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IMO 2020: Failure to recover extra fuel costs could cause bankruptcies

21 Feb 2019

The Chief Shipping Analyst of BIMCO forecasts the container shipping industry to face several IMO 2020 related hurdles in 2019 as shipowners start preparations to meet the 0.5% global sulphur cap on marine fuel. 

Peter Sand believed box shippers to likely face a gloomy outlook in 2019 if consumer behaviour does not change dramatically.

“Nevertheless, the dominant theme of 2019 will be the sharing of the higher costs that are expected in various forms towards the end of the year, as the starting line for the IMO 2020 sulphur cap approaches,” he states.

“These increased costs will come either as a result of purchase of fuels, which are more expensive than Heavy Sulphur Fuel Oil (HSFO), or because of investments in abatement technologies that will allow carriage and consumption of HSFO past the 1 March and 1 January deadlines.

“Unless these costs can be passed on to the end consumer through the whole supply chain, profit margins in the container shipping industry will be reduced everywhere; a failure to recover the extra fuel costs in full may even result in outright bankruptcies in the container shipping industry.

“The ability of the container shipping industry to pass on these increases depends greatly on its negotiating power and a fundamentally strong freight market.

“The annual contracts for transpacific cargoes – normally running from May to April – are negotiated soon. An IHS survey of shippers (asked in Q4-2018) shows they expect higher freight rates, but tough and difficult negotiations lie ahead, as markets have weakened somewhat since then.

“The outcome may not be as good as liners would hope for, if spot rates fall too much in Q1- 2019, which they will if demand does not pick up substantially after Chinese New Year.”

The full report Container Shipping: The many pitfalls in the coming months will decide the fate of the year can be viewed here.

Photo credit: BIMCO
Published: 21 February, 2019

 

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