• DATVF.PHLCHI
    0.952
    -0.005
    -0.5%
  • DATVF.VNU
    1.488
    -0.028
    -1.8%
  • DATVF.VEU
    1.580
    -0.019
    -1.2%
  • DATVF.LAXDAL
    1.621
    -0.038
    -2.3%
  • DATVF.VWU
    1.596
    -0.081
    -4.8%
  • DATVF.VSU
    1.289
    0.018
    1.4%
  • DATVF.SEALAX
    1.095
    -0.106
    -8.8%
  • DATVF.ATLPHL
    1.825
    0.034
    1.9%
  • DATVF.LAXSEA
    2.098
    -0.056
    -2.6%
  • DATVF.CHIATL
    1.964
    -0.085
    -4.1%
  • DATVF.DALLAX
    0.958
    0.075
    8.5%
  • ITVI.USA
    10,452.210
    5.960
    0.1%
  • OTRI.USA
    8.020
    0.020
    0.3%
  • OTVI.USA
    10,470.200
    5.230
    0%
  • TLT.USA
    2.610
    0.000
    0%
  • WAIT.USA
    158.000
    8.000
    5.3%
  • DATVF.PHLCHI
    0.952
    -0.005
    -0.5%
  • DATVF.VNU
    1.488
    -0.028
    -1.8%
  • DATVF.VEU
    1.580
    -0.019
    -1.2%
  • DATVF.LAXDAL
    1.621
    -0.038
    -2.3%
  • DATVF.VWU
    1.596
    -0.081
    -4.8%
  • DATVF.VSU
    1.289
    0.018
    1.4%
  • DATVF.SEALAX
    1.095
    -0.106
    -8.8%
  • DATVF.ATLPHL
    1.825
    0.034
    1.9%
  • DATVF.LAXSEA
    2.098
    -0.056
    -2.6%
  • DATVF.CHIATL
    1.964
    -0.085
    -4.1%
  • DATVF.DALLAX
    0.958
    0.075
    8.5%
  • ITVI.USA
    10,452.210
    5.960
    0.1%
  • OTRI.USA
    8.020
    0.020
    0.3%
  • OTVI.USA
    10,470.200
    5.230
    0%
  • TLT.USA
    2.610
    0.000
    0%
  • WAIT.USA
    158.000
    8.000
    5.3%
BusinessFuelInsightsMaritimeNewsShipping

Commentary: Is the shipping industry ready for the new fuel mandate?

It better be…

In January 2020 new mandates handed down from the International Maritime Organization (IMO), an arm of the United Nations that writes and enforces global maritime regulations, go into effect concerning sulfur emissions from ships.

The new regulations are expected to affect around 60,000 ships currently in service. These ships will be required to reduce their sulfur emissions by over 80 percent. The most common way shippers intend to meet the target is by employing new low-sulfur fuel mixes, some of which are still under development. Other shipping companies are considering installing an exhaust cleaning kit called a scrubber. Similar to what is currently used in factories to clean particulates from their exhaust, the scrubbers will strip sulfur emissions from dirtier fuel. Though this seems like an optimal solution it is extremely expensive, costing from $1 million to $6 million per kit. A study from Finnish equipment manufacturer Wartsila, SEB Bank and shipping industry analyst Alpha Tanker states that by the beginning of next year over 2,000 ships will have these scrubbers. But when put in the context of the global fleet which numbers around 90,000 ships the number is minute. Altogether these changes are expected to cost the industry around $50 billion in the next few years.

The push for cleaner shipping is not just coming from the globalist UN. JPMorgan joined a group of other banks that includes Citigroup and French multinational bank Societe Generale in stating that it will now consider environmental and climate issues when deciding whether to issue new loans to shippers. The group has formed a lending framework called the Poseidon Principles which seeks to push money to environmentally friendly ships. So far the banks that have signed up to restrict financing for non-conforming shipping companies form a portfolio of around $100 billion within the industry, which accounts for about a quarter of the global ship financing market.

As usual, in regard to global environmental agreements, the largest polluters in the world, the Chinese, have not agreed to participate in the scheme. Chinese banks control about a quarter of all ship finance and possess more than half of global shipbuilding capacity. In 2017, over 235 million 20-foot containers came out of China. This number accounted for nearly one-third of global container traffic. To put it the leviathan into context, the next country on that list was the United States, which sent out less than one-quarter the number of 20-foot containers at 51.4 million units. Though they haven’t done so yet, it is expected that they will create a regulatory system similar to the Poseidon Principles in the next few years.

Some experts argue that as of now the shipping industry is ill-prepared for the new mandate. Currently the global shipping fleet uses around four million barrels per day of heavy fuel oil (HFO) which will be banned on January 1st, 2020. Norway’s SEB bank is predicting that 75 percent of the demand for HFO will disappear the next day. Shifts to sweet crude are expected because it is easier to refine sweet crude because it has less sulfur than the crude oil currently used for most shipping, which is called sour crude. This could cause a large shift in the demand for sweet crude, introducing a higher premium for other items refined from sweet crude, including jet fuel and diesel. A bidding war for sweet crude is expected as such a large demand will push the prices up. Roughly 90 percent of all trade done in the world is done by sea.

The environmental regulations will not stop with the IMO 2020 sulfur mandate. Insiders in the shipping industry fully expect new regulations to require ships to run on biofuels and hydrogen power in the future, though these models will probably take years to develop and catch on in the fleet. In addition to cutting sulfur emissions the IMO has set guidelines for ships to cut greenhouse gas emissions by 40 percent by 2030 and 50 percent by 2050. China is now the world’s largest producer of these byproducts, last year putting more carbon dioxide into the air than the United States and the European Union combined at over 9 billion cubic tons. The United States’ emits five billion cubic tons and the European Union’s three and a half billion cubic tons.

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Ben Thrower, Contributor

Ben contributes to the FreightWaves website as one of its Market Voices. Ben was a financial analyst at Dole Fresh Vegetables in Monterey, California focusing on the company’s extensive supply chain. He holds a Master of Science in Finance from the University of Utah and a Master of Science in Logistics Management from Georgia College and State University. In addition to contributing to FreightWaves, Ben is an instructor of business statistics and computer applications at the Wright School of Business at Dalton State College in Dalton, Georgia. In his spare time, Ben loves to travel and spend time with his dog, Bodhi.

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