How does IMO bunker fuel reform add up for consumers?

The shipping industry looks set to be shaken up by the International Maritime Organization's decision to cut global bunker sulfur limits to 0.5% in 2020. Most operators will be forced to buy cleaner, more expensive fuels, raising their bills considerably, but that doesn't mean consumers will endure similarly high prices.

It looks set to be a highly disruptive change for shipping, as each company competes for customers by holding to as small a rise in costs as they can get away with. But a closer look at those costs shows the impact felt by consumers may be limited.

Marine gasoil cost about $146/mt more than fuel oil at Rotterdam toward the end of last week, and we can take that spread as being roughly equivalent to the price rise ship operators might face in 2020 if they switch to a distillate-based fuel and crude prices hold at today's levels.

Denmark's Maersk Line, the largest shipping firm in the world, is currently burning around 0.923/mt of fuel for each forty-foot container it ships around the world. As an example, each of those boxes can hold around 10,000 pairs of shoes -- so for a pair of trainers shipped from China to Europe, the consumer is looking at a price rise of less than two cents.

A car carrier shifting 6,500 new Mercedes from Hamburg to Shanghai will consume around 1,050 mt of fuel along the way. So each of those cars' buyers can expect to pay an extra $23.58 for their purchase.

A VLCC taking 2 million barrels of crude oil from Northwest Europe to Singapore would get through about 4,500 mt of bunker fuel to get there -- meaning a price increase of 33 cents/b. Or less than 1 cent/gal at the pump for the new Mercedes owner picking up gasoline.

These numbers refer only to the cost of shipping the finished product, which isn't entirely representative -- individual parts of the cars may also have been shipped, as well as the raw materials used, and each of these voyages will incur a higher fuel cost. The fuel price rise in 2020 may also be far greater than $146/mt if the shift in bunker demand drives up middle distillate prices.

But even with price rises of two or three times higher, consumers are not going to notice a big impact on their wallets in 2020 because of the IMO's decision.

The tricky part for ship operators will be passing on these increased costs in higher freight rates -- without losing customers as they do. In an industry that's already going through a wave of consolidation, that challenge may be too big for some.