The 0.5% sulphur cap on fuel content for the global maritime industry means the container-shipping industry will need to offset up to $10bn in incremental costs, starting January 1st 2020 according to a study from AlixPartners.
IMO 2020 regulations is promulgated by the United Nations’ International Maritime Organization (IMO).
A report from global consulting firm AlixPartners also said that the new fuel rule could expose carriers on just eastbound Asia-Americas routes plus Asia-Europe routes — which together account for about 20% of container-shipping volume globally — to up to $3bn in additional costs.
The report posited that, if last year carriers were faced with trying to countervail these new costs with customer surcharges, in order to maintain their 2018 financial results, carriers plying Asia-Europe routes would have had to increase their surcharges 40%, or $270 per 40ft equivalent units (FEU) of containerized cargo, while those on eastbound Asia-Americas routes would have had to increase surcharges 33%, or $150 per FEU.
“This year, to say the least, is going to be a turbulent year for the container-shipping industry as it braces itself for the implementation of ISO 2020 next year,” said Esben Christensen, global co-leader of the Transportation and Infrastructure practice at AlixPartners and a managing director at the firm.
“This new challenge, on top of the industry’s steady expansion of fleet capacity and its dramatically increasing financial leverage, will likely further constrain carriers’ room to manoeuvre,” Esben added.
AlixPartners 2019 Global Container Shipping Outlook found that, among listed companies globally, the industry’s debt-to-EBITDA ratio had skyrocketed to 10.1 for the 12-month period ending September 30th, 2018, up from 7.5 in 2017. This increase, said the report, was the result of declining profit margins coupled with increased debt to finance acquisitions and fleet expansion — a global fleet that has increased today to almost 23m TEUs.
The study’s analysis of the 26 largest logistics companies globally with publicly available finances found that only 11% of them improved their EBITDA margins by 50 basis points or more in the trailing 12 months ending September 30th 2018 vs. 2017, while almost half (46%) saw those margins decrease over that same timeframe.
Meanwhile, Auramarine, a provider of fuel supply systems for the marine and power industries, has urged the marine sector to look beyond just the initial choice of compliance solution ahead of the impending 0.5% global sulphur cap, and to fully understand the operational impact of using and switching to new low sulphur fuels and distillate products. Without this understanding or by not using best-in-class fuel supply systems, ship owners and operators risk engine damage and potentially catastrophic failure, as well as unexpected costs and unplanned downtime, Auramarine said.
Auramarine has launched a ‘Get ready for 2020’ initiative, issuing a call to action for owners and operators to drive and encourage them to implement strategic forward planning to protect the future of their vessels and operations. It said that now, more than ever, it was crucial for ship owners to work with knowledgeable experts, allowing them to foster an understanding of how best to mitigate risks and minimise disruption, downtime, and unexpected costs and delays.
When the 2020 regulation comes into effect, the majority of owners and operators were expected to comply by switching from high sulphur fuel oil to new very low sulphur fuel oils (VLSFOs) with a sulphur content at, or below, 0.50%, unless their vessels are equipped with scrubbers.
When switching fuels, issues arise when different fuels are present in the same pipes and tank, thereby causing issues with compatibility. This typically results in sludging and blockages in bunker and service tanks, pipe runs, filters, separator internals, and fuel injection equipment; all of which can have a serious detrimental effect on the health of the engine.
Ole Skatka Jensen, Chief Executive Officer, Auramarine, said: “Assessing new technologies or practices is only the first step on the journey towards safe, efficient and compliant operations in a post-2020 environment. Ship owners also need to consider the potential impact that these significant operational changes will have on engines and therefore vessel performance. It is crucial that ship owners thoroughly evaluate the exact needs of their vessels at the outset of assessing which compliance solution they will employ, and set in place an efficient and effective fuel supply system that will not only protect the operational integrity of the vessel but also their profitability.
“Whichever compliance solution is employed, effective and comprehensive management of fuel supply and fuel switching, combined with proactive condition monitoring, can ultimately become the difference between a safe, complaint and efficient vessel, and unintended downtime, lost profitability and potentially catastrophic engine damage.”