IMO 2020: THE TRICKLE-DOWN IMPACT TO THE SUPPLY CHAIN? By John Haber
inety percent of world trade is transported by ocean vessels. However, according to industry estimates, just one container ship can produce the same amount of pollution as 50 million cars. The emissions from 15 megaships match those from all the cars in the world. And, if the ocean container shipping industry were a country, it would be ranked between Germany and Japan as the sixth-largest contributor to CO2 emissions.
8 PARCELindustry.com MAY-JUNE 2019
Ocean transportation is a dirty business — and it’s also a harmful one. In 2016, the United Nations shipping agency, the International Maritime Organization (IMO), agreed to limit sulfur oxide emissions from the current 3.5% m/m to 0.5% m/m effective January 1, 2020. Airborne sulfur oxide is a leading cause for acid rain, and studies have also shown that sulfur oxide is a cause of respiratory diseases, such as asthma. There are a few ways for ocean carriers to meet this requirement: } Low sulfur compliant fuel oil use } Low sulfur alternative fuel use, such as liquefied natural gas (LNG) } Exhaust gas cleaning system, aka “scrubbers,” installation But, as one can imagine, regardless of how the requirement is met, it will come at a price. MSC and Maersk Lines each estimate that the cost of the various changes that will need to be made to their fleet and fuel supply will be in excess of $2 billion dollars per year. Meanwhile, Hapag Lloyd noted that they are expecting their low sulfur fuel costs to be around $75 to $100 million during 2019 Q4 in order to be ready for the IMO 2020 implementation date of January 1. Overall estimates for ocean freight providers are over $15 billion annually.
The largest global ocean freight forwarder, Kuehne + Nagel, expects the increase in costs will have a significant impact on the overall prices of container transportation and on freight rates. “While the implementation date for IMO 2020 is January 1, 2020, we anticipate freight rates to increase as early as the
The positive result will be environmental improvements; however, costs incurred by ocean carriers will have a trickle-down effect across the entire supply chain. end of the third quarter of 2019,” it points out. In addition, Flexport estimates that carriers will be forced to reduce total capacity by seven to eight percent as they install scrubbers and additional preparations are made. Many providers, including both Maersk and MSC, have already imple-
PARCEL May/June 2019