Low Sulphur Rules

Low Sulphur Rules

The International Maritime Organization is putting into place worldwide low-sulphur rules for shipping fuel. These low sulphur rules take effect 1 January, 2020.

The new rules mandate that sulphur will not make up more than .5% of fuel burned by ocean going ships. Presently, ships can burn fuel that contain sulphur as high as 3.5%. The IMO says that by cutting the sulphur content so much, they’ll save about half a million lives worldwide in 5 years (2020-2025). The number of lives affected is so high not just because of the number of ships on the seas, but also because of the absolutely huge engines that burn the fuel that powers the ships.

Low Sulphur Rules
Ship Engine freshly completed by Wartsila’s shop.

The effect on the shipping industry is not so sanguine. Estimates are that this new fuel will cost about 40-60 percent more than present fuel does. Considering that shipping costs are a function of just two factors and one of which is fuel, the cost to ship could increase by about the same percentage. Needless to say, the ship owners are worried and anxious about how the consumer will react to these added costs.

For the fuel industry market, they worry about a glut of high sulphur fuel. Essentially, at the stroke of midnight on December 31, 2019, an entire customer base is going to be erased. And worse yet, there are fears that come morning on January 1st, 2020, there simply will not be enough low sulphur fuel to meet market demands.

For some of the commercial (as opposed to retail) buyers of the freight, i.e. the project freight forwarders and their customers, the expectations are just as unclear as for the other parties. How much will shipping cost anyway? When exactly will new sulphur fuel be used?  As to the former, major projects are costed out months in advance. No one can guarantee shipping costs when fuel markets are volatile. But most parties have grown to expect some kind of indication for freight costs 6 months out, all things being equal. This assumption is being challenged by these low sulphur rules and the uncertainties they pose. With respect to the question of when the actual rules take effect, considering that ships must burn the new clean fuel as of 12:00:01 AM January 1st, their bunkers must be replaces sometime in advance of that. Texas International Freight is being advised the de facto start date of the new low sulphur rules is 1 November, when ships will start fueling with the new product.

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