Shippers face uncertainty over sulphur regulations

Monday September 16 2019

A ship delivering cargo.

A ship delivering cargo. New regulations require ships to use fuel with a sulphur content of 0.5. per cent m/m. PHOTO | FILE | NATION MEDIA GROUP 

NJIRAINI MUCHIRA
By NJIRAINI MUCHIRA
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The shipping industry has intensified lobbying for the postponement of strict sulphur regulations adopted by the United Nations International Maritime Organisation (IMO) in 2016.

Set to be implemented by January 1, 2020, the rules will enforce the use of cleaner fuel, but are expected to have a far-reaching impact on global trade, especially financially.

The IMO is opposed to the postponement because an amendment of the treaty would take a minimum of two years. The January 1 date is set in the Marpol Treaty, which is the international convention for the prevention of pollution from ships.

PRICE INCREASE

In East Africa, importers are facing a possible increase in prices because landed costs of products are set to surge as shipping lines pass on the additional costs that will come with the use of low sulphur fuel.

Eighty per cent of all imports into the region come by sea. The aviation industry is also apprehensive of a possible rise in jet fuel prices, with the International Air Transport Association warning of an uncertain future.

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The new IMO regulations require ships to use fuel with a sulphur content of no more than 0.5 per cent mass by mass (m/m); the current limit is 3.5 per cent.

The move aims to reduce the amount of sulphur oxide from ships leading to health and environmental benefits particularly for populations living close to ports and coastlines.

Studies show that air pollution from ships has led to rising cases of respiratory diseases.

With the IMO ruling out any possibility of extending the implementation date, analysts are predicting upheavals across the whole import/export value chain and in key industries like aviation, manufacturing, mining, oil, building and construction because of their heavy dependence on the shipping industry.

“This is a purely environmental issue and we believe shipping lines will be justified to pass on the costs. It’s a development we intend to follow keenly, and work with partners to take appropriate measures,” said Gilbert Langat, chief executive of the Shippers Council of Eastern Africa.

To comply with the new regulations, marine vessels will either need to install exhaust gas cleaning systems known as scrubbers, or switch to low sulphur distillate fuels or low sulphur fuel oils.

According to Mr Langat, if ships opt to invest in scrubbers, a one-off investment, then there would be no justification to pass on the costs that would lead to a surge in landed costs of products.

“If vessel owners decide to upgrade their ships then we have no reasons to worry because this will be a one-off cost,” he said.

HIGHER COSTS

However, if the shipping industry opts to use lower sulphur fuels it could send costs up by as much as $60 billion in 2020.

“The costs of ocean-going freight will increase as the marine sector uses more costly fuels, which has wide reaching consequences across the global economy,” said analysts at consulting firm Wood Mackenzie.

The shift to lower sulphur fuel would reduce the availability of refinery products, including diesel and jet fuel, and could push oil prices up to as much as $72 per barrel in 2020 from the current $58 per barrel.

IATA has cautioned that price hikes due to supply constraints will adversely affect the aviation industry considering fuel consumption currently accounts for close to 25 per cent of airline operating expenses.

“The potential jet fuel price increase might pose a risk for airline profitability and risk management,” said IATA in a report.

The association added that airlines should prepare for IMO 2020 risks and incorporate them in their broader management strategies. The new regulations are also expected to hit international trade substantially, with East Africa feeling the pressure considering that the region is a net importer.

The United Nations Conference on Trade and Development 2018 Handbook of Statistics indicate that international seaborne trade grew in 2017 with volumes rising by four per cent, the fastest growth in the past five years.

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