To navigate IMO 2020, carriers and shippers will need open dialogue. This report provides insight and a general overview of the issues in order to support better understanding and negotiations.
Takeaways
- Jan. 1 will mark the full implementation of IMO 2020 regulations reducing sulfur oxide emission from 3.5 percent m/m to 0.5 percent m/m.
- Carriers have several ways to comply with these new rules. Each method brings its own advantages, disadvantages, and cost implications.
- New emission standards will lead to significant improvements in pollution derived from ships’ emissions.
- Compliance will lead to an increase in operational costs, which carriers will attempt to pass on to shippers through new bunker formulas.
- 2019-2020 trans-Pacific contract negotiations will occur amid the uncertainty of this pending cost increase.
- Shippers should accept and endorse that the benefits of environmental improvements come with some increases in costs for low sulfur fuel, while engaging in a thorough dialogue and review of fuel surcharge trade factors with their carrier partners.
- Fuel costs already represent more than 50 percent of total operating expenses, and IMO 2020 poses an increase too significant for carriers to absorb and stay operational.
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