How IMO 2020 New Fuel Rules Impact Shipping

On 1 January 2020, the International Maritime Organization (IMO) introduced a significant regulation change to the shipping industry. Known as IMO 2020, the new regulation alters the way ships are fueled by mandating vessels to reduce sulfur levels in emissions from 3.5% to 0.5%.

Major players in the shipping industry report that compliance is likely to result in $2 billion in additional costs. These increases are primarily down due to expected higher fuel costs and investments required to make vessels compliant with the regulation. Some companies estimate IMO 2020 will increase their total fuel bill by 30% – 40%.

Cost rises mean efficiency gains are essential. Managing fuel consumption isn’t a new priority in shipping. But with IMO 2020 now in force, it’s no surprise that reducing fuel consumption remains at the top of the agenda for the shipping industry.

How does IMO 2020 impact fuel consumption in shipping?

Here are three key impacts that IMO 2020 has on fuel consumption for the shipping industry.

Impact 1: Fuel costs and availability

The switch from high sulfur fuel oil (HSFO) to IMO compliant marine gas oil (MGO), low sulfur fuel oil (LSFO), or very low sulfur fuel oil (VSLFO) impacts approximately 75% of the demand for global marine fuel. Estimates suggest around 2.5 million barrels of low sulfur fuel are required each year to fill this gap.

Shortly after the regulation came into effect, VLSFO reached $740 pmt on 6 January in Singapore – significantly higher than the $520 – $550 pmt range seen in the second half of 2019.

However, the impact of COVID-19 makes the picture more complicated, as demand has significantly decreased. In Singapore, for example, VLSFO costs have ranged around $250 – $275 pmt in April 2020 – much lower than the 2019 average.

Early indications, based on prices pre-COVID-19 lockdowns, do suggest an increase in cost. But in the short-term, this is mitigated by the effects of the global pandemic.

Impact 2: Scrubbers

With IMO 2020, it is the emissions, not the actual sulfur content of the fuel, that is regulated.

To comply, some shipping companies opted to fit scrubbers to ‘capture’ the sulfur before it is released. Vessels equipped with scrubbers can use higher sulfur fuels, as scrubbers transfer the sulfur emissions from the exhaust fumes and move them to a disposal unit.

Scrubber investments could pay off in less than a year, though more conservative estimates expect it to take between two and four years. The payoff period is dependent on fuel costs, relying on HSFO remaining competitively priced.

However, scrubbers are not a quick fix. They can take between 4 – 6 months to manufacture, and ships are not available for use during retrofitting.

Impact 3: Alternative fuels

The most immediate alternative fuel option is LNG, which is readily available and IMO 2020 compliant, as it releases almost zero sulfur emissions. Switching from HSFO to LNG is, however, more costly than moving from HSFO to VLSFO, as vessels need to be modified.

Testing is also underway to understand if ammonia is a viable alternative fuel. Likewise, green forms of liquefied methane could be an alternative to help meet the demands for alternative fuels.

However, the transition to alternative fuels will come at a cost. An anticipated $1 trillion investment is needed to decarbonize shipping – this includes ship engine updates and fuel storage, as well as the land-based costs for fuel production and storage.

How Weather Routing can Help Support Fuel Efficient Shipping

Optimized routes, based on accurate weather data, support fuel-efficient shipping by helping vessels navigate the best route based on the circumstances.

Weather routing can offer fuel savings between 4%- 10%, depending on the type of vessel, the season, and the conditions, and ensure each ship runs at peak performance. From pre-voyage planning to compliance, weather routing supports sustainable, cost-effective shipping, and can help reduce fuel consumption.