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Ocean Shipping Rates To Increase In 2020
The International Maritime Organization (IMO) rule requiring the use of low-sulfur bunker fuel will become effective January 1, 2020. This new ruling is predicted to increase the cost of fuel from 40 – 100 percent. In dollar and cents, that’s an increase of 5 - 30 billion dollars. The severity will depend upon the price of crude at the time of implementation. The price of 1 percent sulfur content fuel in 2014 was $635 per metric ton versus the 0.1 percent sulfur content was $937. The 3 percent was $562.
Currently, the sulfur content of fuel burned is 3 percent. With the new ruling the sulfur content cannot be more than 0.5 percent.
The IMO consist of 172 member nations. More than 100 countries will be affected by this ruling. With so many players there is a concern regarding the enforcement of the procedure. As the ruling is implemented, there is also concern about the initial availability of the fuel with a 0.5 percent sulfur content.
This is not the first time that carriers were required to use lower sulfur content fuel. In 2012, countries in North America and North Europe implemented emission control areas (ECA). The ECA was the area within 200 miles of their coastlines. Initially the cap was at 1 percent sulfur content. In 2015, it was further reduced to 0.1 percent sulfur content.
Worldwide, there are about 620,000 kilometers (372,000 miles) of coastline. The world's five oceans, plus a number of smaller seas such as the South China Sea, the Caribbean Sea and the Mediterranean Sea are approximately 135 million square miles.
With the ECA, the number of shoreline miles was minimal in comparison to the number of ocean miles that a carrier will travel. A trip from Beijing, China to Los Angeles, CA, USA is over 6,200 miles. The lower sulfur content fuel will have a huge impact on the carrier’s operating expenses and the shippers will undoubtedly see these higher fuel costs incorporated into their freight rates. Carriers will also adjust using the bunker fuel surcharge.
Allyn Contributor: Pamela Leever
References:
https://science.nasa.gov/earth-science/oceanography/living-ocean
http://www.earthtimes.org/encyclopaedia/environmental-issues/oceans/#CVZXBcX1mTx7B0Gq.99