There is so much talk in the industry about the impact on the shipping industry from the 2020 sulfur cap, it is becoming difficult to separate facts from opinion, information from interference.
What we do know is that the IMO has sent a clear signal that the deadline is not negotiable. It does not have the responsibility of ensuring the required grade of fuel is available, but it is confident member states will act to ensure that supplies are in place and that penalties are levied for non-compliance.
Some shipping organisations are going further; calling for the banning of high sulphur fuel oil with exemptions only for ships that are fitted with scrubbers, while some analysts predict that even if still available, HSFO may be hard to source after 2020 because refiners will begin to stop producing it before the deadline. Others predict that as a residual product of the refining process it may become less expense if marine demand drops away.
Others worry that because the refiners have so far failed to publish a specification for the Low Sulfur Fuel Oil the industry expects to use, that there will be a risk of trade disruption if insufficient supplies are available.
Because the variables are so many it is easy for owners and operators to feel that they are unable to make a decision on their strategy for 2020 compliance - or that to move too soon risks incurring a first-mover penalty. But any shipowner with an eye on business continuity and the value of their customer relationships will want to understand the options and plan for compliance.
The reasons are more than just regulatory. Because the cost of low sulfur fuel may see a short term spike, it is also a case of ensuring that shippers and charterers are aware of the change, whether they are paying for fuel, if it is rolled into freight payments or levied as a bunker adjustment factor.
Whether owners choose to switch to low sulfur fuel oil, fit a sulfur scrubber or, in the case of newbuildings investigate alternative fuels, they do not have to be distracted by the debate; but they must recognise that choices will need to made and start their planning as soon as possible.
ABS has published an Advisory to help owners understand the steps they will need to take to implement exhaust gas scrubbers onboard ship as well as a regulatory debrief document “Global Sulfur Cap - 2020” and a Guide On Exhaust Emission Abatement. The big question that remains is which solution is right for their fleet, their trading patterns and their future plans.
ABS believes that key to supporting owners during the transition to low sulfur shipping is techno-economic evaluation, a unique decision support process which identifies key inputs such as life cycle costs, net savings, payback period, saving-to-investment ratio and internal rate of return.
To provide owners with an analysis of which solution is right for them, ABS undertakes a study of fleet trading patterns, ship design and air emission control options and includes the ‘ready’ concept which provides an understanding of the impact to implementing LNG or scrubber options at a later date.
This data is used to establish the base case and alternative cases - identifying the relevant life-cycle and supplementary cost impacts to enable a meaningful comparison between the cases.
For compliance-minded shipowners the 2020 sulfur cap is a fact of life, not a matter of debate. The industry’s response will be critical to defining the future of cleaner shipping and ultimately moving it towards the next environmental challenge. For individual owners, there is no need to fear the change, providing they have a trusted partner to help guide them through the process.
* ABS Advisory Services