With less than a year to go before the new IMO 2020 regulations come into effect, major shipping companies are moving to adapt their vessels to the new International Maritime Organisation (IMO) rules before 1 January 2020.
What is the IMO 2020 standard?
IMO 2020 refers to the new IMO regulations requiring ships to use fuel oil with a maximum sulphur content of 0.5% m/m, compared to the current 3.5% m/m, to reduce sulphur oxide emissions which cause environmental pollution and destroy the ozone layer.
How to comply with IMO 2020 regulations
Shipping companies are considering three possible solutions to adapt to the regulations, each one with its advantages and disadvantages.
- Using fuel oil with a maximum sulphur content of 0.5% m/m
- Authorised equivalent methods, i.e. the use of fuels with a higher concentration of sulphur combined with exhaust gas cleaning systems, known as ‘scrubbers’ which ‘clean’ the gases before they are emitted into the atmosphere.
- Other types of fuel with low or no sulphur content such as liquefied natural gas (LNG), and biofuels.
At first glance, the first option might seem the most economical and the simplest measure to apply as it does not involve a change in the infrastructure of ships. However, the availability of fuel oil with a sulphur content of less than 0.5% is not as high as that of other fuels so supply and demand could make it more expensive.
For this reason, shipping companies are not ruling out the other measures which would involve a higher initial investment to adapt ships but which, in the long run, may be more profitable.
What surcharges will be applied by shipping companies as a result of IMO 2020?
Investment by shipping companies, whether in fuel or in new infrastructure to adapt their ships, may end up being reflected in freight rates. The most common surcharges are:
- BAF (Bunker Adjustment Factor)
- EBS (Emergency Bunker Surcharge)
- BUC (Bunker Contribution)
- BRC (Bunker Recovery Cost)
BAF is generally used to adjust for fluctuations in fuel prices, while EBS, BUC and BRC refer to extra fuel-related costs.
Other surcharges that shipping companies may apply to recoup their investment in adapting to the regulations include MFR (Marine Fuel Recovery), FAF (Fuel Adjustment Factor), GFS (Global Fuel Surcharge), OBS (ONE Bunker Surcharge) and ERS (Emergency Risk Surcharge).
For the time being, there is still no noticeable increase in freight rates and services are being adjusted in terms of vessel space according to the scheduled demands of the market.