On January 1, 2020, new regulations from the International Maritime Organization (IMO) will take effect, mandating that every ship in the world must use clean fuel with a sulfur content of less than 0.5%. In order to achieve this change from the current sulfur standard of 3.5%, ocean carriers have been working towards implementing a variety of counter measures, including the use of low sulfur fuel, installation of desulphurization units (also known as scrubbers), the use of LNG (Liquefied Natural Gas) clean energy, and more.
The costs for carriers to take these measures is significant and they will levy new surcharges as a result. We are expecting to see diverse ways of carriers passing this cost along to the maritime industry, with each carrier using their own methodology. We have received indication that the new fees associated with the IMO 2020 regulations will go into effect on December 1, 2019; however, many of the carriers have not yet announced what their IMO 2020 surcharges will be. RIM logistics, ltd. will send an update to our customers advising what the surcharge will be for both FCL and LCL shipments, as soon as this is known.
The new regulations also have the potential to impact capacity, as carriers may take some vessels out of rotation to install scrubbers as a means of meeting the new requirements. Scrubbers will allow vessels to achieve the sulfur reduction while still burning high-sulfur fuel; however, to install them, a vessel must be removed from service for about three weeks. Most vessels will not have scrubbers and will burn low sulfur fuel instead. For the vessels where scrubbers will be utilized, carriers have the option to introduce blank sailings, or they can rotate replacement vessels in while the installation is being completed.
Carriers have begun to announce aggressive blank sailings on the Transpacific Eastbound trade for the remainder of the year as a result of the scrubber effect, and also as a means to try to control market conditions. So far, they have announced twenty-nine blank sailings for October, eight in November, and the cancellation of a weekly service from Asia to the US East Coast from November until March. Additionally, it is expected that carriers may soon be announcing the suspension of some additional services.