IMO < Expense Reduction Analysts

 

Does IMO 2020 present concerns or opportunity for your organization? As with most things in business, the answer is: it depends.

Up to 90% of global trade moves in the approximately 51,000 ships that compose the world fleet. At the same time, insatiable demand for the fuel that propels maritime global trade is estimated at 2.1 billion barrels annually – that’s 244 million gallons each day! The noxious emissions, mostly sulfur oxides, have become a considerable environmental concern. Serious negative impacts to the environment, including an adverse effect on global health, occur when these emissions are discharged into the atmosphere.

IMO 2020 is a ruling from the International Maritime Organization that requires marine sector emissions in international waters be greatly reduced. To accomplish this, the marine sector will need to reduce sulphur emissions by over 80% by switching to lower sulphur fuels. The current maximum fuel oil sulphur limit of 3.5 weight percent (wt%) will fall to 0.5 wt%. IMO 2020 regulations will see the largest reduction in the sulphur content of a transportation fuel undertaken at one time.

This is a big deal because in 2017, the marine sector consumed 3.8 million barrels per day of fuel oil – half of global fuel oil demand. Therefore, sulphur regulations have the potential to be highly disruptive to the pricing and availability of compliant fuels.

We can expect a few things with the new regulation in place (as of January 1, 2020). In very general terms, look for the following:

  • The costs of ocean going freight will increase. The marine sector will be forced to use more costly fuels, so multiple industries will feel the impact for the next few years.
  • The growing demand for fuels such as diesel and jet fuel will result in upward price pressure. Many end-user products that rely on these fuels in the supply chain will be more expensive. Plan for higher-priced plane tickets!
  • The steel sector will see higher costs as freight rates for raw materials go up.
  • There will be impacts to many industries, even those we may initially overlook as directly impacted. For example, increased competition for low-sulphur crude oil that is needed to make needle coke (a key component used to produce electric cars) is likely to drive up the overall cost of electric vehicles.

Unfortunately, according to a report from Logistics Management, 80% of their study respondents claimed they had done no analysis or forecasting related to the impending impact of IMO 2020 on their business. Since the deadline for compliance is mere weeks away, this regulation is something any player in the supply chain, logistics, or shipping industry should be pondering.

1 IMO 2020 is Coming to Town: Will the Spiking Cost of Fuel Cause You Pain? by LM Staff