Virtually everything we buy emits sulphur to get it to the destination.
On today’s show we’re talking about a major shift in shipping that is not capturing major headlines, but will have a significant and measurable economic impact on global trade. 90% of the world’s trade is carried by ship. So anything that affects shipping is going to have an impact on the global economy.
One of the least regulated and dirtiest fuels has been the fuel used by cargo ships around the world. New global environmental regulations are requiring ships to use low sulphur fuel and ships are being forced to reduce their emissions starting Jan 1, 2020. Low sulphur fuel is more expensive than the predecessor bunker fuels. Most bunker fuel burned on ships is derived from the left overs, from the ”residue” that remains after all of the more valuable light fuels such as gasoline and diesel have been removed from crude oil in a refinery.
The tighter pollution rules by the International Maritime Organization, called IMO 2020, are set to take effect Jan. 1, 2020, resulting in the sulphur content limit of “bunker” fuel on ships dropping from 3.5 per cent to just 0.5 per cent. That means ships will have to either switch to alternative fuels, which could include marine gas oil, liquefied natural gas or biofuels, or install scrubbers to remove sulphur from exhaust gas.
It is estimated he emissions mandate taking effect at the start of 2020 will affect at least 60,000 vessels and cost the industry up to $50 billion, according to shipping industry insiders.
Cargo owners expect a significant jump in freight rates, which over the past five years have been hovering below break-even levels for vessel operators as a result of a glut of ships in the water and numerous price wars.
“If the extra costs related to low-sulphur fuel go to shipping companies and end there, it would result in bankruptcies,” according to Soren Skou, CEO of Moller-Maersk A/S, the world’s biggest container ship operator. Shipping executives expect to pay 25% to 40% more than they pay for bunker because of the higher cost for producing the fuel and setting up new distribution sites.
Be prepared for economic impact that will be either reflected in higher shipping costs, and ultimately higher prices at the checkout.