The document discusses how new regulations by the International Maritime Organization will require lower sulfur emissions from ships beginning in 2020. Specifically, the maximum allowed sulfur content in bunker fuel will decrease from 3.5% to 0.5%. This will likely increase fuel costs for shipping companies. There is uncertainty around how companies will comply with the new rules and whether the additional costs of lower-sulfur fuel will be passed on to customers through higher freight rates. The shipping industry has significant buying power in the oil market and could potentially negotiate lower premiums for ultra-low sulfur fuel.

1. Will Low Sulfur Shipping
Fuel Costs Increase
Shipping Rates?

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5. One of the most important events
in the world shipping industry was
the International Maritime
Organization's October 27th, 2016
announcement formally adopting
rules to cut the amount of sulfur
allowed in bunker fuel.

6. S&P Global Platts reported in
September 2017 that Ultra
low sulfur bunker fuel in
Rotterdam, for example, hit
the highest assessed level
since the S&P Global Platts
assessment began in
September 2015.

7. The IMO's Marine Environment
Protection Committee set
new requirements requiring
sulfur emissions to drop from
their current maximum
of 3.5 % to 0.5%.

8. The introduction of the sulfur cap has, as anticipated, caused
much discussion among players regarding compliance.
However, sources of S&P Global Platts do not believe that
companies are preparing early for the implementation of the
regulation.

9. Well everybody is talking about [the
sulfur cap], but nobody knows what to
expect or what the best solution is...the
common strategy for now seems to be
'wait and see,
- A trader said to S&P Global Platts

10. Shipping Isn't So Green

11. The shipping industry
accounts for more
greenhouse gas
emissions than airplanes,
buses or trains, and with
some 90% of world trade
transported by sea, the
shipping industry is
among the world’s
biggest sulfur emitters;
the sulfur oxide content in
heavy fuel oil up to 3,500
times higher than the
latest European diesel
standards for vehicles.

12. The IMO decision
reduces the the
shipping industry's
share of the world’s
air pollution from
some 5% to 1.5%,
which is expected
to save millions of
lives going forward.

13. Industry spokesmen were predictably
outraged. The fuel change will add
extra shipping fuel costs as the
shipping industry tries to survive
their worst downturn.

14. Shipping Lines Must Use Buying
Power

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16. The world is awash in oil. Oil companies, both private and
national, are desperate for new markets, as are the independent
refineries who process crude oil.
Xeneta's research shows the shipping companies currently use
some 3 million barrels-per-day of high-sulfur fuel oil (HSFO 380,
sulfur 3.5%).
Assuming 7.33 barrels per metric ton, that's 409,267 metric tons
per day of high-sulfur bunker fuel that needs to be replaced by
ULSFO (Ultra Low Sulfur Fuel Oil, sulfur 0.10% max).

17. UBS says the world shipping industry uses 4% of the world's oil
annually.
So today, where crude oil faces long-term competition from
natural gas, renewables, bio-mass, and other, yet-to-be invented
technologies, surely the shipping industry cannot fail to use this
buying power to negotiate-down the premium (currently approx
US$ 117 / MT) for ULSFO over HSFO)?

18. Every ship will be required to use low-sulfur bunkers, so the extra
cost for ULSFO can be passed along to their shippers as higher
rates, who will pass it along to the end buyers
These new low-sulfur rules do not have to be an issue for
shipping companies – unless they fail to take advantage of the
only commodity worldwide that's in worse shape than they are.