Shipping's sulfur cap conversation moves on from the IMO

As the shipping industry continues to assess the likely impact of the International Maritime Organization's new 0.5% sulfur cap in 2020, the conversation has started to move on to what other organizations can do to enforce it.

The IMO decided in October last year to cut the global marine fuel sulfur limit to 0.5% at the start of 2020 from 3.5%. The change will be an expensive one for ship owners and operators, and the financial incentive to ignore the new sulfur cap where possible will be strong.

The IMO has no enforcement powers of its own, and will rely on national governments to make sure its rules are being followed to the same extent around the world. At industry events earlier this month for London International Shipping Week, most delegates took the view that a significant level of non-compliance is likely at least in the first few years after the cap comes into force.

At the most recent meeting of the IMO's Marine Environment Protection Committee in July, there was no further progress on measures to ensure compliance in 2020. The shipping industry now seems to be acknowledging that the 2020 deadline could pass without much further guidance from the IMO on enforcement measures, and some are now examining which other organizations may be able to help ensure a level playing field.

Various attendees at shipping week events mentioned our interview from earlier this year with IKEA Transport global sustainability director Scott Hemphill, in which he warned shipowners that they risk losing business from the Swedish home furnishings group if they do not comply with the sulfur cap. One key factor to watch in the next couple of years is whether some of the largest users of shipping in the world — the likes of Wallmart, Alibaba and so on — follow suit.

Several of these companies already impose a strict set of standards throughout their supply chains related to the use of child labor and other ethical issues, and adding guarantees on the use of compliant marine fuels to this list of restrictions would significantly cut the potential for shipowners to break the rules. The shippers of finished goods in particular rely on having a positive image among both politicians and the general public, and pressure from them on the shipping industry to uphold that image could drive demand.

More people within shipping are also looking to the insurance industry to see whether they are likely to enforce compliance with the sulfur cap in 2020. If a shipowner makes an insurance claim on a vessel that was burning non-compliant fuel at the time, it remains unclear whether the claim could be dismissed on that basis.

In July Stephen Harris, senior vice president in the marine practice at insurance broker Marsh, told us the industry was actively debating the issue of whether non-compliance would imperil a vessel's insurance coverage by allowing it to be deemed unseaworthy. Even if no clear guidance on this issue emerges from insurers before 2020, the uncertainty by itself could be enough to make the risks involved with non-compliance too high for some.

Finally, some are also looking into whether port states could be persuaded to do more to enforce compliance on their own. While it now seems unlikely that port states will be empowered by the IMO to arrest vessels leaving their waters with insufficient compliant fuel for their full journeys, unilateral action by the port states could still be possible.

Blacklisting individual vessels or entire fleets would be one possibility — preventing vessels from a shipowner's fleet from visiting your port again if one is caught leaving without enough compliant fuel.

The key with this issue will be whether port states can cooperate with each other to enforce the rules. If one port were to take a strict line on this on its own, the authorities there might worry about a neighboring port operating a more lax regime and taking away demand as a result.