IMO 2020 Transition Takes Center Stage at Nor-Shipping

The IMO 2020 sulfur rule was at the top of the list of concerns for shipowners at the Nor-Shipping 2019 conference, Norway's biennial gathering for the industry. Every owner knows that the requirement is coming, but not everyone wants to go first.

At a DNV GL panel on Monday, experts from shipping, bunkering and insurance discussed the challenges for owners going into 2020. Early adopters of compliant bunkers face several risks. First and foremost, their competitors do not have to bear the increased cost of the new fuel over the same period of time, which puts the shipowners who start the process first at a commercial disadvantage. Second, they will be the first to climb the learning curve on how to use the new fuels. Abdulaziz Sabri, president of Bahri Ship Management, says that after trialing one new fuel supply, six of his company's vessels suffered heavy sludging in their tanks and piping; Rolf Thore Roppestad, the CEO of leading marine insurer Gard, says that his company has already dealt with 100 claims related to new fuels, including mechanical damage and disputes between owners / charterers / bunkerers. (Thorough segregation of every different fuel mixture - in shoreside storage tanks, bunker barges and shipboard tanks and piping - is the recommended preventive measure.)

Second, when owners do decide to adopt the new low-sulfur fuel oil, shipowners will have to be prepared for a steep price hike. This will not be an insurmountable problem for blue chip companies with excellent credit, but it is likely to squeeze the independent family-owned operators, who may not be able to secure a higher credit limit from their bunker suppliers. It could end up driving further consolidation among the many small- and medium-sized shipowning companies - the average owners with five or seven vessels in their fleet. 

Third, there is the certainty that some operators will keep using cheaper HFO without a scrubber, regardless of legality, and will obtain a large price advantage. Goldman Sachs has estimated that the first-year noncompliance rate will be about 20 percent, diminishing over time.

Among other methods of evading enforcement, less scrupulous shipowners might attempt to abuse the Fuel Oil Non-Availability Report process, intentionally buying non-compliant bunkers with paperwork indicating that proper supplies were not available. While port state control can address this problem, the vigor of enforcement varies by locality, and some regions may be less compliant than others. If a shipowner already does not comply with the law, one more rule may not make much difference. "There are a lot of ships operating in the Pacific today that will never be allowed in the [Atlantic trade lanes], no matter what bunkers they're using," said Tom Paterson, managing director and SVP at bulker operator Fednav.