IMO2020 comes into force effective 1 January 2020. This is International Legislation which requires all shipping lines to reduce emissions, which will either be achieved by using ‘low-sulphur’ fuel or by installing ‘scrubbers’ in their ships to remove toxic emissions prior to release of the vessel’s exhaust gasses into the atmosphere. The estimated cost to carriers is in the region of USD12 billion! (One scrubber installation into ONE large container ship can have a price tag in the region of USD5m alone!)

To put this cost into perspective, it should be noted that the largest 13 carriers in the world who provide public accounts only reported combined cumulative earnings before interest and tax of USD8.6 billion in the six years from 2012 to 2017! (Courtesy Lloyd’s Load List.)

The major carriers have therefore already announced that from 1 January 2019 they will implement new calculations, which include a “Trade Factor”, to produce revised BAF figures. Thus from this date, there is tremendous potential for BAF to escalate as the calculations will need  to offset the conversion cost (where carriers elect to fit scrubbers) and to accommodate the much higher price of low-sulphur fuels. It is estimated that the low-sulphur fuel will cost between 1.5 and 2 -times that of the standard bunker fuel now being used, and, of course, the cost of the standard bunker fuel is some 53% higher now than in June 2017.

The “Trade Factor” envisaged by those carriers which have already announced their BAF pricing calculation concepts going forward, is also highly likely to reflect imbalance of trade on those routes where vessels arrive into port full but depart without taking on new containers.

Please contact Paccon Logistics for further information.