A Practical Overview Of The IMO 2020 Sulphur Cap - Part 2

Sulphur Cap Series: Part 2 - Challenges Facing Compliance and Challenges to Enforcement

Part 1 explored the scope of Regulation 14.1.3 of Annex VI of the MARPOL Convention ("Regulation 14.1.3") and provided an analysis of the contractual, penal and coverage risks to which owners and charterers may become exposed, if they do not take steps to comply with the Regulation by 1 January 2020.

Part 2 provides a summary of compliance challenges facing owners and charterers, in addition to an analysis of the challenges that the IMO faces in enforcing Regulation 14.1.3.

1. Challenges facing compliance

   a) Cost implications

   The first challenge facing shipping companies is the estimated cost of compliance. The retrofitting of scrubbers or alternative fuel engines on vessels is likely to involve initial investments in excess of US$1 million. These options are explored in Part 3 of the series.

   Time charterers (and owners under voyage charterparties) intending to purchase compliant Low Sulphur Fuel Oil ("LSFO") or marine gas oil, will need to factor in the increased costs of LSFO, which is currently around $200 per tonne more expensive than Heavy Fuel Oil. This is due in part to high oil prices, and a sudden increase in demand and corresponding slim availability of compliant fuel. Owners and charterers should also factor in current and projected market profitability for 2020, potential new operational costs such as investment in cyber security, and other IMO initiatives (e.g. the IMO 2050 Green House Gases commitment) which may also require investment, in order to comply.

   b) Availability of compliant fuels

   Market surveys suggest that up to 90% of shipping companies are expected to look to compliant fuel to comply with Regulation 14.1.3. Given improved refining techniques, and an expected increase in the number of compliant blended fuels ("blended LSFOs"), availability should not be an issue at larger ports such as Rotterdam or Singapore. Owners and charterers should, however, be aware of smaller or more remote ports, which may experience supply disruption or lack adequate bunkering infrastructure (for example smaller South American or African ports).

   'Tramping' vessels, or vessels undertaking lengthier voyages should contact ports in advance and consult supplier and port authority websites - which have now started to confirm the availability of compliant fuels - to confirm known locations of compliant fuel. Under BIMCO's 2020 Global Marine Fuel Sulphur Content Clause (the "Content Clause"), which is expected to be put forward for adoption in November 2018, charterers must only use bunker suppliers and barge...