Talking 2020 – Market Commentary

[London, September 2018] –  Not surprisingly, as the deadline is fast approaching, we can’t seem to get away from the IMO 2020 discussion. It becomes all the more concerning when we see crude oil prices racing back towards the $100 a barrel mark. Just yesterday Brent crude hit a four-year high at $82 per barrel, pushing IFO heavy fuel oil (HFO) above the $450/t level. In line with this, the current low-sulphur fuel oil (LSFO) price is around $670/t mark with the spread expected to widen further as oil prices increase. ​In H1 2018, the average bunker price was around $400/t, at a time when a number of lines were trading in the red, so this latest spike is a little concerning. So much so, a couple of major carriers, such as Maersk Line, MSC, CMA CGM have published proposals on how to recover the extra costs. In the chemical sector, modifications can be made under the Bunker Adjustment clause, and in the spot market, in the main Owners have been able to maintain last done figures, despite the amount of available space and downward pressure.​ Due to the uncertainty, some thought / hoped that the IMO 2020 regulation may get pushed back or there could be areas for leniency. But just this week, the International Maritime Organisation said “categorically” that the global 0.5% sulphur cap on marine fuel will go ahead as planned and will be implemented on 1 January 2020.  The head of air pollution and energy efficiency at the IMO, Edmund Hughes, has been quoted as saying “A delay to the regulation would damage the IMO’s reputation and credibility as a rule-making body for international shipping and would lead to more regional and national action to control air pollution from ships.”​ Adding to the list of concerns; cost, availability of fuel and quality, Owners can now add “who is liable if something goes wrong”? BIMCO’s contract-standards division has warned that the regulations could lead to new disagreements between Owners and Charterers over fuel-related mishaps, such as fines for using high-sulphur HFO or equipment failures from fuel incompatibility.​ In a recent social media post, Grant Hunter, BIMCO’s head of contracts & clauses said: “Contracts will need clear wording allocating responsibilities and liabilities for providing appropriate fuel and for potential non-compliance.” There are a number of ‘unknowns’ to factor into the transition from residual fuels to 0.5% Sulphur content fuels. BIMCO is looking at the charter party clauses to address the possible issues as a “one-clause-fits-all” approach has been deemed unworkable. The first “compliance clause” could be pushed through as early as the end of next month and will set out a time charterer’s obligations and liabilities in providing the required sulphur content fuel post 2020. This will be followed by clauses addressing the “transitional period” and immediately after, a “scrubber clause” and a possible review of existing clauses if need be. [September 2018, SPI Marine]