High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
By Firat Kayakiran (Bloomberg) –The global shipping industry is about to undergo one of the biggest changes in its recent history with concerns lingering about just how safe the shift is going to be.
Starting in January, vessels the world over will have to drastically reduce sulfur content in their fuel to comply with rules set out by the International Maritime Organization in London.
The trouble is that there will be multiple new fuels that allow vessel owners to comply, where today there’s one predominant type. And, while having similar characteristics to one another, the 2020-compliant fuels can be made through different refining processes, meaning they shouldn’t be mixed.
“Let’s hope there are no accidents, that’s my worry,” said Guy Platten, the secretary general of the International Chamber of Shipping, which ultimately represents owners of 80% of the global merchant fleet. “The shipowners are preparing as best as they can.”
While such safety concerns are not new — the ICS said as long as 16 months ago that it foresaw “potentially serious” issues — they’re becoming more pressing because the deadline to switch is fast approaching. In 3 1/2 months’ time, a majority of vessels are meant to limit sulfur content in their fuel to 0.5%, down from 3.5% in most parts of the world today. The IMO is part of the United Nations.
Platten said one thing that would help mitigate incompatibility risks is mandatory licenses for ship-fuel suppliers to help ensure vessels are getting the product they’ve been sold.
To be ready in time, ships must soon start using up their last on-board supplies of high-sulfur oil in order to replace them with the newer varieties, according to Mark O’Neil, president of Columbia Shipmanagement, which manages about 380 vessels and employs 15,000 people. Other carriers are getting scrubbing equipment installed, allowing them to keep burning today’s higher-sulfur product that’s expected to be cheaper.
But the 2020-compliant fuels can be made in different ways. They can be predominantly the residue left over after crude has been refined, or they can be diesel-like fuels known by traders as distillates. Such products can’t necessarily be mixed.
“If your chief engineer puts a low sulfur fuel on top of another low sulfur fuel and they are incompatible you can have a catastrophic engine failure, you can have vessel breakdown at sea, you can have all sorts of huge problems,” said O’Neil. “I don’t think at the moment some of the issues are even known to be contemplated.”
Incompatible fuel oil blends will create operational and logistical challenges but shipping companies should be able to obtain compatible, compliant fuels in most parts of the world, according to Richard Chatterton, an analyst for BloombergNEF in Singapore.
Vessels that don’t have fixed trade routes — so-called tramp ships — are the ones most at risk of facing complications with compatibility so may be forced to switch to marine gasoil where issues arise, he said.
For its part, the IMO says owners can sharply reduce any risk to safety through good management.
“There are naturally concerns about it because potentially we’re going to deal with fuel blending,” said Edmund Hughes, an official at the IMO who’s heavily involved in implementation of the new regulations. “I’m not going to say there’s no risk. The way to manage and mitigate that is through good practice, which is already exercised by the shipping sector.”
Fuel will generally be available, even if there could be some localized shortages, he said, adding that the IMO also looked into licensing suppliers but some member nations resisted that approach.
Hughes, O’Neil and Platten were all speaking on the sidelines of events during London International Shipping Week.
© 2019 Bloomberg L.P
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