What 2020 IMO Sulfur Regulations Could Mean for Your Logistics

The deadline for low-sulfur fuels will come into effect this year. Here’s what that means and how it might impact your logistics operation.

The greatest volume of freight in the global economy is shipped by sea. The world depends on the massive network of seaports, terminals, carriers and labor that make the logistical wheel turn for so many companies.

Roughly 90% of global goods are transported this way, including over 70% of all U.S. international merchandise trade, with most of that being containerized cargo. Your business most likely depends on ocean freight somewhere along its logistic lines, so the big changes coming to how ocean freighters are regulated may impact you.

In today’s blog, we’ll discuss:

• What the IMO 2020 regulations are

• How this will impact ocean freight shipping in real terms

• Where this could impact your own logistics spending

• How Resource Logistics Group can help

What the IMO 2020 regulations are

IMO stands for the International Maritime Organization, the body that writes the rules for the entire shipping industry. Their research into the environmental impact of ocean freight shipping revealed some disturbing data — not least of which was that ocean freight, long considered to be an eco-friendlier mode of transport than air, was contributing twice as much CO2 pollution.

That’s around 1.2 billion tons of toxic emissions from shipping, which some analysts say is responsible for over 60,000 deaths annually. The IMO 2020 regulations came into effect on January 1 this year and impose tougher rules on ships’ sulfur emissions. Ships are no longer permitted to utilize fuels with sulfur content of above 0.5%. To put the stringency of these new regulations into perspective, pre-2020 tolerance levels were 3.5%.

The regulations will be enforced by both nations and their ports, with penalties for non-compliance ranging from steep fines to vessel detention and/or imprisonment. These penalties will be set on a location-specific basis, so no firm figure can be quoted, but consider that one freighter operation was fined $3 million for non-compliance with pre-2020 sulfur emission regulations.

How this will impact ocean freight shipping in real terms

There is a way for shippers to continue burning higher-sulfur fuels if they equip their vessels with “scrubbers” — sector slang for cleaning systems that remove sulfur dioxides from the ship’s engine and boiler exhaust gas. Those who don’t will be obliged to move to low- or no-sulfur energy sources such as biofuels or liquified natural gas. It must be one or the other, however, as the IMO does not recommend a mixture of fuels.

This has a wider impact on the refineries that produce fuels, to whom these regulations also apply. The necessary adjustments for the refineries will not be cheap, and that will likely drive up the price of sulfur-compliant fuels. That’s a cost that will be felt by the shipping industry and everyone who uses them.

What this could mean for your logistics budget

First, if your company has an ocean freight provider somewhere in its logistics line and that company falls afoul of IMO regulations, they may pass the fine back down the supply chain to absorb its impact. Remember that $3 million penalty we mentioned earlier? That’s a lot of money for any shipping company to recoup, so logistics departments should be extra vigilant for invoice increases.

Second, should those shippers be diligent and comply with the IMO as required, that’s also going to cost them. The necessary technical upgrades — or shift to new fuel types — isn't cheap. Again, we are likely looking at a cost-absorption scenario where freighter companies hike their prices — perhaps only by a little — to keep pace with their new expenses.

Lastly, the world’s ocean shipping sector is so intertwined that there’s potential for at least a partial, if not massive, slowdown in international trade. The logistics operations of your business may be hit by the ripples of these delays — an unwelcome slowdown in your operations that could necessitate turning to other transport options at least in the short-term.

A short-term adjustment may not sound so bad to the casual ear, but logistics departments know what a time-consuming and expensive proposition it can be to find new logistics partners, vet their history, and establish a new and cost-effective relationship, no matter how long that new alliance may need to last.

How Resource Logistics Group can help

Whichever of those three scenarios occur, they represent the likelihood of greater expense for your logistics department. This is where partnering with Resource Logistics Group (RLG) can provide key logistics management assistance and other benefits. We can ease the burden of back-office operations and help you manage the flow of your goods throughout this newly delicate global supply chain with our Transportation Management Solution.

RLG can also be there should you need to renegotiate with current shippers or find new logistics partners. We’ll help with those annual agreements and keep all pricing and language up to date. Combine this with our ongoing advanced logistics and supply chain analytics, and your supply chain footprint and the performance of your logistics partners will be made clear and actionable.

RLG is passionate and determined when it comes to making your day-to-day logistics as efficient and cost-effective as possible. No matter how new regulations impact global shipping, we’re a long-term partner you can rely on.

Resource Logistics Group provides transportation and logistics advice combined with professional services and state-of-the-art technology. From contract negotiations to easing back office burdens, we’re your ally in excellence. Connect with us on our contact page for a free benchmarking analysis.