THINK TANK

From January 1, ships are barred from using fuels with a sulphur content of more than 0.50%.

In the world of marine fuels, this is seismic change.

For decades, ships have been able to burn marine fuel (or ‘bunkers’) with a sulphur content of up to 3.50%.

Now, International Maritime Organization (IMO) rules have squeezed the staple of the international bunker market – high sulphur sulphur 380 centistoke (cSt) intermediate fuel oil (IFO) – to the margins.

Only ships fitted with exhaust gas cleaning systems (scrubbers) can use the residual product and they represent a tiny proportion (around 5%) of the global fleet.

Availability

The January 2020 deadline sees the culmination of a process that began more than a decade ago.

The first sulphur regulations for the shipping industry came into force in 2005. The introduction of emission control areas (ECAs) tightened the regulations and in 2016 came agreement that a global sulphur cap of 0.50% should be in place by 2020.

It was a timetable critics considered recklessly short. However, as 2020 approached, fears that very low sulphur fuel oil (VLSFO) and other IMO compliant bunker fuels would be unavailable were receding.

Supplies, especially in major bunker hubs such as Singapore, Rotterdam and Fujairah, are generally good.

Bunker bills set to double

Where early fears did prove well founded was on the question of price.

The soaring price differential between HSFO (high sulphur intermediate fuel oil) and VLSFO (very low sulphur fuel oil) seen in December 2019 was exactly what ship operators had feared.

In the final weeks before the 2020 deadline, IMO compliant low-sulphur product was almost double the price of 380 cSt material.

At a conservative estimate, operators of ships without scrubbers – that is the vast majority – faced an increase in bunker costs of well over $250 per metric tonne.

Fines and worse

Some operators might be tempted to bunker with cheaper, high-sulphur material and hope their transgressions go undetected.

That would be a high-risk strategy.

At least one P& I club has warned that owners could find themselves exposed to claims from their P&I insurers if the cause of their non-compliance puts them in breach of the terms of their P&I cover.

The sulphur regulations, although set by the IMO, will be policed by individual states and some authorities have indicated they will be prepared to take a tough line on enforecment.

In August 2019, a US district court used criminal laws to fine a ship operator, ship owner and a ship management company $3 million for breaking the sulphur regulations in a US ECA. There is nothing to suggest there will be a softer approach when dealing with breaches of the 2020 rules.

The Singapore Maritime and Port Authority (MPA) has warned that the masters and operators of ships using fuel with a sulphur content above 0.50% face jail sentences of up to two years

Norway, a keen advocate of strict sulphur-rules has been fining vessels around $29,000 for breaching ECA regulations.

Criminalisation

Defying the sulphur regulations risks disruption, fines and possibly jail. It also risks criminalising seafarers.

In 2018, a French court convicted a cruise ship master of vast experience and unblemished record of knowingly using a fuel that breached sulphur regulations in a European ECA.

In the course of his trial, it became clear that the master had been acting on his employers instructions.

Although the judge recognised the company’s role (the judge gave the master a €100,000 fine, adding the proviso that 80% of the penalty be paid by his employer) it was the master who was left with a criminal conviction.

Reputational damage

Some jurisdictions, of course, will be lax. Others will view non-compliance leniently, especially in the early days of the new regime and in cases where there have been shortages of low sulphur product.

But too zealous a search for loopholes, whatever the grounds, risks long-term reputational damage to shipping companies and the shipping industry as a whole.

Although it can only be an estimate, public health experts have suggested the sulphur cap, by limiting emissions of sulphur oxides (SOx), has the potential to prevent 150,000 premature deaths and 7.6 million childhood asthma cases across the globe every year.

As shipping prepares to come under increasingly intense scrutiny for its carbon emissions, this is no time for dragging its feet on sulphur.