Chicken and egg as 2020 cap sinks in

Malcolm Latarche
Malcolm Latarche
ShipInsight

15 March 2017


Recent reports would suggest shipping is at least beginning to think about the impending cut in allowable sulphur content in fuels but with no clear idea of what direction to take. It has been widely reported that whether by virtue of using more expensive alternative fuels or by installing scrubbers, a hit of around $60bn for the industry is expected. So far there has been little sign that the refining industry is preparing to deliver sufficient quantities of compliant HFO leaving owners with the alternative of switching to distillates or installing scrubbers. Recently, shipbroker EA Gibson has covered the matter in its weekly tanker report said owners were adopting a wait and see approach before adopting strategies while refiners had little incentive to upgrade facilities because they could either sell more of the premium priced fuels or shipowners would fit scrubbers and continue using HFO. Either way that would put the full cost of compliance on shipping. Last year Wallenius Wilhelmsen Logistics (WWL) was one of the shipping companies that publicly welcomed the 2020 sulphur cap but this week Anna Larsson, Global Head of Sustainability at WWL is saying in her blog that the new regulations are not getting a lot of attention from shippers at present but that should change given that the cost impact of 2020 is expected to dwarf that of 2015. “A pattern is emerging, similar to that seen in the lead-up to the 0.1% sulphur limit of 2015 within Emission Control Areas. The industry conversation was dominated by technical considerations of how carriers would manage. One of the biggest challenges leading up to 2020 is the uncertainty: we simply don’t know what kind of fuel or other compliance options will be available or what the cost will be”, Larsson said. Almost everyone agrees that there is no way shipping could absorb a $60bn bill without increasing freights but that has already proved virtually impossible due to overcapacity. Therefore WWL is probably right in saying that there needs to be some wider publicity given to this issue – especially as far as cargo interests are concerned – otherwise the threat of supply chain disruption will be massive. While the answer is not yet known, the problem must be communicated now rather than later. We publish an in depth report on the Global Suphur Cap early next week.