Shipping is a relatively sustainable and energy-efficient form of transport; yet, given the volume of goods carried across the World’s oceans, its environmental impact is being increasingly scrutinised. Several global measures have been adopted by the International Maritime Organisation (IMO) over the years to reduce shipping’s negative impacts and, in particular, its effects on air quality. More stringent rules will be in place as of 1 January 2020, the date at which the limit for sulphur in fuel oil used on board ships operating outside designated emission control areas will be reduced to 0.50% m/m (mass by mass). This will generate a tangible reduction of shipping’s negative environmental impacts but will come at a cost, which is already being passed on to shippers. In this article, Pauline Bastidon, FTA’s Head of Global and European Policy, discusses the need for the fuel regulation and its effect on the industry.
Currently, the majority of ships use heavy fuel oil – a by-product of crude oil distillation. As a result, the fuel contains large quantities of sulphur which is harmful to both human health and the environment. To comply with the new regulation, the levels of sulphur in marine fuel oil must be reduced by around 80%, to ensure the sulphur content is no higher than 0.5% (mass percentage). There are several ways this can be achieved, including using the compliant low-sulphur fuel oil or, if you are using a fuel oil that exceeds 0.5% sulphur, using an Exhaust Gas Cleaning system – also known as a ‘scrubber’. All methodologies used come at a cost to shipping lines – although the cost of low-sulphur fuels is expected to decrease over time – and, as a result, most shipping lines have started to develop bunker adjustment factors, with which they intend to recoup their costs with their customers.
FTA is a central, founding member of Global Shippers Forum (GSF), the world’s leading trade association for shippers, and is concerned about the both the principle of surcharges itself and the lack of transparency regarding the real cost of adaptation for shipping lines. Not all compliance solutions come at the same cost:
The purchase of scrubber requires high initial investment but allows shipping lines to avoid paying extra for more costly alternatives to IFO380 intermediate fuel oil.
On the other hand, the use of Low Sulphur Fuel Oil (LSFO) 0.5S or alternative fuels does not require such a significant initial investment but is expected to be roughly 30%* more expensive initially – with the cost differential decreasing over time.
It is vital for those purchasing capacity on ships for their cargo, or that of their clients, to be able to understand what measures are being adopted and what costs shipping lines are incurring as a result of this regulation. This will enable the avoidance of excessive surcharging – something GSF has been a long-term campaigner against. Vessel sharing agreements are making it even more complicated for shippers to get an accurate estimate of the costs actually incurred by shipping lines. FTA and GSF are therefore calling for more transparency on the part of shipping lines and encouraging shippers to ask questions about the methods used by their service providers and keep an eye on the price of LSFO0.5S and alternative fuels.
More transparency should also lead towards a shift onto all-inclusive rates, with no negative surprises for shippers. This is a long-standing campaign objective of both FTA and GSF, and while both organisations understand the need for environmental action, it sits alongside the urgent need for pricing transparency as well as all-inclusive prices for shippers.
Efficient logistics is vital to keep Britain trading, directly having an impact on more than seven million people employed in the making, selling and moving of goods. With Brexit, new technology and other disruptive forces driving change in the way goods move across borders and through the supply chain, logistics has never been more important to UK plc. A champion and challenger, FTA speaks to government with one voice on behalf of the whole sector, with members from the road, rail, sea and air industries, as well as the buyers of freight services such as retailers and manufacturers.
Pauline Bastidon, Head of Global and European Policy, FTA
*According to estimates by Drewry (September 2019)