IMO 2020 – How Will it Impact the Logistics Industry?

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By Hemisphere

On 1 January 2020, new regulations came into effect governing harmful emissions from maritime vessels. If your organisation depends on international shipping for imports or exports, these changes are likely to have an impact on your business. Here, we take a look at the regulation, consider the effects it has on shipping and logistics, and how businesses can prepare to meet the challenges it presents.

IMO 2020 regulation

Set out by the International Maritime Organization, the IMO 2020 regulation limits sulphur oxide emissions to 0.5% m/m (mass by mass). This represents a considerable reduction from the current global limit of 3.5% m/m that applies outside of specified Emission Control Areas. Reducing the sulphur emissions of seagoing vessels is designed to lower levels of air pollution, particularly for populations living close to major shipping routes and ports.

The impact on shipping and logistics

To comply with the new emission regulations, ship operators have to either start using different types of fuels or install ‘scrubbers’ that remove sulphur oxides from exhaust gases. These solutions have a financial cost attached – it is estimated that fuel costs could increase by as much as 50% in some cases, while an individual scrubber installation can cost anywhere from $5–$10 million. 

Inevitably, these additional expenses have an impact on shipping costs for importers and exporters. By some estimates, the cost of port-to-port sea freight can increase by 10%–20%, and businesses have to make tough choices about how much of the increased costs they are willing to absorb and how much is passed to end consumers and customers.

Another possible impact of the new regulation might be an increase in ‘slow steaming’. With higher fuel prices, shipping lines may opt to reduce sailing speeds to optimise fuel consumption rates. This has the effect of increasing transit times and restricting overall capacity. Importers and exporters may also see an increase in transshipment – where cargo is transferred from one vessel to another to ship in stages rather than by a single direct trade route. As sailing speeds are reduced and voyage times extended, carriers may drop certain ports from rotations in order to ensure that shipping times to more key ports remain competitive.

What are shipping lines doing to prepare?

Shipping companies effectively have three alternatives to ensure their fleets are compliant with IMO 2020: 

  • switching from high sulphur fuel oil (HSFO) to more expensive lower-sulphur alternatives such as marine gas oil (MGO) and very low sulphur fuel oil (VLSFO); 
  • continue to use HSFO and install scrubbers to remove sulphur from exhaust gases; or 
  • convert ships to run on liquefied natural gas (LNG). 

The latter option can involve expensive retrofitting, with the added complication that current LNG production is low compared to projected demand, which could mean price spikes in LNG unless production rates increase considerably. LNG tanks also take up more physical space, which means vessels may have to sacrifice cargo storage capacity as a result.

Despite the high capital cost of installing scrubbers as an alternative to switching fuel types, some shipping lines are at least partially opting to invest in this solution. Maersk – the world’s largest container ship operator – opted to make a considerable investment in scrubbers to meet the regulatory changes. While the company did not disclose the exact number of scrubber systems it was purchasing for its 750-strong fleet, its annual report showed a commitment to spend $263 million on open-loop scrubber systems. However, Maersk commented that: “Scrubbers form one element of the Maersk 2020 fuel sourcing strategy, while most of the fleet will rely on compliant low sulphur fuels when the regulation starts.”

HGL and you: prepared for IMO 2020

With over 30 years of logistics and freight forwarding experience, we understand the need to be flexible and responsive to an ever-changing economic and regulatory landscape. With an award-winning global network of air, road and ocean freight partners, you can be assured that we will work closely with our clients to limit any price increases where possible, while also ensuring that our customers’ cargo continues to be delivered in a timely and efficient fashion.

Please don’t hesitate to get in touch to find out how we can help your business with its domestic and international logistics requirements.