New sulfur regulations to affect global shipping industry-report

[dropcap]T[/dropcap]he Global shipping industry is set to be affected significantly following plans by the International Maritime Organization (IMO) to implement new sulfur regulations, a new report has shown.

The report by A.T. Kearney Global Business Policy Council’s Year-Ahead Predictions 2019 notes that on January 1, 2020, the IMO will enforce a ban on ships using fuel that has a sulfur content of 0.5 percent or higher (see figure 3).

Ships will have the option to purchase “scrubbers” to reduce emissions from higher-sulfur fuel, but because the cost is between $1 million and $10 million per ship, it is not surprising that less than 3 percent of the global fleet has made this investment.

The new regulations are part of the IMO’s effort to reduce the shipping industry’s greenhouse gas emissions by 50 percent from 2008 levels by 2050. They will set a new global standard for shipping fuel, with the exception of the stricter sulfur limit of 0.1 percent in the existing Emissions Control Areas (ECA) in North America, the Caribbean, the Baltic, and the North Sea.

Given the low level of readiness to comply with these regulations, the global shipping industry will undergo a disorderly and disruptive transition to the new environment in 2019. The implications will go far beyond the shipping industry.

With every month that passes, prices for a variety of fuel types—including high and low sulfur bunker fuel, diesel fuel, and jet fuel—will be more volatile as refiners and fuel purchasers pursue a pricing advantage before the January 1, 2020 deadline.

Ship owners are already sounding the alarm about fuel scarcity and the estimated $60 billion in additional fuel bills (equal to the total industry fuel spend in 2016). Some of the largest crude oil tankers could see a 25 percent increase in shipping costs, resulting in higher oil and gas prices for consumers.

In fact, higher seaborne freight costs for all goods will raise prices for companies and households around the world by the end of 2019. And while the disruption to the global shipping industry will begin in 2019, the drama will continue to unfold in 2020.