will low sulfur shipping fuel costs increase shipping rates?
TRANSCRIPT
Will Low Sulfur Shipping Fuel Costs Increase
Shipping Rates?
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One of the most important events in the world shipping industry was
the International Maritime Organization's October 27th, 2016 announcement formally adopting rules to cut the amount of sulfur
allowed in bunker fuel.
S&P Global Platts reported in September 2017 that Ultra low sulfur bunker fuel in Rotterdam, for example, hit the highest assessed level since the S&P Global Platts assessment began in September 2015.
The IMO's Marine Environment Protection Committee set
new requirements requiring sulfur emissions to drop from
their current maximum of 3.5 % to 0.5%.
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The introduction of the sulfur cap has, as anticipated, caused much discussion among players regarding compliance.
However, sources of S&P Global Platts do not believe that companies are preparing early for the implementation of the regulation.
Well everybody is talking about [the sulfur cap], but nobody knows what to
expect or what the best solution is...the common strategy for now seems to be
'wait and see,
- A trader said to S&P Global Platts
S&P Global Platts reported in September 2017 that Ultra low sulfur bunker fuel in Rotterdam, for example, hit the highest assessed level since the S&P Global Platts assessment began in September 2015.
Shipping Isn't So Green
The shipping industry accounts for more greenhouse gas emissions than airplanes, buses or trains, and with some 90% of world trade transported by sea, the shipping industry is among the world’s biggest sulfur emitters; the sulfur oxide content in heavy fuel oil up to 3,500 times higher than the latest European diesel standards for vehicles.
The IMO decision reduces the the
shipping industry's share of the world’s
air pollution from some 5% to 1.5%, which is expected to save millions of
lives going forward.
Industry spokesmen were predictably outraged. The fuel change will add
extra shipping fuel costs as the shipping industry tries to survive
their worst downturn.
Shipping Lines Must Use Buying Power
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change your logistics business:
The shipping industry accounts for more greenhouse gas emissions than airplanes, buses or trains, and with some 90% of world trade transported by sea, the shipping industry is among the world’s biggest sulfur emitters; the sulfur oxide content in heavy fuel oil up to 3,500 times higher than the latest European diesel standards for vehicles.
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The world is awash in oil. Oil companies, both private and national, are desperate for new markets, as are the independent refineries who process crude oil.
Xeneta's research shows the shipping companies currently use some 3 million barrels-per-day of high-sulfur fuel oil (HSFO 380, sulfur 3.5%).
Assuming 7.33 barrels per metric ton, that's 409,267 metric tons per day of high-sulfur bunker fuel that needs to be replaced by ULSFO (Ultra Low Sulfur Fuel Oil, sulfur 0.10% max).
UBS says the world shipping industry uses 4% of the world's oil annually.
So today, where crude oil faces long-term competition from natural gas, renewables, bio-mass, and other, yet-to-be invented technologies, surely the shipping industry cannot fail to use this buying power to negotiate-down the premium (currently approx US$ 117 / MT) for ULSFO over HSFO)?
Every ship will be required to use low-sulfur bunkers, so the extra cost for ULSFO can be passed along to their shippers as higher rates, who will pass it along to the end buyers
These new low-sulfur rules do not have to be an issue for shipping companies – unless they fail to take advantage of the only commodity worldwide that's in worse shape than they are.