The Impact of the IMO’s Global Sulphur Cap on the Competitiveness of the Shipping Industry

Posted: June 18th, 2023

The Impact of the IMO’s Global Sulphur Cap on the Competitiveness of the Shipping Industry

The International Maritime Organization (IMO) implemented a global sulphur cap on marine fuels, effective from January 1, 2020, to reduce sulphur oxide emissions from ships. This regulation has had significant implications for the shipping industry’s competitiveness. This paper examines the impact of the global sulphur cap on the shipping industry, focusing on compliance strategies, fuel prices, and operational costs. The research draws upon recent studies and industry reports to provide a comprehensive analysis of the challenges and opportunities presented by the new regulation. The findings suggest that while the global sulphur cap has increased operational costs for shipowners, it has also accelerated the adoption of cleaner technologies and fuels, potentially enhancing the long-term competitiveness of the industry.

The shipping industry plays a vital role in global trade, transporting approximately 90% of the world’s goods (Notteboom et al., 2021). However, the industry’s reliance on heavy fuel oil (HFO) has contributed significantly to air pollution and negative health impacts. In response, the IMO introduced a global sulphur cap, limiting the sulphur content of marine fuels to 0.5% mass by mass (m/m) from January 1, 2020 (IMO, 2020). This regulation aims to reduce sulphur oxide emissions from ships and improve air quality in coastal areas and ports. This paper investigates the impact of the global sulphur cap on the competitiveness of the shipping industry, focusing on compliance strategies, fuel prices, and operational costs.

Compliance Strategies:
Shipowners have several options to comply with the global sulphur cap, including using low-sulphur fuel oil (LSFO), installing exhaust gas cleaning systems (scrubbers), or switching to alternative fuels such as liquefied natural gas (LNG) (Halff et al., 2019). Each option has its advantages and disadvantages in terms of cost, availability, and environmental performance. LSFO is the most straightforward compliance option, but it comes at a higher price compared to HFO. Scrubbers allow ships to continue using HFO, but they require significant upfront investment and may face operational challenges. LNG is a cleaner alternative fuel, but it requires specialized infrastructure and may not be suitable for all ship types (Wan et al., 2021).

Fuel Prices:
The global sulphur cap has had a significant impact on marine fuel prices. The increased demand for LSFO has led to a price premium over HFO, which has affected the operational costs of shipowners (Yuen et al., 2020). The price differential between LSFO and HFO has fluctuated since the implementation of the regulation, influenced by factors such as refinery capacity, regional availability, and market dynamics. Shipowners who have invested in scrubbers can take advantage of the price spread between LSFO and HFO, potentially gaining a competitive edge over those using LSFO (Lindstad & Eskeland, 2021).

Operational Costs:
The global sulphur cap has increased operational costs for shipowners, primarily due to higher fuel prices and compliance investments. Shipowners using LSFO face increased fuel expenses, which can account for a significant portion of their total operating costs. Those who have invested in scrubbers or LNG-fueled ships have incurred additional capital expenditures, which may take several years to recover (Atari et al., 2019). The increased operational costs have put pressure on shipowners to optimize their operations, improve fuel efficiency, and seek ways to pass on the additional costs to customers through higher freight rates (Sys et al., 2020).

Competitiveness Implications:
The impact of the global sulphur cap on the competitiveness of the shipping industry varies depending on factors such as ship type, trade route, and market conditions. Shipowners who have invested in compliance solutions such as scrubbers or LNG-fueled ships may have a competitive advantage in the short term, as they can continue using cheaper HFO or benefit from the environmental performance of alternative fuels (Halff et al., 2019). However, the long-term competitiveness of these investments depends on the future price differential between LSFO and HFO, as well as the regulatory landscape and market demand for cleaner shipping (Yuen et al., 2020).

The global sulphur cap has also accelerated the adoption of cleaner technologies and fuels in the shipping industry, which may enhance its long-term competitiveness. The increased focus on environmental sustainability and the growing demand for green shipping have encouraged shipowners to explore innovative solutions such as wind-assisted propulsion, fuel cells, and biofuels (Balcombe et al., 2019). These developments may help the industry to reduce its environmental footprint, comply with future regulations, and meet the changing expectations of customers and stakeholders.

Conclusion:
The IMO’s global sulphur cap has had a significant impact on the competitiveness of the shipping industry, presenting both challenges and opportunities. While the regulation has increased operational costs for shipowners, it has also accelerated the adoption of cleaner technologies and fuels, potentially enhancing the industry’s long-term competitiveness. Shipowners must carefully consider their compliance strategies, taking into account factors such as fuel prices, operational efficiency, and environmental performance. The industry’s ability to adapt to the changing regulatory landscape and meet the growing demand for sustainable shipping will be crucial for its future competitiveness.

As the shipping industry continues to navigate the challenges posed by the global sulphur cap, further research is needed to assess the long-term impact of the regulation on the industry’s competitiveness and environmental performance. Future studies should focus on the cost-effectiveness of different compliance strategies, the potential for alternative fuels and technologies, and the role of policy incentives in promoting sustainable shipping practices.

References:
Atari, S., Prause, G., & Yuen, K. F. (2019). The Impact of the Global Sulphur Limit on the Maritime Supply Chain. Sustainability, 11(6), 1795. https://doi.org/10.3390/su11061795

Balcombe, P., Brierley, J., Lewis, C., Skatvedt, L., Speirs, J., Hawkes, A., & Staffell, I. (2019). How to decarbonise international shipping: Options for fuels, technologies and policies. Energy Conversion and Management, 182, 72-88. https://doi.org/10.1016/j.enconman.2018.12.080

Halff, A., Younes, L., & Boersma, T. (2019). The likely implications of the new IMO standards on the shipping industry. Energy Policy, 126, 277-286. https://doi.org/10.1016/j.enpol.2018.11.033

International Maritime Organization. (2020). Sulphur 2020 – cutting sulphur oxide emissions. https://www.imo.org/en/MediaCentre/HotTopics/Pages/Sulphur-2020.aspx

Lindstad, H., & Eskeland, G. S. (2021). Scrubbers: A mitigating measure for shipping in a low carbon future? Transportation Research Part D: Transport and Environment, 97, 102967. https://doi.org/10.1016/j.trd.2021.102967

Notteboom, T., Pallis, A., & Rodrigue, J. P. (2021). Port Economics, Management and Policy. Routledge.

Sys, C., Vanelslander, T., & Lam, J. S. L. (2020). The impact of the global sulphur cap on maritime supply chains: A market-level analysis. Transportation Research Part E: Logistics and Transportation Review, 136, 101915. https://doi.org/10.1016/j.tre.2020.101915

Wan, Z., El Makhloufi, A., Chen, Y., & Tang, J. (2021). Decarbonizing the international shipping industry: Solutions and policy recommendations. Marine Pollution Bulletin, 165, 112140. https://doi.org/10.1016/j.marpolbul.2021.112140

Yuen, K. F., Wang, X., Wong, Y. D., & Ma, F. (2020). The effect of maritime emissions trading system on fleet deployment and speed optimization. Transportation Research Part D: Transport and Environment, 87, 102534. https://doi.org/10.1016/j.trd.2020.102534