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SHIPPERS UNPREPARED FOR SULPHUR CAP

Saturday, October 6, 2018 

Only 1 in 10 shipping companies are prepared for the global sulphur capís entry into force on 1 January 2020, while more than half of the respondents to a survey carried out by consultancy Drewry had not received formal guidance on the pending changes from either the IMO or their national administration/transport ministry.

More worrying is that 33% of the respondents admitted to having poor or very poor awareness and understanding of the new regulation, despite widespread media coverage

Particular uncertainty and concern was expressed in both the survey and follow-up interviews about carriers’ methods of fuel cost recovery with more than half of all respondents (56%) stating that they did not consider their service providers’ existing approaches as either fair or transparent. Further to this, 4 in every 5 of the shippers/Beneficial Cargo Owners participating in the survey stated that they had yet to receive clarity from their providers as to how the widely anticipated future fuel cost increases, set to accompany the 2020 regulatory change, would be met. 

Drewry’s evaluation of the data suggests that the level of uncertainty about total cost impact is so large that there is inability to provide a confident forecast of the cost of compliance. “The only certainty is that the extra cost will run into billions of dollars globally come 2020,” says the UK-based consultant.

The report, based on 106 survey responses and 15 follow-up interviews with shippers, reveals that 22% of all respondents believe the cost impact to their organisation from the new regulation will be either significant (16%) or extremely significant (6%), with many citing a lack of transparency in fuel cost recovery methods.

Based on independent “futures” prices, low-sulphur marine fuel prices per tonne will be 55% higher than current high-sulphur fuels and Drewry considers that the probable “worst case” scenario is that fuel costs (paid by carriers) and fuel surcharges (paid by shippers) in global container shipping will increase by 55-60% in January 2020.

Philip Damas, Head of Drewry Supply Chain Advisors, said: “The IMO low-sulphur rule change represents a very significant, industry-wide, change event which will likely have far reaching effects on the global shipping industry for many years to come”, continued Damas. “Given the scale of the extra costs triggered by the new regulation and the carriers’ expectations that their pricing and fuel charge mechanism with customers must be restructured, there is a need for carriers to address the transparency concerns expressed by their customers.”

In cooperation with both shipper members of the Drewry Benchmarking Club, and possibly carriers as well, Drewry is working on an IMO low-sulphur rule ‘cost impact tool’ based on robust market data. Fuel surcharges are one of the largest components of container freight costs and, based on Drewry Benchmarking Club data, typically average US$160/TEU on the major routes from Asia today.

Beneficial Cargo Owners) 

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