The implementation of IMO2020 on 1st January 2020 has been completely overshadowed by Covid-19 and the resulting blanked sailings and changing equipment flows. Logically and understandable. News about IMO2020 has decreased, so where do we currently stand?
With the reservation that some authorities might have shifted focus to keeping supply chains running, then there have been VERY few reports of non-compliance to IMO2020. This goes both for the 1st January ban on use of high Sulphur fuels as well as the 1st March ban on carrying high Sulphur fuel. Very positive and demonstrate that a global effort for environmental improvement is possible.
Interestingly the focus started to shift towards the next improvements, e.g. how to battle the higher amounts of black carbons found in the low Sulphur fuel mixes. A dialogue which surely will intensify when Covid-19 effects subside.
IMO2020 Impact on Transport Price
When carriers started to use the low Sulphur fuel around 1st December 2019 the price for 1 metric ton was about USD 200 (or 60%) above the price of the then standard IFO380 fuel. No one have really challenged that carriers are facing higher costs; however, it has not necessarily been reflected in the total costs of transport. The biggest impact was seen in Asia and Europe where smaller cargo owners faced increase in total costs of up to USD 700 per container, while most larger cargo owners were able to mitigate this increase and, in some cases, even negotiate a lower total cost. The North American market did not see a large impact due to the FMC filing requirement.
Many cargo owners are due to negotiate new prices, especially in North America. Due to Covid-19 we generally advise cargo owners to stick to short term pricing, i.e. up to 3 months, with a few exceptions where market is not in the carriers’ favor. As the equipment flows normalize (whenever that will happen) prices are likely to go down compared to the current peaks seen, especially from Europe to Asia and US West Coast to Asia.
IMO2020 should see a decreasing impact on the total costs. Now low Sulphur fuel is trading at basically same price as high Sulphur fuel in Rotterdam, due to the global reduction in oil demand. The difference is likely to increase but probably not to more than USD 100 per metric ton.
Our advice to cargo owners is to remain calm. Accept the short-term impact of Covid-19 but remain vigilant that IMO2020 do not have a significant negative impact on your business. If you seek prices with validity up to 3 months, then target to have IMO2020 charge included into the ocean costs. If you seek longer validity, then seek adjustment of a bunker charge on a quarterly basis.
To find out more about IMO2020 and its implications on your business, including how you can protect your future success, contact Expense Reduction Analysts today.