Sulphur emissions caps drive up shipping costs

27 May 2016

Caps on sulphur emissions have driven container shipping firms' annual costs up by around $500m, according to a report from the Organisation for Economic Co-operation and Development (OECD).

Measures to force ships to use more expensive fuel has hit an industry already reeling from overcapacity, falling demand and weakening rates.

The original measures, which came in on January 2015, meant ships entering specially designated Emissions Control Areas (ECAs) had to switch to ship fuels with less than 0.1 per cent sulphur content, from 1 per cent.

Designated ECAs are the Baltic Sea area, the North Sea area, the North American area (covering designated coastal areas off the United States and Canada) and the United States Caribbean Sea area (around Puerto Rico and the Virgin Islands).

Plans to introduce an even lower cap of 0.50 per cent in 2020 could add annual costs of around $5bn to $30bn for the container shipping industry, the OECD report said.

Impacts on individual shipping lines vary depending on the size and speed of their vessels.

Maersk estimated the additional costs for its fleet as a result of the new requirements to be $200m.

On average, container ship operators would face cost increases of between 1.2 per cent and 3.6 per cent related to the 2015 requirements, the OECD calculated.

The IMO is conducting research to determine if the implementation of a stricter sulphur cap should be brought in by 2020 as currently planned, or if this move should be delayed until 2025.

This is dependent on whether sufficient amounts of the more refined fuel with lower sulphur levels will be available by 2020.

"We will assume that container shipping lines have limited possibility to absorb cost increases, so they will likely transfer these to their customers," the report said.

The OECD calculated a global sulfur cap of 0.5 per cent in 2020 would mean costs for transporting agricultural goods could rise by as much as 7.5%, manufactured goods by 3.5% and industrial raw materials by 16.4%.

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