Low awareness of upcoming sulphur regime among shippers

It seems a large number of shippers, beneficial cargo owners, and freight forwarders lack information with regard to the upcoming IMO imposed sulphur cap 2020.

According to a Drewry survey published last week 80% of respondents in the sector categories outlined above, stated they had not received clarity from the shipping lines as to how the fuel cost increases that will coincide with the fuel switch would be met. Further, some 56% of respondents maintained that carriers had thus far been neither fair nor transparent about how they would recover the cost of the low sulphur fuel.

Drewry noted that, “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%) 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% 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 55-60% in January 2020.”

“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”, said Philip Damas, head of Drewry Supply Chain Advisors. “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.”

In cooperation with both shipper members of the Drewry Benchmarking Club, and possibly carriers as well, Drewry is working on an IMO low-sulphur rule ‘cost impact tool’ based on robust market data. Fuel surcharges are one of the largest components of container freight costs and, based on Drewry Benchmarking Club data, typically average $150/teu on the major routes from Asia today.

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