2020 will set the beginning of a new international maritime industry

Monday, September 30, 2019

The measure implemented by the International Maritime Organization (IMO), regarding the maximum level of sulfur emissions allowed for ships (IMO 2020), leaving a maximum of 0.5% against the current standard with a sulfur content of 3.5%, subjects the international maritime industry to one of the most daunting challenges in its most recent 250 years of history.

However, this strict IMO emissions rule will result in significant improvements in the ecological impact for the shipping industry.

Based on the assumption that the spread between high sulfur fuel (HSFO) and low sulfur fuel (LSFO 0.5%) is approximately $250 per ton, it is estimated that by 2020 the overall impact on the international maritime industry will be around $60 trillion during the first year after enforcing the norm.

In September of this year, shipping lines will begin to adjust, apply and standardize the levels of surcharges of the new type of fuels in the different charter contracts, quotations, economic offers, among others, which will generate upward economic pressures on the freight levels of the market offered.

On the other hand, companies must accelerate the process of conditioning their ships in dry docks, according to the technology they decide to use for each case (new fuel up to 0.5%; alternative fuels: LNG/Methanol; or finally the implementation of fuel filters or “Scrubbers”). This will imply important subtractions in the supply capacity of spaces in the market.

The first two quarters of 2019 have already experienced significant delays in the dry docks in correctly placing the filters, facing delays ranging from 30 to 6 days in the placement of fuel filters in a manner appropriate to the fleet served.

With both factors, the following is expected:

  • Pressure on the wing of the freight levels because of the adjustment of the new fuel calculation formulas to be applied with a view to the implementation of IMO 2020.
  • Less capacity to offer space in the market, the reason for the processes of preparation of ships to comply with the norm.

And if that was not enough, there are three factors that, if added to the current situation, could become worrying:

  • The time period between October and April is a high season for refrigerated cargo in Latin America, which historically generates a very important demand for space and, above all, electrical sockets for refrigerated cargo (plugs) in the market.
  • The high season of Christmas products consumption and the end of the year, which start between September and November.
  • Finally, the Chinese New Year, in February. This celebration, in a cyclical manner, places great pressure on the demand for space in ships during the months of December and January to be able to deliver and dispatch all the orders that, for almost four weeks, will cease to produce in that continent, resuming shipping in March.

These three factors become an important pressure point to increase the levels of freight offered by shipping lines in the market. For this reason, strategic planning will be key to the complex world panorama.