FEATURE | IMO 2020 low-sulphur rule exposes widespread concern about lack of fuel cost transparency

There is considerable unease among global shippers/BCOs (beneficial cargo owners) and freight forwarders ahead of the IMO’s 2020 global emissions regulations, due to come into force on January 1, 2020, according to a survey conducted by global shipping consultancy Drewry.

Particular uncertainty and concern was expressed by respondents in both the survey and follow-up interviews about carriers’ methods of fuel cost recovery with more than half of all respondents (56 per cent) stating that they did not consider their service providers’ existing approaches as either fair or transparent. Further to this, four in every five of the shippers/BCOs participating in the survey stated that they had yet to receive clarity from their providers as to how the widely anticipated future fuel cost increases, set to accompany the 2020 regulatory change, would be met.

Source: Drewry Supply Chain Advisors – IMO 2020 Low Emissions Regulation Survey – Sept 2018

Despite the significance of the change and the high press and media profile given to the subject in recent months, a surprisingly large proportion (33 per cent) of respondents to the Drewry survey admitted to having poor or very poor awareness and understanding of the new regulation.

In Drewry’s view, the level of uncertainty today as to the total cost impact is so large that nobody is able to provide a confident forecast of the cost of compliance; the only certainty is that the extra cost will run into billions of dollars globally come 2020. Based on independent “futures” prices, low-sulphur marine fuel prices per tonne will be 55 per cent higher than current high-sulphur fuels and Drewry considers that the probable “worst case” scenario is that fuel costs (paid by carriers) and fuel surcharges (paid by shippers) in global container shipping will increase by 55 to 60 per cent in January 2020.

“At Drewry we are always keen to listen to the concerns of the market and help facilitate dialogue between stakeholders on complex subjects of common interest like the IMO rule,” said Philip Damas, Head of Drewry Supply Chain Advisors.

“The IMO low-sulphur rule change represents a very significant, industry-wide, change event which will likely have far reaching effects on the global shipping industry for many years to come”, continued Damas.

“Given the scale of the extra costs triggered by the new regulation and the carriers’ expectations that their pricing and fuel charge mechanism with customers must be restructured, there is a need for carriers to address the transparency concerns expressed by their customers.”