IMO 2020/MARPOL/LOW SULPHUR FAQ

The IMO is the United Nations agency responsible for implementing global maritime regulations after they are ratified by a number of member states. On Oct. 27, 2016, its Marine Environmental Protection Committee (MEPC) agreed to implement a global 0.5 percent m/m sulfur oxide emissions limit, effective Jan. 1, 2020

This is the regulation, effective 1st January, where shipping lines have to use a fuel that does not exceed 0.5% of sulphur. The regulation will apply globally and throughout the industry to fuels used in the open sea. It will affect vessel operators, refineries, and global oil markets. In the Environmental Control Areas (ECA zones) an even stricter regulation remains, limiting the sulphur content to 0.1%.

This is the fuel oil that vessels have to use effective 1st January. It has to be limited to a maximum of 0.5%

In some areas, Europe, USA & China, fuel oil has to be limited to a maximum of 0.1% of sulphur.

Approved Guidance for port State control on contingency measures for addressing non-compliant fuel oil. The guidance covers possible actions to be taken, following discussions between ship, flag State and port State, when a ship is found to have on board non-compliant fuel oil either as a consequence of compliant fuel oil being not available when the ship bunkered fuel oil or the ship identifying through post bunkering testing that the fuel oil on board is non-compliant. For example, in the USA this will be regulated by the US Coast Guard. The Maritime Authorities of the Paris and the Tokyo Memoranda of Understanding (MoU) on Port State Control.

We anticipate minor changes to capacity, but nothing so significant it would disrupt global supply chains. A few ships will need to be sent to yards to have scrubbers fitted — a process that takes six to eight weeks.

For now, the use of fuel oil on board the ships is unavoidable. Oil prices are quite volatile, and in order to counter the fluctuations in oil prices, the shipping lines charge Bunker Adjustment Factor (BAF) as a surcharge on top of the ocean freight.

This BAF is usually aligned with the movement of the oil prices much like the fuel for our cars. When oil prices go up, BAF goes up and when oil prices come down, BAF also comes down.

While BAF is designed to recover increases in bunker related costs the compliance costs have not been catered for by any of the shipping lines.

This additional surcharge being charged by the shipping lines is to cater for these compliance costs.

Our ultimate goal is to offer best in class services without disruptions at competitive prices. We will provide you with up-to-date, transparent information which will enable you to be prepared to successfully solve any challenges that arise from the implementation of IMO 2020. We will do all possible in assuring full transparency in fuel consumption reflecting individual trade factors per TEU.

Yes, the cost of fuel will increase as we draw closer to the effective date. Once the IMO regulations are in effect, we believe low-sulfur fuel will be in high demand and tight supply.

We anticipate a December 1 implementation. The carrier cost will gradually be incurred but peaking in December as we approach the IMO 2020 effective date. Carriers will have to use the Low Sulphur grade fuel latest December for 1st January compliance.

By default, all fuel prices in the contracts are variable, i.e. they follow the upward or downward movement of the oil price. From the fourth quarter of 2019 we will switch to the IMO 2020 compliant fuels VLSF / MGO for the BAF calculations, which tend to be more expensive than the Heavy Fuel Oil (HFO) currently used.

We believe that we are one of the first in the market to advise a clear strategy although we cannot detail the additional cost yet. We want you, our customer, to be fully prepared for the eventuality. The rest of the industry has to respond and all sectors of our industry will have to increase costs. There will be no NVOCC not increasing costs.

Our competition are free to structure their pricing as they see fit. If they do not announce or increase fuel surcharges then they will make an adjustment to the Ocean Freight. At VLS we believe it is much more transparent to our customers if we have a floating fuel surcharge (VFS).

Yes, we will follow the carrier’s cadence on updating the surcharge. Some lanes will be rationalized monthly, quarterly or even bi-annually.

We work with a Core carrier programme who apply similar ‘trade’ logic. We are also analysing current fuel costs to these carriers, using weighted averages and will fully understand our increased fuel costs when the impact of IMO 2020 is seen. We are confident that we will only recover the additional cost we pay to the carriers and we will remain at the competitive edge of pricing.