AS OF 1 January 2020, the International Maritime Organization ruled that marine sector sulphur emissions must be cut by more than 80% in international waters. The implications of IMO 2020 will be felt across sea freight and beyond. At C.H Robinson, we welcome this positive step towards reducing the environmental impact of sea freight.
IMO 2020 sets a precedent for requiring the lowest levels of sulphur oxide content to date (less than 0.5%) in petroleum-based fuels, used by carriers throughout the ocean freight industry, as opposed to the current limit of 3.5%. The change is being implemented as a start to reduce our global impact on the environment, with IMO’s aim to reduce greenhouse gas emissions by 50% of 2008 levels by 2050.
There are three options for ocean carriers to ensure they comply with the new regulations –use low sulphur fuels (e.g. diesel) that contain less than 0.5% sulphur oxides (i.e. MGO, VLSFO), install exhaust cleaning systems (scrubbers) onboard shipping vessels to remove sulphur oxide emissions from high-sulphur fuels or to use a range of alternative fuels such as liquefied natural gas.
It is clear the industry is still adapting to the new measures, with the true impact of the regulations to be felt in the next few years. As expected, there has been an introduction of fuel surcharges to offset the changes that companies have had to make whichever option they chose to employ.
Rumblings of discontent
Unfortunately, not everyone in the industry is happy with the consequences of the regulations. More than 80 ports internationally have banned the use of open-loop scrubbers for ships operating in their waters. Because of this, shippers are more likely to either use compliant low sulphur fuel or close loop systems prior to entering the surrounding waters.
We feel the impact to C.H Robinson’s customers will be minimal since most Oceania trade will be conducted using compliant fuel or hybrid scrubbers that can be put into the closed loop format when required.
Other modes of transport
While the main focus of the regulations has been centred on the impact within the sea freight industry, C.H Robinson also has been monitoring the impact to other modes of transport such as air freight and road travel.
There is a possible tangible impact to the price of air fuel due to both diesel low sulphur fuel and jet fuel being made using kerosene. Therefore, an increase in the demand for diesel fuel has the potential to reduce the availability of middle distillates (kerosene), causing a spike in the costs of jet fuel. This increase would not only affect the cost of air freight but potentially commercial travel, making the cost of personal travel more expensive.
Connections with trucking
There have been some discussions on the impact of IMO 2020 to the trucking industry within North America. In the run up to January 2020, we did not noticed any impact to the trucking sector within Oceania however we can expect truckers and carriers to adjust their fuel surcharges in line with the market impacts and diesel supply.
Given fuel is a key global commodity, it will be interesting to track the market rates of both low-sulphur fuel and diesel prices to witness how the market is adapting to the changes required by IMO 2020.
A significant step
Despite the increased cost, the use of cleaner fuels is a significant step towards reducing adverse environmental impacts and should be viewed positively by the ocean freight industry. The reduction of sulphur emissions will help to provide benefits such as improved air quality, reduced risk for respiratory health problems and a reduction in acid rain and acidified water.
Industry leaders are continuing to innovate and change, with alternatives coming onto the market, as the world looks to implement positive environmental action. Several companies are taking this positive action one step further, such as CMA CGM’s announcement that it will cease utilising the Northern Sea Route in order to protect its unique ecosystems.
As industry around the world looks to making more environmentally responsible choices, the sea freight industry will need to continue to innovate and evolve in order to keep up.
* Andrew Coldrey is vice president Oceania at transportation and third-party logistics provider C.H Robinson
This article appeared in the January 2020 edition of DCN Magazine