The International Maritime Organization (IМО) has been developing a program to reduce the negative impact of shipping on the environment since the 1960s. From January 1, 2020 the IMO’s official decision to reduce the maximum allowable sulfur content in fuel comes into force. What does this mean for the shipping industry and maritime freight market? Let’s find it out with Mykolas Tokarenko, Head of the AsstrA Baltics & Belarus Sea Freight Division.
Mykolas, what will happen to shipowners at the beginning of 2020?
In April 2018 at the International Maritime Organization’s London headquarters, the organization’s 100 member-countries made a formal decision to reduce the maximum allowable sulfur content in fuel used by ships from 3.5% to 0.5%. This decision was adopted in response to the world’s deteriorating environmental situation. The transport sector – with shipping in particular – negatively affects the environment due to the large amount of harmful substances such as sulfur and carbon dioxide released into the Earth’s atmosphere. Shipping companies are obliged to find solutions to meet the new IMO requirements.
What options do shipowners have?
The first option is to improve ships by equipping them with special treatment filters called scrubbers. In this case, it is possible to continue using high-sulfur fuel oil. The negative impact on the environment will be reduced by cleaning the exhaust gases.
The second option is switching to a low-sulfur fuel like liquefied natural gas. In Europe, ships already use such fuel. When using liquefied natural gas, additional treatment facilities are not needed. However, it is necessary to create refueling infrastructure. This is a new technology and it is still expensive in the maritime shipping sector.
Will the technical refitting of ships affect the shipping market in the Baltic region?
The Baltic Sea is actively used for sea trade. The IMO is closely monitoring the environmental situation in the area. The Baltic Sea has been a Sulfur Emission Control Area (SECA) since 2015. Reducing the sulfur content of the fuel used here will have a positive impact on the environment.
According to a study by Swedish bank SEB, by 2020 less than 2,000 of the 60,000 vessels in the Baltic merchant fleet will be equipped with scrubber systems. Installing scrubbers is a significant financial investment in technology and takes time. If some shipowners go this way, for a certain period of time there will be a shortage of vessels. Ships will be at shipyards for refitting and will not make regular voyages. Taking into account the production capacity of existing scrubber manufacturers, there will be a supply shortage in coming years. Low-sulfur fuel prices will go up and will provoke an increase in transportation rates.
The process of reducing sulfur emissions is not the only factor leading to higher shipping prices. Brexit, a trade war between the US and China, and an economic slowdown in key EU countries like Germany are also affecting the overall economic conditions and transportation costs. At AsstrA-Associated Traffic AG, we have our finger on this pulse and are very sensitive to global geopolitical changes.