American Lamprecht Advisory: IMO 2020

We want to keep you updated of the new regulations impacting our entire industry as of 1st JAN, 2020.

What is It?

The International Maritime Organization (IMO) has ruled that from 1st JAN 2020, that they will put a cap on Sulphur emissions for the marine sector in international waters. The marine sector will have to reduce Sulphur emissions by over 80% by switching to lower Sulphur fuels or by installing scrubbers. The current maximum limit for fuel oil Sulphur of 3.5 weight percent (wt%) will fall to 0.5 wt%. That is the largest one-time regulation in transportation fuel ever undertaken.

Why is everyone talking about fuel?

The marine sector consumes about 3.8 million barrels of fuel per day, responsible for half of the global fuel oil demand. The cost difference between IMO compliant and non-complaint fuels is significant. Ship operators that now need to change to a different fuel type, will now compete for fuel directly with truckers, railroads and airlines.

Who will be affected by IMO 2020?

It is expected to be a disruptor for the entire maritime industry. However, the level of impact is expected to vary from region to region, based on ship size, fuel cost and carrier readiness. The impact should start to be felt from Q4 of 2019 onwards. It is expected to last for a few years, as the shipping sectors adapt to the new rule.

What does IMO 2020 mean for our mutual business?

Growing demand for the new fuel type is likely to result in increased prices. The ocean carriers are unable to absorb the increased cost, so it’s expected that such costs will be passed on to the cargo owners. Based on that, either ocean freight rates will increase, or a surcharge will be implemented to recover such cost increases.

Will there be uniformity in the fee structure?

We are expecting to see a highly diversified way of carriers passing this cost along to the maritime industry. Therefore we are also expecting that there will be differences in amounts that Shipco will be forced to pass along to our customers. For FCL it will be a similar structure of how we are charged by carriers. For LCL shipments, we will review our average utilization and break the fee down to a CBM or TON additional that then is added to the invoice.

For additional information, please feel free to contact your local American Lamprecht Team.