Not IMO 2020 Compliant? Superintendents Take Notes: 6 Steps to Surviving!

The shipping industry accounts for 5% of oil demand in return for 13% of all SO? emissions.

Until recently the trade-off seemed acceptable since shipping is cheap and over 90% of freight is carried by sea. But times have changed. There is an increased consciousness regarding the harmful effects of fossil fuels and there is increased pressure on an industry that accounts for 2.5% of global greenhouse emissions to clean up its act.

15 largest ships in the world produce more sulfur than all of the world’s cars combined. While this figure is disputed, it is primarily because they burn different types of fuels.

IMO TO THE RESCUE

The IMO has stepped up. From the 1st of January 2020, ships will be required to reduce SO?. Sulfur content outside Emission Control Areas will be reduced from 3.5 wt % to 0.5 wt %

 This is expected to reduce emissions by over 80%. IMO states that over 570000 premature deaths will be prevented in just the first five years after the implementation of the new regulation.

The resolution was passed on October 2016. This date is crucial since it marks the release of a study by CE Delft that concluded fuel availability would not be an issue.

SHIPOWNER’S RESPONSIBILITIES

To say that the major shipping companies slacked off would be an understatement. The Industry adopted a wait-and-see approach and began reacting in earnest only towards the end of 2018. This is when the IMO approved a ban prohibiting the carriage of non-compliant fuels on ships that did not have a compliant scrubber facility.

Maersk (the world’s largest container shipping company) initially in the anti-scrubber camp had a change of heart when it realized that the VLSFO shortage could cause a substantial increase in costs. They have since gone in for the installation of Scrubber technology but with less than 10% of its 650 odd ships expected to undergo retrofitting, it still leaves about 600 ships that would need an uninterrupted supply of VLSFO.

MSC (the 2nd largest Container shipping company) and Evergreen are expected to have a much higher percentage of vessels installed with Scrubber technology.

OPTIONS AVAILABLE

With the deadline fast approaching, what options do shipowners have

1.      Install the scrubber facilities on all ships

Pros

·       Ensures compliance

·       Reduced long term costs

Cons

·       Cost of installation approximately 2-4 million dollars per ship

·       Minimum of 2-4 weeks of installation time

·       Bottlenecks in shipyards around the world due to the sudden rush to install scrubber facilities.

·       The risk that certain Authorities might restrict the use of scrubbers due to uncertainty over the effects of wastewater that is pumped overboard.

2.      Changeover to VLSFO (very low sulfur fuel oil)

Pros

·       Ensures Compliance.

Cons

·       VLSFO is expensive. Maersk alone expects an annual rise of 2 billion dollars in increased fuel costs. Globally, annual bunker costs could increase by over 25% (over 6 billion $) in 2020.

·       Bottlenecks in bunker delivery could cause longer detours to ensure compliance with fuel regulations.

·       Cheap blends will cause choked fuel filters, thereby increasing operational costs

3.      Consider the use of a non-petroleum fuel such as LNG

Pros

·       Ensures compliance

·       Future- proof (reduced/ negligible emissions of NO?, SO?, soot or CO?)

·       Cost-effective

Cons

·       Insufficient LNG bunker vessels worldwide

·       More a fix for the long-term rather than the near-future.

·       Methane slip and leakage during extraction, storage and transportation arguably have a worse environmental impact over the long term.

BENEFITS OF COMPLIANCE

Global customer-facing business now has environmentally conscious customers, and they have an inherent interest to protect their brand. Insurance is another reason why Companies might comply, though it is still a gray area whether non-compliance could invalidate Certificates and relieve Insurers of their obligations.

COST OF NON-COMPLIANCE

Since it is only the emission that is regulated, ships could technically carry higher sulfur content fuels provided they have an appropriate scrubber system installed.

IMO has insisted on compliance with no grace period for the transition. However, they have not laid out what sanctions are to be. The IMO itself cannot enforce the rules; responsibility for compliance rests with individual member states.

Since the start of 2019, Tokyo and Paris MOUs have begun issuing warning letters to vessels, not in compliance with 2020 regulations. This is just a reminder for them to get their house in order.

Within Hong Kong water, any Master/ Vessel using non-compliant fuel will be liable to a fine of up to 200,000 dollars and imprisonment for 6 months. Improper record-keeping would make one liable for up to 50,000 dollars and imprisonment for 3 months.

Singapore has banned open-loop scrubbers (as opposed to closed-loop scrubbers) and declared that violators that burn high sulfur fuel could face as long as two years in prison.

STILL, NON-COMPLIANT? HERE ARE YOUR OPTIONS

Ship Owners that fail to comply with the regulation have to urgently undertake the following.

1.      Find out what local regulations are for your vessel’s run. The IMO has approved a standard format - fuel oil non-availability report, which can be presented by ship’s to port state if that only non-compliant fuel was available for a vessel to use.

2.      Communicate beforehand with port authorities regarding individual problem cases. The first few months are critical since Authorities will be particularly stringent.

3.      Prepare for delays and contingencies caused by arrests and detentions. Communicate closely with local P&I Clubs and insurers regarding potential problems before they arise.

4.      Find alternate bunker ports. Shortage of compliant fuel could result in routes being redrawn to find the most convenient bunker port.

5.      Inform ship’s crew, especially the Management, about the below risk and challenges that they could face.

o  Dealing with authorities and legal implications of non-compliance

o  Technical problems arising due to mixing fuels and distillates

o  Requirements for adequate documentation. Maintain records of Bunker Delivery Notes and associated records. For ships with scrubbers, ensure appropriate approval.

6.      Inform shippers of increased costs through surcharges or bunker adjustments factors.

THE ECONOMIC OUTLOOK IS BLEAK… BUT THE FUTURE IS BRIGHT

The rule changes will have an economic impact!

S&P Global Platts, an energy consultancy, conducted a study which put the cost of the rule changes on the global economy at $1 trillion over five years. Goldman Sachs estimates that in 2020 alone, consumers can expect up to 240 billion dollars in extra costs.

With all the uncertainty in the world today with BREXIT, trade wars, Conflicts in the middle east, among others, it may just be IMO 2020 that has the biggest impact on economic growth.

The effect of climate change will, however, be far more catastrophic and the sulphur regulations (though not dealing with carbon emissions) is a vital step that the industry has to take.

The world will have to put off getting richer for a little longer.  

About the Author

Neiloy George is Business Development Manager at Nautix Technologies. He has over 16 years of experience at sea having served in both the Deck and Engine departments. In his spare time, he writes about software and technology issues related to the maritime industry. 

He currently lives in the Black Forest in Germany. He moved there for the cake and stayed back for his wife and two kids.

About Nautix Technologies 

Nautix Technologies is a modern maritime software company that provides next-generation SaaS products to ship owners and technical managers. Check our website nautixtech.com to learn about our Early Adopter Program. Contact us to find out more: [email protected].