Shipping Cos Switch to Low Sulphur Fuels

From January 2020, the maritime industry is set to face great changes as vessels will only be allowed to use fuel with a maximum sulphur content of 0.5 percent.

The shipping industry is facing a radical transformation: Beginning on 1st January 2020, vessels will only be allowed to use fuel with a maximum sulphur content of 0.5 percent. The current standard is a sulphur cap of 3.5 percent. The so-called IMO2020 regulation is the largest in a series of International Maritime Organization (IMO) measures to reduce marine pollution. Using low sulphur fuel oil will be the key solution for the shipping industry and one of the main players, Hapag-Lloyd, has made announcements on how it will remain compliant.

This move by IMO has been welcomed by Hapag-Lloyd and is considered an important step towards setting uniform standards that will benefit both, the environment and people. At the same time and on the assumption that the spread between high sulphur fuel oil (HSFO) and low sulphur fuel oil (LSFO 0.5%) will be 250 US-Dollars per tonne by 2020, Hapag-Lloyd estimates its additional costs being around 1 Billion US-Dollars in the first years.

The new Marine Fuel Recovery (MFR) system created by the company enables a calculation of costs for our customers that is causal, transparent and easy-to-understand. The MFR mechanism is expected to be reviewed quarterly or monthly in case fuel price fluctuations are above USD 45 per tonne and takes into consideration various parameters, such as fuel costs, vessel size (basis: Market-class vessel), vessel utilization and route length.

The MFR will replace all previous fuel charges and be gradually implemented beginning on 1st January 2019. The amount of the MFR will be shown separately to the sea freight. The MFR is based on a formula that combines consumption with market prices for fuel oils.

The impact of the new regulation will become visible already in Q4 2019 as vessels have to start refuelling with the compliant fuels in Q4 2019 in order to fully be in line with IMO2020 as from 1st January 2020. Using low sulphur fuel oil is the most environmentally friendly solution in the short term and the good news in this is that the regulation will make the industry greener.