand for the fuel that drives maritime global trade is estimated at 2.1 billion barrels (88.2 billion gallons) annually, or 244 million gallons per day.

The noxious emissions, largely sulfur oxides, as well as nitrous oxides and particulate matter, have become a major environmental concern and have been proven to adversely affect global health as they’re discharged into the atmosphere. According to a Goldman-Sachs study, burning standard bunker fuel (Heavy Fuel Oil or HFO) accounts for almost 90% of a sulfur emissions globally, with the largest 15 vessels producing more sulfur than the combined total of all the world’s automobiles.

The International Maritime Organization (IMO) regulations limiting sulfur content of bunker fuel to 0.5% (down from 3.5%) will take effect on January 1, 2020. A small portion of the 51,000 ships in the global fleet already burn compliant fuel, but the remainder will have only four viable options, including one temporary “hall pass” to comply with the law: convert to low-sulfur (e.g., MGO, VLSFO, diesel) or a blend of HFO and low-sulfur that meets the emission standards; install expensive scrubbers and continue to burn HFO, the cheapest grade of fuel; convert to LNG by replacing HFO-burning ships with new LNG vessels; or obtain waivers/non-compliance. For the latter, IMO-2020 provides waivers in a situation where compliant fuel is not available (ships would be required to present a record of the actions taken to attempt to achieve compliance).

Goldman Sachs estimates that the overall impact on consumers in 2020 could be as much as $240 billion, as the added costs cascade across global supply chains, adding approximately $40 billion in increased shipping costs. “This is the largest regulatory change in the oil space ever, and it will have a massive effect far outside of shipping,” says Svelland Capital portfolio manager Kenneth Tveter.

Analysis by the commercial maritime and refining industries indicate about 84 million gallons/day of shipping fuel will transition to low-sulfur alternatives, with some estimates reaching as high as 168 million gallons/day. This tectonic shift means significant additional demand for middle distillates, the fraction of the refined barrel that includes ultra-low-sulfur diesel for truck and rail freight, as well as domestic barge operations.

One strategy, first deployed on a significant scale during the excess capacity of the last downturn, was slow steaming. It saved in fuel cost and used up a portion of the idle capacity, filling out vessel strings that needed more ships due to slower speeds. With operating costs such a vital element for vessel owners, slow steaming and super-slow steaming will invariably arise again. The impact on cost is undeniable, but the lengthening of supply chain lead-times will prove problematic.

This will drive further examination of alternative supply sourcing (i.e., near-shoring or on-shoring.) For supply chain professionals, this is a bit like navigating into a traffic circle in the dark, in the rain, with no lights and trying to find the right exit. Derek Leathers, CEO of national trucker Werner Enterprises posed an insightful question: “Does this do anything broader, for example, to impact near-shoring versus off-shoring? Will it tip the balance?”

The new world order will produce a significant ripple effect, especially when combined with rising labor costs in China, increasing tariffs and longer cycle times. A significant shift in manufacturing to more favorable total cost of ownership (TCO) options will be on the table. Planning for potential impacts and outcomes can’t start soon enough.

The fallout

There is little question that costs will rise: The key question is where the hammer will fall and who will bear the additional cost.

The world’s two biggest container shipping lines—Denmark’s Maersk and Swiss headquartered MSC—say that they face annual extra costs of more than $2 billion each. In the meantime, 25 logistics company executives told Reuters recently that they would pass along any IMO-related costs, such as ship upgrades or more expensive fuel, to customers.

But that’s not all, as the ripple effect is predicted to wash ashore in North America and affect domestic land transportation. While IMO rules don’t apply to domestic modes, they will face new competition from ships for low-sulfur fuel. This is expected to raise the cost of diesel fuel and much as 100% and also affect availability of supply in certain key markets. In summary, we can expect large-scale disruptions in global supply chains as the upheaval in fuel markets takes root and carriers scramble to comply.

Fuel availability will be more challenging under the new rules because blend specs and compatibility remain non-standardized. “At the moment, no one knows which types of fuels will be available at what price, specification or in what quantity,” says Esteban Poulsson of the International Chamber of Shipping. “We could be faced with an unholy mess with ships and cargo stuck in port.”

A reasonable hypothesis is this: All responsible marine vessel operators will be compliant with the IMO-2020 regulations. Some will convert—as some already have—to distillate fuels. Some—estimates say less than 5%—will install scrubbers. Some will resort to HFO/low-sulfur blends. Some will replace aging vessels with LNG-fueled ships.

The net effect will be a surge in demand for distillate fuels as both a source for burning directly and for blending. Refining capacity will not keep up with demand, leading to rising prices for diesel fuel in major markets, like North America.

“Rarely do you see such a potentially massive disruption,” says John Kartsonas, managing partner of Breakwave Advisors. “Delays, a reduced active fleet supply, slow steaming and port congestion can push freight rates to decade highs—and beyond.”

Regardless of the magnitude this change will have, and its ripple effect along the supply chain, it should be viewed seriously by all modes and equally so by those who buy transportation services from these carriers.

North American domestic impact

Predictions are that the wholesale conversion of the ocean-going vessel fleet will significantly increase the demand and competition for fuels used by other modes, with a consequential rise in price—some estimates say as high as 100% increases—and possible constriction of availability.

We were curious about how shippers viewed IMO-2020: Was it high on their radar or buried in the back-scatter? Logistics Management partnered with Breakthrough, a leading transportation energy management firm, in creating a survey to assess the attitudes and readiness of shippers to cope with the impending changes:

More than 90% of the respondents have little or no awareness or knowledge of IMO and the impending regulations, and 80% have done no analysis or forecasting relating to impact on their domestic transportation cost. While the IMO sulfur cap was announced more than 10 years ago, vessel operators said little or nothing to their customers until recently (Q4, 2018). This gave a false sense of security, even to those who have been actively monitoring progress.

Our going-in presumption was, for North American-centric shippers (meaning those spending the bulk of their transportation dollars on truck, rail and barge freight), the level of awareness was not high and the impact not viewed as relevant or of great magnitude.

Bolstering the survey, we interviewed a cross-section of senior-level executives from the ocean, rail, truck and shipper communities, as well as several from the refining and energy markets. A consistent theme was people were “generally aware” of the new IMO-2020 regulations, but had not done any significant analysis to assess the effect on their business.

BNSF Railway burns more fuel than anyone in North America, with the exception of the U.S. Navy. Railroad veteran Matt Rose shepherded BNSF through a drastic rise in fuel costs during the past 20 years. “Fuel went from about $770 million in 2000 to a peak of $4.6 billion,” he said.

“At one point, fuel was 10% of operating cost, and at its peak it equaled labor cost at 32%,” adds Rose. “Railroads will have to make choices on fuel for the longer term. Going to LNG is billions of dollars in infrastructure and equipment cost. The net price of fuel would have to go up $0.75 to $1.00 per gallon before it would drive a major shift.”

While a 50% increase in the cost of diesel would achieve this, the timing and capital to convert would be large in scale and likely need to extend to most, if not all, the Class I railroads, due to interoperability of equipment.

Derek Leathers runs one of the nation’s largest motor carriers. As CEO of Werner Enterprises, Leathers has his eye on the ball. “We very much have this on our roadmap and have discussed at the board level. It will put more demand on refining capacity, which will have more of an impact in our space. Diesel will have more homes to go to, so our best response is to push the envelope on MPG.”

Source: logisticsmgmt

LONDON (Bloomberg) – Historic rules to clean up pollution in the shipping industry are two weeks from taking effect, but there are signs that enforcing the new legislation will prove tricky.

The International Maritime Organization, part of the UN, is trying to curb the release of sulfur oxides that it says are bad for human health and contribute to acid rain. Shipowners and oil companies have spent billions of dollars getting ready. However, countries home to around 15% of the world’s oil-refining capacity have so far failed to sign up to the pact that’s designed to slash emissions of the pollutant starting in January.

Not Ratified. And even among the nations that back the rules, some important ones don’t look likely to start with an aggressive implementation. South Africa, which sits on shipping lanes connecting the east and western hemispheres, doesn’t have the domestic laws in place to enforce the rules. The United Arab Emirates, home to the biggest vessel-refueling center in the Middle East, intends to avoid a draconian start to enforcement.

“It will be devastating if not everyone complies,” said Clea Henrichsen, a special adviser at the Ministry of Environment and Food for Denmark, where sulfur content in the air more than halved in two years after introducing an emissions cap. “It’s awful now in terms of air pollution around the world.”

Laying Down the Law. For its part, the IMO says that any country that ratified the rules made a commitment to implement them from Jan. 1.

While the IMO sets the regulations, it’s down to individual states to put them into practice, inspecting vessels and having a legal framework in place to punish those that aren’t compliant. But what that will look like in reality is still unclear in several locations.

“Most states are keeping their cards really close to their chest,” said Alessio Sbraga, a partner in the shipping team at Holman Fenwick Willan LLP in London. “There’s a general lack of transparency. That’s concerning because, in the first place, robust and consistent enforcement will be important for a level playing field.”

South Africa has agreed along with 95 other IMO member states to enforce the rules in its waters. But legislation to make that possible won’t be ready in time.

“That bill is not going to see the light of day until sometime next year,” said Edmund Greiner, a maritime lawyer for Shepstone & Wylie’s Cape Town office, who advises the South African Maritime Safety Authority on issues relating to marine pollution. “Without that bill coming into force of law as an act of parliament, we can’t do anything in South Africa to enforce the provisions.”

Sobantu Tilayi, the acting chief executive officer at SAMSA, said he hopes to see the laws passed by the first half of 2020.

“Our allowance for the parliamentary recess was not enough in hindsight, that’s how it got affected,” Tilayi said. “In terms of the South African constitution, we need an enabling legislation to give force to our accession and that is the part that has been delayed. Because of where we are in the region, we provide that assurance to international shipping and so we cannot afford to be found wanting on any of these matters.”

Against the Clock. Jamaica doesn’t have the domestic laws in place either. The suggested legislation has been before parliament for some time but is yet to be passed, said a spokeswoman for the national Maritime Authority. It is not alone: fewer than half of the 20 member states of the Caribbean Memorandum of Understanding have laws to enforce IMO 2020, according to the organization’s Secretary General Jodi Barrow.

Shipping companies fear that lax enforcement might tempt some to cheat. That’s crucial because fuel is normally the industry’s single biggest cost, so non-compliant firms could glean a competitive edge. The legislation is supposed to mean that ships either consume fuel with 0.5% sulfur — down from a 3.5% limit in most parts of the world today — or that they need on-board equipment called scrubbers to prevent the sulfur from being released into the atmosphere.

Strict implementation is “extremely important, because if you use high sulfur fuel oil you can save immensely on costs and there is a very high potential for fraud,” said a spokesman of Hapag-Lloyd AG, a Hamburg-based container shipping giant.

Other countries are simply heeding calls from the shipping industry to take a pragmatic stance on enforcement, at least to start with. The United Arab Emirates, for example, is anticipating that it won’t begin by penalizing non-compliant ships, according to the head of the nation’s Federal Transport Authority. That’s a potentially vital stance given the country is home to the port of Fujairah, which provides fuel for thousands of ships each year as they come and go from the Persian Gulf.

Fine Disparities. As well as questions about how the regulations will be enforced, there are also significant differences in terms of fines and penalties that companies can expect to pay if they breach the rules, according to Carol Holness, a Durban-based transport lawyer for Norton Rose Fulbright LLP who has looked into the largest maximum fines in countries’ legislation.

If South Africa’s bill from September passes into law unchanged, rule-breakers would risk a fine of 3.2 million rand ($220,000), or five years’ imprisonment, or both. In Belgium, penalties for burning overly sulfurous fuel rise to more than $8.9 million. That doubles for re-offenders.

“There’s just such a wide variation in terms of what countries are doing,” said Holness.

Searching Ships. When South Africa’s laws do come into play, SAMSA may also struggle to check ships enough to manage cheating. In 2018, around 2% of the ships that called at its ports were inspected, according to data from the Abuja MOU, a port-state control organization.

Tilayi says regional rules mean a maximum of around 5% can be inspected. A more common figure for inspections in Europe and Asia is roughly 20%, according to Chris Cote, an analyst at ESAI Energy LLC. Singapore, one of the most important maritime hubs globally, inspected 7% of vessels in 2018, according to the Tokyo MOU.

In practice, sulfur checks may differ from other inspections. Some ports are deploying drones that can identify those vessels that need a closer look.

Even if all the countries that have ratified the rules do their best to enforce them, though, some regions around the world will have to play catch up. Many nations have years of experience enforcing sulfur caps, but around 100 haven’t signed up to the IMO agreement yet. These countries include Argentina, Colombia, Ecuador, Israel, Iraq, Mexico, Pakistan and Egypt, according to the latest IMO data available. The Suez Canal, a trade artery between Europe and Asia, passes through the latter country.

All together, the combined oil-refining capacity of the non-signatories is 15 million barrels a day, according to a report by OPEC.

Preparatory Work. While non-signatories won’t be able to enforce the rules, most ships will have to pass through countries that are participating in the regulations, an IMO spokeswoman said.

“So on a practical level, they would need to comply — since they would not want to be emptying tanks out and cleaning them were they to be contaminated with non-compliant fuel oil,” she said.

“IMO member states, the shipping industry and fuel oil suppliers have been working tirelessly to prepare for this major change in the sulfur content of ships’ fuel oil,” IMO Secretary-General Kitack Lim said on the organization’s website on Wednesday. “I am confident that the benefits will soon be felt and that implementation will be smooth.”

The IMO said it had set up an email hotline to deal with queries from member states and the shipping industry.

So-called flag states, the locations where most of the world’s ships are registered, have also signed up to the agreement and those that ratified represent 97% of the fleet, according to the IMO.

When the standards do kick in, up to 20% of vessels could initially be breaking the rules, said Richard Chatterton, an oil analyst for BloombergNEF in Singapore. But the international pressure to comply means that “it would be folly for a shipping company to ignore the reality of the markets.”

“Because everyone who’s invested in a scrubber, everyone who invested in updating a refinery, everyone who’s invested in rejigging their supply infrastructure — it’s just going to be an absolute mockery if they don’t enforce compliance of the rules that have precipitated billions of dollars of investment,” he said.

Source: worldoil

Oil markets will go through a major transformation as new regulations covering the sulphur content of marine fuels take effect from January 1, 2020 and may have an impact on the regional countries due to high level of sulphur content in their crude.

The International Maritime Organisation (IMO) has ruled that from January 1, 2020, marine sector emissions in international waters will be slashed. The marine sector will have to reduce sulphur emissions by over 80 per cent by switching to lower sulphur fuels. The rules define that the global 0.5 per cent sulphur cap will enter into force in 2020, and more than 70,000 ships will be affected by the regulation.

The IMO 2020 rules have been estimated to affect as much as 3.5 million barrels per day of demand for high sulphur fuel oil, the shipping industry’s traditional fuel.

Industry insiders said that the UAE ratified the IMO 2020 rules in May and it won’t rush to punish non-compliant ships when new rules will be effective from January 1. They said the UAE holds strategic position in the region because of Fujairah Port where thousands of ships go to refuel each year when calling at ports in the Middle East.

Federal Transport Authority chairman Abdullah Al Nuaimi said recently that the UAE will adopt a flexible approach toward those ships that breach the environmental regulations when they enter into force on January 1.

“The ships rejected by another port for non-compliance should not call in the UAE,” according to one official. “The UAE is developing a new maritime trade law that will help standardise penalties across ports,” he added.

Substantial industry attention has focused on how refiners, traders, ports and the shipping industry will adjust but the sulphur content of refined fuels is largely a function of the content in the original crude oil. For a region that produces a relatively sour barrel, the Middle East could face changes in the demand profile for its crude exports post 2020.

As Mena grades are on average heavier and sour, their long-term demand will be a function of the appetite of highly complex refineries, mainly located in Asian markets. Crude exported from Mena is generally of medium to heavy gravity and sour, although there is a wide variation by country.

“In the GCC, however, most crudes are classified as sour and yield a relatively larger share of fuel oil, precisely the opposite of what markets will be looking for as baseload crudes to meet IMO rules,” said Edward Bell, commodity analyst at Emirates NBD Research.

“On a weighted average production basis, the UAE’s main grades come in at an API of 38 and sulphur content of 1.1 per cent. For export markets, the UAE’s crude quality is likely to become lighter as Murban (39.7, 0.8 per cent sulphur) takes up more of the share of exported barrels as grades such as Upper Zakum (33.9, 1.8 per cent sulphur) are fed into an upgraded and expanded refinery at Ruwais,” Emirates NBD Research said in a note.

Bell expects that the full impact of IMO 2020 on Middle East exporters will be clouded so long as Opec production cuts remain in place.

“Mena exporters of sour crude grades will need to maintain their investment in upgrading refineries or targeting export markets capable of processing their crude in order to remain competitive in a post-IMO world.”

He expects markets will end up in a surplus for 2020, with a particularly heavy oversupply in H1 2020. He sees considerable upside barriers in their way and thus substantial gains look difficult.

“We expect Brent prices will record an average of $57 per barrel, down $2.50 per barrel from our previous forecast and a drop of 11 per cent year-on-year from our 2019 price target. For WTI, we expect prices at around $55 per barrel, down by $1.90 per barrel from our previous expectations and a drop of 5.5 per cent from our 2019 target.”

The Opec group of oil producing countries and their allies – including Russia – have agreed to a production cut of 500,000bpd in addition to their current agreement, bringing production 1.7 million bpd below October 2018 levels.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, expects global oil demand growth to increase modestly to 1.1 million barrels a day in 2020 after slowing to an estimated multi-year low of 0.9 million bpd in 2019.

“Against this backdrop, we retain our Brent crude forecast for 2020 at $62.5 per barrel, though we adjust our 2019 estimate marginally down to $64.0 per barrel from 64.7 per barrel,” Malik said in a note.

Francisco Blanch, head of commodities and derivatives research at Bank of America Merrill Lynch, projects an average Brent price of $60 a barrel in 2020.

“We believe spot prices could rise to around $70 a barrel by mid-year. Diesel prices, further boosted by a big surge in marine gasoil demand on the back of IMO 2020 regulatory changes, could approach $100 per barrel in the first half of 2020,” Blanch said.

Slava Kiryushin, Dubai-based global head of energy at DWF, expects there to be an oversupply.

“Even the new shipping fuel regulations set to be implemented in January 2020, known as IMO 2020, are not expected to change this trend despite potentially leading to an increased demand for low-sulphur gasoil and diesel. No doubt that the growth of the oil supply is a sensitive topic for Opec+ members as 500,000 barrels a day were agreed to be cut from Opec’s supply. Overall, the market is less optimistic over the ‘revival’ of the oil price,” he said.
Source: Khaleej Times

On Jan. 1, 2020, new emissions standards from the International Maritime Organization (IMO), designed to curb emissions produced by maritime shipping, will go into effect. The new standards will further limit the acceptable levels of sulfur in ship fuel.

The standards are likely to have a profound impact on the global logistics industry, as nearly all – more than 90% – of the world’s trade remains carried by sea.

What the new standards change

The new rules will further limit the acceptable sulfur content of marine fuel, ratcheting it down from the existing 3.5% to 0.5%. As a point of reference, most current marine fuel averages a sulfur content of around 2.7%.

The change to sulfur limits will be the first the IMO has made since it established the original 3.5% limit in 2005.

The rule change isn’t complicated, but it will likely have wide-reaching effects on the logistics industry, fuel production and global trade. Experts from the oil and gas industry have gone as far as describing the new rules as “the biggest change in oil market history,” according to CNBC.

The new standards will require the shipping and cruise industries to turn from cheaper, dirtier crude oil to products that are cleaner and less polluting, but more expensive – or face fines levied by the IMO.

The IMO did not change its regulations beyond the sulfur limit. As a result, ships can continue to use high-sulfur fuel, so long as they use an exhaust cleaning system to scrub their emissions, or if they mix that fuel with another variety that brings the total sulfur content below the 0.5% limit.

Why the IMO changed its standards

Experts predict the reduction in sulfur content to reduce the amount of sulfur oxide produced by global maritime transit. They say it should improve the health of those living in communities near ports, major shipping routes and coasts, which are typically the most impacted by maritime pollution and emissions.

In its reasoning for the change, the IMO cited a study which predicted cutting emissions of sulfur oxide could prevent more than 570,000 premature deaths between 2020 and 2025.

The same study estimates that the cost of the rule change will be approximately $30 billion per year, or around $277,000 per prevented death.

Residents in the coastal regions of India and China, where shipping lanes are densest, can expect to see some of the most significant health benefits.

The fuel change is substantial, but not the most restrictive standard on sulfur content the IMO imposes. Ships operating in emission control areas established by the IMO – which include the Baltic Sea and the area around Puerto Rico and the U.S. Virgin Islands – already need to comply with a 0.1% sulfur content limit.

Some shipping companies have expressed worries about their ability to comply with the new standards, but the IMO has been steadfast that the regulation will become active on Jan. 1, 2020.

How shipowners are responding

In the same way they can manage product shipping on land, logistics companies will need to turn to new technology – and possible fuel types – to reduce their production of sulfur oxide and come into compliance with the new IMO regulations.

The rule change leaves shipowners with a few different options for compliance, including switching from high-sulfur fuel to marine gas, very low-sulfur fuel or liquefied natural gas, as well as systems that clean engine exhaust.

Major oil producers BP and Royal Dutch Shell have already announced that they are producing very low-sulfur fuels that will fall under the 0.5% limit. The IMO has prepared, however, for shortages of compliant fuel at smaller ports with fewer available resources.

Marine energy and shipping consultant Adrian Tolson predicts most shipowners will switch to marine gas, natural gas or low sulfur-content oil, while a smaller portion – around 20% – will install exhaust gas scrubber systems to help control their emissions of sulfur oxide.

Shippers will need to begin planning now, if they haven’t already. By the time the IMO starts enforcing its regulations in early 2020, shipping companies should already have identified alternative fuel sources that will bring them into compliance with these new standards.

While the shipping and cruise industry will likely be the most impacted by the rule change, ships of all sizes will need to comply with the regulation. They will also need to meet the standards regardless of whether their voyage is international.

How the new IMO standards may change maritime shipping

The new rule change isn’t complex but is likely to cause significant changes in the maritime shipping and oil and gas industries. Shipowners and energy companies have been preparing for the shift by looking to new fuel sources and equipment that could reduce their production of sulfur oxide.

The new standards will be costly to the shipping industry – but, if successfully enforced, could save hundreds of thousands of lives.

In the future, as sustainability, environmental stewardship and climate change become more pressing priorities, these sorts of rule changes may become even more prevalent.

Source: freightwaves

The shipping industry has known about the mandated shift to low sulphur fuel for approaching three years, but details remains elusive about the availability and pricing of compliant products.

The International Maritime Organization (IMO) announced in October 2016 that only fuels with a sulphur content below 0.5pc, down from the standard 3.5pc, can be used from 1 January 2020. With global consumption of 3mn bl/d, it is a monumental change and its effects will be felt well beyond bunker fuel markets.

While high sulphur fuel oil (HSFO) can be converted to low sulphur (LSFO), the capacity to meet global demand simply does not exist. The lead time⁠—especially as some were initially unconvinced it would happen on time, if at all⁠—was insufficient to build facilities. To add pressure, a credit trading scheme was not set up to bail out laggards (as the European Union did when it mandated ultra-low sulphur diesel [ULSD] in emission control areas).

This means the industry has three realistic compliance options and the consensus among analysts is that it will adopt each in roughly equal measure: LSFO; marine gasoil (MGO); and retrofitting on-board scrubbers to filter HSFO. Consultancy Channoil suggests that 10pc may cheat, concentrated in areas where supply is almost impossible or policing lax, but compliance will be rigorously enforced after a three-month window.

“The regulation is quite clear,” says Charles Daly, chairman of Channoil. “There will be penalties if you are caught carrying non-compliant fuel oil. No relief will be given unless there is an absolute case that the master could not get compliant fuel or that, by not doing so, he or she would be endangering the ship. Compliance is going to be strongly regulated.”

Each of the three option’s attractiveness will depend on the relative prices that emerge and how they play out over the next few years. Unhelpfully, “no provider has said where compliant fuel oil is going to be priced,” says Daly.

Significant price spreads will open up between high and low sulphur crudes, according to Stuart Dunphy, director of business consulting for northern Europe for software provider AspenTech. “There will be market imbalances⁠—and these will open up opportunities for those refineries in a position to capture them over the next four or five years the imbalances are expected to last.”

Price prediction

Analysis of the forward price curves of HSFO, LSFO and MGO do not yet reflect the scale of the change and may lead some to underestimate problem. The curves remain relatively flat despite “there being widespread concern that there may be insufficient supply to meet demand for LSFO,” says Dunphy.

“We all need to realise that IMO 2020 is real⁠—it will be large and disruptive,” says Rick Joswick, head of oil pricing analytics at consultancy S&P Global Platts. “Some are sceptical about how disruptive this will be. But the only reason prices have not moved is because the change has not yet happened. The price effects will occur once demand changes, at some point before the January cut-off date.”

He estimates that bunker suppliers will buy in October and shippers will buy from November. This translates into HSFO supplies into Singapore, the world’s largest bunker market, falling significantly during September or October. “That is when we should see price effects,” he says. “It is like a tsunami. It is still hidden beyond the horizon⁠—but it is going to hit us.”

There are convincing reasons why the forward curve for distillates has not spiked in the way one may have anticipated. Several attributes from today’s pre-IMO spot market are still informing the curve: the cost to store inventory, the cost of carry, inventory levels and hedging activity. “It functions perfectly for these factors-hedging and incentivising storage/draining of stock⁠—but it is not anywhere near our forecast yet,” says Joswick.

In 2008 there was a huge spike in distillate cracks, caused largely by the Chinese Olympics, of a similar magnitude to those expected to result from IMO 2020. “Every time during that excursion⁠—up and down⁠—the forward curve looked like a series of horizontal lines. It did not predict anything at all. It was useless as a forecast but very useful for indicating inventory levels, as it is intended to do,” he says.

One may have expected substantial hedging against a risk of a big event that will happen in less than six months, but other real-world factors are in play. “Think about it from the perspective of a shipper,” says Joswick. “These are hard times⁠—many have no capital and poor credit. They could choose to do nothing and hope for the best. Or, they could ask the board to borrow money and pre-buy at a price that is higher than today’s, in the belief it will go even higher. That is a tough sell.”

That said, some have evidently started hedging. The spread oLSFO over HSFO was roughly $100/t but a big purchase in a thin market caused this to double. “We believe it will double [again] to nearer $400/t at its peak, in Q1 or Q2 next year,” says Joswick.

Creating compliant fuels

Long-term, it is possible that demand will be met by converting HSFO to LSFO to a common standard. In the meantime, a slew of small and large companies has promised to create compliant fuel from a wide variety of sources and methodologies⁠—which may or may not be compatible with each other.

The major refiners have coitte to supply 0.5pc but only in mega-ports such as Antwerp, Rotterdam and Singapore, and some other important ones such as Marseille. “It is selective,” says Daly. “A ship owner does not want to have 0.5pc sulphur in its tanks and end up in another port and not be able to get it. The new fuel oil could be completely incompatible with other supplies⁠—from what we have seen, they can be very different. You could end up in a similar situation like the one last year, where 150 ships off the American coast ended up stopped at sea with blocked engines.”

Some refiners have reportedly been unwilling to provide details or samples⁠—perhaps because final specification has not been decided but possibly in the hope of locking in customers that will be operating under the fear of being left dead in the water. “Bunker fuel has been commoditised for many years,” says Channoil associate director Mark Waddington. “The majors are trying to turn low sulphur fuel oil into a niche piece of marketing and lock their customers in.”

Daly adds that major oil suppliers have been very slow in giving samples to the IBIA to test compatibility. “The marketing implication is that if a ship owner bought fuel from a major supplier in Antwerp, they would be obliged to buy it from the same supplier in Singapore to guarantee compatibility. This might erode competition and result in ever higher prices. The days when ship owners obtained discounts for surplus HSFO are over.”

While there is a giant pool of HSFO⁠—of consistent quality around the world and a home for which every refinery is seeking⁠—there is not a sufficient pool of low sulphur residuals that have not already found a more profitable home. Bunkering has traditionally been a price-taking activity so producers will not want to invest heavily to create a consistent product. Suppliers need to divert streams from other sources, which could be anything from slurry oils to Indonesian waxy residuals. IMO standards do not ensure compatibility-it governs the sulphur content not the specification-and compatibility testing is tricky and relative, rather than absolute.

“Shippers are scared of incompatibility,” says Joswick. “From their perspective, compatibility is not just a minor economic issue. If the filters become plugged it could leave them adrift on the rocks⁠—just for $50/t saving.” A 0.5pc fuel could be paraffinic, aromatic, a residual blend or take many other forms. “They could look completely different and not be able to be mixed⁠—there could be dangerous compatibility issues,” he adds.

There is no compatibility issue with HSFO because there is such a broad pool of residuals to draw from; refiners do not need to search for obscure sources. As demand for LSFO will at least initially exceed supply, refiners will be motivated to search in fragmented and narrow pools as well as blend-in gasoil.

Marine gasoil

The LSFO supply deficit and compatibility issues will push cautious shippers towards MGO. “There is a really good case here for using marine gas oil,” says Daly. “It is ubiquitous, it is cleaner, it extends engine component life by about 50pc, it carries more calories for the equivalent tonnage and it does not need pre-heating.

“But the big, big advantage is compatibility. It is compatible ubiquitously and there is very little risk of the filter blocking you get with fuel oil. It is also cheaper and easier to clean up in the case of an oil spill.”

Joswick agrees there will be high demand but is “worried about how the refining industry can supply enough middle distillate”. The severity of the price shock will depend on the availability of stocks in October, when demand begins to rise. So far, distillate stocks are not being built onshore as “weekly data is at usual levels or below”, according to Joswick.

The refinery maintenance season has reportedly taken out an unusually high amount of capacity—in part due to tweaks to refineries ahead of IMO⁠—and weak margins have deterred refiners from operating at maximum capacity. “We are looking for 3mn bl/d of [shipping fuel demand by the time we get to Q4]. The highest stockbuild ever achieved in a timeframe [of now until then] was 60m bl, so pulling that down over six months provides only 300,000bl/d [of additional supply],” says Joswick.

Longer term, shippers could benefit from the automotive trend from diesel to electric. “As demand from the transportation sector declines⁠—due to diesel cars being replaced by EVs and hybrids⁠—gasoil is going to become cheaper relative to crude oil, at which point the ship owners will see the benefits of converting to the cleaner diesel fuel,” says Joswick.

High to low sulphur

Converting HSFO to LSFO is another longer-term option. Nothing of scale was built for IMO 2020 only because it takes between four to six years to build something of meaningful scale⁠—which could have meant new capacity opened just as the price spike was receding.

Instead, the industry has been repurposing existing units, such as a Japanese desulphurisation facility that had been used to supply the country’s dwindling LSFO to power business. A refinery in the US Virgin Islands is being restarted for compliant fuel as are smaller, easy-to-use facilities in Fujairah, in Malaysia and Antwerp.

Another untapped source of supply is from US refineries. Refiners that run a mix of high and low sulphur crudes typically dump the residuals in a common tank that is destined for a coker. If the price moves enough, it will be economically attractive for a refiner to segregate the low sulphur residuals and divert it to the bunker market. And, if the price of unwanted HSFO gets low enough, Russia has the capability to burn it for power generation instead of gas.

“The price spreads-low versus high sulphur crude, gasoil versus fuel oil-have to open up enough so that things get redistributed and units get used in different ways,” says Joswick. “It is a stretch, but the world can balance. It requires wide price spreads to enable things that are not currently economic to occur.”

Most refiners will be winners, according to Joswick. Deep conversion refiners will be big winners while simple refineries that only take high sulphur crude and make HSFO will do a bit worse. He says that heavy sweet crude producers (such as Australia, Sudan and West Africa) are seeing values go up. “People are already starting to buy so they have some on hand when it is time to make bunker fuel.”

The value change between sweet and sour crude will “not be earth shattering”, probably around “several dollars per barrel”, he predicts. The differential will not be wide enough to make it economic for crude to be left in the ground⁠—so the residual HSFO will need to find a new home.

“HSFO has got to price itself in somewhere,” says Waddington. “The problem is the world is dependent on all of the crude oil streams and a certain amount of that crude is high in sulphur. We cannot get away from that, even if we change the specification on bunker fuel oil. Heavy fuel oil has to find a home somewhere, whether that is pricing its way in scrubbers, being tanked for few years, used to make roads as bitumen or burned in power stations.”

The future is not bright for the refineries that cannot remove the sulphur. “Those refineries that continue to produce HSFO after the IMO change will potentially find it harder to market their product and risk going out of business,” says Daly. “Unless they invest a minimum of $0.5bn, a lot of small refineries will probably have to close.”

More complex refineries need to strike a balance between desulphurising high sulphur crude and purchasing much more expensive stocks of low sulphur crudes. “This is the kind of optimisation problem for which refineries need to find a solution,” says Dunphy. “IMO 2020 makes things such as planning, business processes and feedstock selection/evaluation even more important. People will be forced to look at different crudes to ones they have processed in the past.”

The increasing demand for low sulphur fuels will transfer beyond traditional shipping fuels to other middle distillate markets. For example, as gasoil competes with diesel and jet fuel for some uses, the prices of diesel and jet fuel should also be expected to increase. Logically, the worst of this disruption will occur during 2020 and taper from 2021 as the shipping industry finds a new equilibrium.

Scrubbers

The third compliance option shippers can choose is to install scrubbers. These allow the shipper to continue using HSFO and clean out the sulphur onboard.

If ships have scrubbers installed before January 2020 analysts estimates the payback would take roughly one year, after which it would receive an ongoing cost advantage. But global capacity to install scrubbers has been insufficient to meet demand before the deadline. Platts estimates that approximately 15pc of FO demand will be covered by scrubbers at the start of the year and coverage will rise thereafter.

Closed-loop scrubbers use a recycled stream to contain the sulphur, which must then be disposed of as toxic waste, at a cost. Closed scrubbers use a caustic solution such as sodium hydroxide, producing sodium sulphate. It is corrosive so specialist tanks are needed; ports will have to add discharge facilities for this to be a viable widespread option. Sodium sulphate could be recoverable and useful.

The alternative is open-loop scrubbers, but these have an environmental impact that is unacceptable to many. “Some people are concerned about open-loop scrubbers,” says Joswick. “These use seawater and are cheap but just discharge into the ocean, which may seem to defeat the intent of the law, if not the letter.”

Back in 2007, the IMO stated its primary intention was to protect human health and its secondary intention was to reduce sulphuric precipitation that was destroying inland lakes. Since that the time people have become much more concerned about acidification of the oceans, which can have very adverse effects on marine life including the widespread bleaching of the Great Barrier Reef since 2016.

“Open-loop scrubbers take sulphur oxides out of the air and pump the resultant sulphurous water wash into the oceans,” says Daly. “How long do you think it will be before Green politicians pick up on this?”

However, Joswick notes that a Japanese government study found the practice does not harm the environment, so the debate remains live for now.

Global availability

The three major bunkering centres in the world⁠—Singapore, Rotterdam and Fujairah⁠—will remain the largest due to their location and existing infrastructure. But how and from where they receive supply is likely to change dramatically.

For example, Singapore is supplied by a wide network of countries with the biggest contributions, of 16pc and 10pc respectively, from Russia and the US. A further 21 countries supply more than 1pc eac⁠h—Bahrain, Belgium, Brazil, Colombia, Egypt, Greece, India, Indonesia, Italy, Kuwait, Latvia, Malaysia, Malta, Mexico, Netherlands, South Korea, Saudi Arabia, Taiwan, Thailand, UAE, Venezuela⁠—and a similarly long list supply less than 1pc. This global network will need to be completely redrawn.

HSFO will need to go somewhere. “HSFO prices will have to come down to compete with coal, or even undercut coal [for it to be used for power],” says Daly. “But a lot of the climate change pressures are coming on to developing countries as well. Why would they not just go one step further [than HSFO] to LNG?”

One destination is for it to be broken down in cokers, most of which are in the US, India or China. “The challenges and opportunities are different for each region,” says Dunphy. “It is an opportunity for US refineries as a lot of them have cokers⁠—a residue destruction unit that produces coke rather than fuel oil⁠—but a bigger challenge for European ones. If you have not already started to build a new coker by now it is already too late for the 2020-25 window.

“A new equilibrium will likely be found by 2024-5. In the intervening years, refineries that can capitalise stand to make a lot of money, but the flipside is that some are going to struggle. It depends on whether you have the right processes and configurations, and whether you are in the right part of the world.”

The problem will be partially alleviated in the medium to long term without a dedicated effort. There are several huge refining projects in the Middle East and Asia, at various stages of planning and construction, that will be fed by low sulphur ME crude and therefore produce LSFO. They can not open soon enough for the global shipping industry.

Source: petroleum

Shipping is a key user of the oceans, delivering more than 80 per cent of world trade, taking ferry passengers to their destinations and carrying millions of tourists on cruises. Annually, more than 50,000 seagoing ships carry between them more than 10 billion tons of vital and desired cargoes, including commodities, fuel, raw materials and consumer goods.

As the United Nations agency responsible for developing and adopting measures to improve the safety and security of international shipping and to prevent pollution from ships, the International Maritime Organization (IMO) has an integral role in meeting the targets set out in United Nations Sustainable Development Goal (SDG) 14: Conserve and sustainably use the oceans, seas and marine resources for sustainable development.

The increase in the number and the size of ships and the volume of cargo carried over the past five decades has gone hand in hand with the work of IMO, through its 172 member States, to create the legal and technical framework within which shipping has become progressively cleaner and safer. Of course, there remains work to be done. IMO will continue its efforts, in partnership with member States and other organizations, to implement and support the enforcement of its regulations.

Formed by means of the 1948 Convention on the International Maritime Organization, IMO initially focused on maritime safety and navigation. Then, in the 1960s, the world became more aware of the spillage of oil into the oceans and seas through accidents or as a result of poor operating practices. Spurred by major oil pollution incidents, such as the Torrey Canyon disaster off the south-west coast of the United Kingdom in 1967, IMO embarked on an ambitious programme of work on marine pollution prevention and response, and on liability and compensation issues. A key outcome was the adoption, in 1973, of the International Convention for the Prevention of Pollution from Ships, universally known as MARPOL.

From the start, MARPOL addressed not just pollution by oil from ships (covered in Annex I) but also noxious liquid substances, such as chemicals, carried in bulk (Annex II); harmful substances carried in packaged form (Annex III); sewage discharges into the sea (Annex IV); and the disposal at sea of ship-generated garbage (Annex V). Under Annex V, a general prohibition applies to discharging all garbage from ships, while discharging plastics is subject to a total, globally applicable ban.

Later, in 1997, IMO added a new Annex VI to MARPOL dealing with atmospheric pollution from ships. Today, Annex VI addresses air pollution from sulphur and other harmful emissions, such as nitrogen oxides and particulate matter. In 2011, IMO became the first international regulator for a transport sector to adopt globally binding energy efficiency requirements, which apply to all ships globally, regardless of trading pattern or flag State, aimed at reducing greenhouse gas emissions from international shipping.

MARPOL Annex VI also incorporates regulations for ozone-depleting substances, volatile organic compounds, shipboard incinerators, reception facilities and fuel oil quality. All these measures have a significant, beneficial impact on the atmospheric environment, and also on human health for people living in or near port cities and coastal communities.

Under MARPOL Annex VI, Emission Control Areas (ECAs) for sulphur oxide and nitrogen oxide emissions have been designated, with a strict 0.10 per cent by mass (m/m) limit on sulphur in fuel oil. In a move that demonstrates a clear commitment by IMO to ensuring that shipping meets its environmental obligations, the global sulphur limit out­side ECAs will be cut to 0.50 per cent m/m, from 3.5 per cent m/m, from 1 January 2020.

Today, the expanded, amended and updated MARPOL Convention remains the most important, as well as the most comprehensive, international treaty covering the prevention of both marine and atmospheric pollution by ships, from operational or accidental causes. By providing a solid foundation for substantial and continued reductions in ship-source pollution, the Convention continues to be relevant today.

MARPOL also recognizes the need for more stringent requirements to manage and protect so-called Special Areas, due to their ecology and their sea traffic. A total of 19 Special Areas have been designated. They include enclosed or semi­-enclosed seas, such as the Mediterranean Sea, Baltic Sea, Black Sea and Red Sea areas, and much larger ocean expanses such as the Southern South Africa waters and the Western European waters. This recognition of Special Areas, along­ side global regulation, is a clear indication of a strong IMO awareness of-and total commitment to-the fundamental importance of protecting and preserving the world’s seas and oceans as vital life support systems for all peoples.

The Antarctic has enjoyed Special Area status since 1992. Oily discharges into the sea and garbage disposal overboard are totally prohibited. In addition, a total ban on the carriage or use of heavy fuel oils took effect on 1 August 2011 under a new MARPOL Annex I regulation. Polar waters also benefit from special measures under the IMO Polar Code, which entered into force on 1 January 2017 for ships operating in both Antarctic and Arctic waters.

IMO also has a process to designate Particularly Sensitive Sea Areas (PSSAs), which are subject to associated protective measures, such as mandatory ship-routeing systems. There are currently 14 areas (plus two extensions) protected in this way, including those covering UNESCO World Heritage Marine Sites, such as the Great Barrier Reef (Australia), the Galápagos Archipelago (Ecuador), the Papahānaumokuākea Marine National Monument (United States of America), and the Wadden Sea (Denmark, Germany, the Netherlands). This long-established practice of designating Special Areas and PSSAs fully supports the SDG 14 target to increase coverage of marine protected areas.

While MARPOL specifically targets accidental and operational discharges from ship operations, IMO also actively addresses marine pollution from land-based sources, albeit indirectly, through the London Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter, 1972, and its 1996 Protocol. The Protocol adopts a precautionary approach, prohibiting the discharge of wastes at sea except for a few specified on a list of permitted wastes, such as dredged material.

The London Convention and Protocol regime also contributes to climate change mitigation by regulating for carbon capture and sequestration in subsea geological formations and providing regulations and guidance on how to assess proposals for marine geoengineering.

The process of adopting all these measures at IMO begins with structured fora, in which member States debate, agree and adopt universal measures aimed at safe and sustainable shipping with minimal adverse environmental impact.

The essential path to implementation then follows. IMO works with various stakeholders and partners to build capacity and expertise among its member States to write IMO standards into their own national maritime legislation, and then to implement and enforce that legislation effectively.

IMO has a long history of working with key donors, including the European Union, the Global Environment Facility (GEF), the Norwegian Agency for Development Cooperation, the Korea International Cooperation Agency, and shipping and maritime organizations such as IPIECA, the global oil and gas industry association for environmental and social issues.

A large number of marine environmental projects have been implemented, with support from a range of regional organizations, including the Secretariat of the Pacific Regional Environment Programme, the Regional Marine Pollution Emergency Response Centre for the Mediterranean Sea, the Regional Organization for the Conservation of the Environment of the Red Sea and Gulf of Aden, the Regional Organization for the Protection of the Marine Environment, the Commission on the Protection of the Black Sea Against Pollution, and the South Asia Co-operative Environment Programme.

IMO has pioneered a series of projects based on a global partnership model known as Glo-X, which is being used to accelerate legal, policy and institutional reforms in developing countries to implement international conventions while, at the same time, leveraging private sector partnerships to accelerate research and development and technological innovations by forming global industry alliances and facilitating information exchange.

The GloBallast Partnerships Project (2007-2017), a joint initiative of GEF, the United Nations Development Programme (UNDP) and IMO, has been successful in assisting developing countries in reducing the transfer of potentially harmful aquatic organisms and pathogens in ships ballast water and implementing the IMO Ballast Water Management (BWM) Convention. The BWM Convention will enter into force in September 2017 and will require ships to manage their ballast water to avoid the transfer of harmful aquatic organisms and pathogens, and protect the marine environment, human health, property and resources.

A second global partnerships project is the GEF-UNDP­IMO Global Maritime Energy Efficiency Partnership project (GloMEEP), which is working in 10 lead pilot countries (Argentina, China, Georgia, India, Jamaica, Malaysia, Morocco, Panama, Philippines and South Africa). It aims to create global, regional and national partnerships to build capacity to address maritime energy efficiency—in other words, to address greenhouse gas emissions from ships—and for countries to bring this into the mainstream within their own development policies, programmes  and dialogues.

Another current project, funded by the European Union, is the Global Maritime Technology Cooperation Centre (MTCC) Network (GMN), which is establishing a global network of five MTCCs in Africa, Asia, the Caribbean, Latin America and the Pacific. The aim is to help beneficiary countries limit and reduce greenhouse gas emissions from their shipping sectors. The project will encourage the uptake of energy efficiency technologies through the dissemination of technical information and know-how.

Through this network of MTCCs, the project will enable developing countries in these regions, and in particular, least developed countries and small island developing States, to effectively implement energy efficiency measures in maritime transport through technical assistance and capacity­building. Both the GloMEEP and GMN projects will support IMO member States in climate change mitigation, the key aim of SDG 13.

In other oceans-related partnerships, IMO is a partner in, and secretariat for, the Joint Group of Experts on the Scientific Aspects of Marine Environmental Protection (GESAMP), which advises the United Nations system on scientific components of marine environmental protection. GESAMP evaluates the environmental hazards of harmful substances carried by ships and reviews applications for “active substances” to be used in ballast water management systems, thereby providing inputs into the regulatory process at IMO. GESAMP also provides a systematic overview of new and emerging issues to inform its nine sponsoring United Nations organizations.

Recent key reports by GESAMP on microplastics in the oceans have contributed to the widening knowledge of the sources and fate of marine litter, specifically microplastics, in the oceans. IMO is also a co-lead for sea-based sources of marine litter, together with the Food and Agriculture Organization of the United Nations, in the Global Partnership on Marine Litter, which is managed by the United Nations Environment Programme.

The IMO track record in minimizing pollution from ships, both into the seas and oceans and into the atmosphere, speaks for itself. The Organization is fully committed to working through its member States and with its partners to continue to develop, maintain and implement a set of global regulations to ensure shipping’s sustainable use of the oceans.

Source: https://www.un.org/

A hastily adopted compromise decision that was taken without any impact assessment, despite the risk that it will negatively affect the environment and the health of Europeans.

In early April the International Maritime Organization (IMO) decided to abandon the fixed start date for the stricter Tier III emission standards that will apply to new ships when plying in NOx Emission Control Areas (NECAs). Instead, the IMO will replace the 2016 application date with flexible provisions for any NECAs established after that date.

The law on NECAs, including the 2016 application date, was adopted unanimously by the IMO in 2008 as part of the revision of MARPOL Annex VI, the global instrument that regulates air pollutant emissions from international shipping.

Under the original 2008 rules, all ships built after 1 January 2016 sailing in designated NECA waters would have to comply with stricter NOx standards. As a result of the change adopted on 4 April, only ships built after the adoption of a NECA would have to comply, which means that if a new NECA enters into force in 2020 for example, the Tier III standards would not apply to ships built in the four years 2016–2019.

The North American NECA, which has already been approved and adopted, will not be affected and here the Tier III standards will apply as from 2016.

However, over the last few years, the countries surrounding the Baltic Sea and the North Sea have been preparing submissions to the IMO in a move to get these two sea areas – which are both already designated as Sulphur Emission Control Areas (SECAs) – also designated as NECAs. The new amendment means that delays in the adoption of these, or any other, sea areas as new NECAs will result in even higher NOx emissions.

“The IMO’s decision to delay NOx regulations is a serious setback for efforts to tackle the biggest source of nitrogen oxides in Europe, which is an invisible killer causing cancer and lung disease,” said Bill Hemmings, programme manager for shipping at the green group Transport and Environment (T&E).

The outcome was, however, welcomed by Russia, which last year proposed a five-year delay for the entry into force of the Tier III NECA standards. Russia has for some time now also been blocking a decision by the Baltic Sea countries to submit the Baltic Sea NECA proposal to the IMO.

Some countries argued that without a delay for the Tier III standards for new NECAs, the prospect of having a NECA approved in the near future for the Baltic Sea would be slim, and that the same might apply to other prospective NECAs as well.

“It remains to be seen whether this decision will enhance the prospects for the establishment of NECAs in the Baltic and North seas. If such applications are not soon forthcoming, it may have the reverse effect of hastening the need for retrofitting of ships serving ports in Europe in order to curb growing emissions. We urge the Baltic and North Sea countries to submit their applications for new NOx emissions control areas as soon as possible,” Hemmings concluded.

The Clean Shipping Coalition pointed out that the decision risks bringing the IMO’s credibility as a regulatory body into question, making future negotiations at IMO more difficult and protracted, as negotiators will have no assurance that agreements made today will be respected tomorrow. Moreover, it may signal to shipowners and manufacturers of engines and after-treatment technologies that the IMO rulemaking process is arbitrary and that adopted IMO regulations cannot be relied on but should be treated as provisional only.

Source: airclim

Merchant shipping is one of the most heavily regulated industries and was amongst the first to adopt widely implemented international safety standards.

Regulations concerning shipping are developed at the global level. Because shipping is inherently international, it is vital that shipping is subject to uniform regulations on matters such as construction standards, navigational rules and standards of crew competence. The alternative would be a plethora of conflicting national regulations resulting in commercial distortion and administrative confusion which would compromise the efficiency of world trade.

IMO headquarters London

The shipping industry is principally regulated by the International Maritime Organization (IMO), which is the London based United Nations agency responsible for the safety of life at sea and the protection of the marine environment. The International Labour Organisation (ILO) is also responsible for the development of labour standards applicable to seafarers worldwide.

IMO has adopted a comprehensive framework of detailed technical regulations, in the form of international diplomatic conventions which govern the safety of ships and protection of the marine environment. National governments, which form the membership of IMO, are required to implement and enforce these international rules, and ensure that the ships which are registered under their national flags comply.

The level of ratification and enforcement of IMO Conventions is generally very high in comparison with international rules adopted for shore based industries.

The principal responsibility for enforcing IMO regulations concerning ship safety and environmental protection rests with the flag states (i.e. the countries in which merchant ships are registered – which may be different to the country in which they are owned).

Flag states enforce IMO requirements through inspections of ships conducted by a network of international surveyors. Much of this work is delegated to bodies called classification societies.

However, flag state enforcement is supplemented by what is known as Port State Control, whereby officials in any country which a ship may visit can inspect foreign flag ships to ensure that they comply with international requirements. Port State Control officers have the power to detain foreign ships in port if they do not conform to international standards. As a consequence, most IMO regulations are enforced on a more or less global basis.

Source: ics