Wallenius Wilhelmsen Logistics (WWL) released an article, informing that sulphur regulations are not getting a lot of attention from shippers at present, but that should change given that the cost impact of 2020 is expected to dwarf that of 2015.
WWL says that the decision to set 2020 as the start date for the 0.5% global sulphur cap has been widely welcomed for demonstrating that shipping and its regulator are prepared to make tough choices. But the IMO has set the shipping and refining industries a tough technical challenge of producing and sourcing the fuel necessary to meet the 0.5% sulphur maximum.
The far greater challenge is what happens when the resulting costs become properly understood. The experience of Emission Control Areas showed that these are not costs the industry will be able to absorb. Fuel accounts for between one and two thirds of the total cost base for most shipping companies and some reasonable assumptions about the premium, compared to heavy fuel oil, put the increase at anywhere between 40-70% for low sulphur fuel. As such it is hard to avoid the conclusion that, even if shippers have not felt the effects of sulphur regulation until now, they are more likely to feel it 2020.
WWL states that the solution is included in a deep knowledge of sulphur regulations and compliance options, together with a well-developed strategy for compliance and an open dialogue with customers. Shippers have an important role to play in ensuring that the global sulphur cap fulfils the health and environmental benefits it promises, in verifying the compliance of carriers.
Another biggest challenge leading up to 2020 is the uncertainty, as nobody knows what kind of fuel or other compliance options will be available or what the cost will be. To handle this uncertainty, WWL chose to spread the risk and increase flexibility. The WWL ‘four-stream’ approach- which refers to the continuous reduction of sulphur emissions across the company’s entire fleet- accepts that there will not be a one-size fits all solution, but pursuing a multi-stranded strategy gives the company the chance of managing risks and costs.
WWL adds that, from a shipper perspective, the worst situation would be working with a carrier who doesn’t see what the fuss is about and has done nothing to engage with the issue.
“Vessel owners that simply ‘wait and see’ not only put shippers at a disadvantage but also increase the risk of supply chain disruption for their customers. Starting the conversation early means having the best possible chance of mitigating the regulatory impact”.
Source & Image credit: WWL
