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Ship operators need to take a strategic approach to IMO 2020: Lloyd's Register

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Ship operators need to take a strategic approach to IMO 2020: Lloyd's Register

Singapore — Ship operators need to take a strategic approach as the International Maritime Organization's global sulfur limit rule inches closer and full compliance to the rule still remains a question mark, Douglas Raitt, regional consultancy manager Asia at Lloyd's Register, said.

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About 15% of the world's fleet will likely not comply with the IMO 2020 rule, Raitt said in an e-mail response Saturday.

However, this is expected to drop over time with strong enforcement by port state control agencies, he said.

The IMO will cap sulfur in marine fuels at 0.50% m/m worldwide from January 1, 2020, compared with 3.50% m/m currently. This applies outside the designated emission control areas where the limit is already 0.10% m/m.

The rule is one of the biggest game changers in the shipping industry as a significant and large proportion of high sulfur fuel oil, used as bunker fuel, will need to have the sulfur in them reduced to 0.50%.

Ship operators needed to ask themselves questions such as "Where am I trading, what ports do I call, what product is available there, what is the quality and the chemistry of fuel I am loading, how do I require to store and manage the fuel onboard and how can I train my crew to operate the vessel with that fuel correctly," Raitt said at the Wilhelmsen Ship Management event in Singapore on Friday.

To-date ship owners, however, seem unwilling to invest heavily in abatement technology due to high capital expenditure costs and uncertainty over fuel prices post-2020.

Meanwhile, there will not be an issue with the availability of 0.50% m/m sulfur bunker fuel, as the supply industry is expected to meet demand through a mix of compliant distillates, blends and new fuel formulations, Raitt said. "January 1, 2020 will come and go. There will be enough product availability; it is just a matter of how much ship operators or charterers are willing to pay for any given compliant fuel solution," Raitt said, adding that the premium of low sulfur fuel oil over HSFO was the likely reason why some ship owners may risk initial non-compliance.

In case a ship owner or operator encounters non-availability of fuel oil, the outcome will likely be a simple one, he said.

In such a situation, a ship operator can simply provide the fuel oil non-availability report, or FONAR, to the flag state. Should it be proven that the fuel was genuinely not available, the ship will not be penalized, he said.

"However, if there was no FONAR and you were non-compliant, the next time you come to a port, you will most likely be subject to detailed investigations. So non-compliance will come at a peril," Raitt said.

While non-compliance to the rule may be high initially, it should decline after 2020 as ship operators realize that this could lead to stricter checks by port authorities, significant fines, penalties and even port detentions, he added.

There is also a need for ship operators to ensure that suppliers deliver fuel blends compliant with the sulfur limit requirement, Raitt said. "So, in order to comply, define a sulfur tolerance limit on the product you buy so suppliers are less likely to overshoot the limit due to blending," Raitt said.

"2020 is a fact. Don't wish for or expect it to go away," Raitt said, adding that the need of the hour was to plan prudently.

-- Surabhi Sahu, surabhi.sahu@spglobal.com

-- Edited by Norazlina Jumaat, norazlina.jumaat@spglobal.com