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IMO 2020 & The Impact on Your Business

What is IMO 2020?

IMO 2020 is a rule by the International Maritime Organization geared towards cleaning up shipping emissions by reducing the Sulphur content in ships’ fuel oil by 85%. From January 1st, 2020, the limit for Sulphur in fuel oil used on board ships operating outside designated emission control areas will be reduced from 3.50% m/m (mass by means), from0.05% m/m. This regulation will require the largest reduction in the Sulphur content of a transportation fuel undertaken at one time.

High Sulphur fuel oil is essentially a waste product from simple refining process, which made it relatively inexpensive compare to other highly refined fuels. For the sake of perspective, in 2017 the marine sector consumed 3.8 million barrels of fuel per day, which was half or global fuel oil demand.

What IMO 2020 Means for the Shipping Industry:

Since only compliant fuels can be used, IMO 2020 Sulphur regulations have the potential to dramatically change the pricing and availability of fuel. Also, since compliant fuels are more costly, the price to ship ocean freight will increase causing a ripple effect across the global economy, as shipping costs are often calculated into pricing for products. This may also shift refineries to focus on compliant fuels, creating less supply of other types of fuel used in the transportation industry.

“In a full compliance scenario, we estimate the total impact to consumer wallets in 2020 could be around US $240 billion.” Goldman Sachs

What it Means for Your Business:

  • Everyone who has a business that relies heavily on importation of goods should expect an increase in shipping costs due to IMO 2020. OECD (Organization for Economic Co-operation and Development) estimates the impact for this to be $5 to $30 billion on container shipping, or a cost increase of 20-85% depending on fuel price changes and ship size/speed. The Ocean lines cannot absorb the significant increased cost from the new regulation and will have to pass the cost to the end-users.
  • As the demand for diesel fuel rises (which is a low sulphur fuel), expect fuel prices for domestic over-the-road shipping to increases.
  • Expect manufacturers to add the increase costs incurred to receive their goods into their prices.

 

Check out the International Maritime Organization (IMO) site here

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