IMO 2020 + Covid-19 = 0

3/25/2020

The coronavirus-driven fall in oil prices in recent weeks has all but eliminated the expected extra costs of this year’s new low-sulphur fuel rules for container lines and their customers, providing one piece of good news in an otherwise highly challenging period

A Logistics Executive Briefing this week by Drewry Supply Chain Advisors notes that the collapse of marine bunker prices “was a surprise, so soon after the rise in costs caused by the IMO 2020 low-sulphur regulation”, adding: “The IMO 2020 regulation led to increases of about 35-45% in bunker prices and in indexed fuel surcharges paid by shippers from December or from January. But these increases have just been reversed, following the crash of oil prices and the 35% fall in Very Low Sulphur Fuel Oil (VLSFO) bunker prices between January (the highest point) and the first half of March (the lowest point, to date) – see table below.”

Philip Damas, head of the container logistics advisory organisation, said “nobody had expected this to happen”, noting: “The good news is that the fuel part of ocean freight rates paid by shippers will fall and that the underlying bunker costs of shipping lines will also be much lower than previously expected. The extra cost of the IMO 2020 rule will be deferred until the global economy normalises.”

He said Drewry has been asked to provide bunker price forecasts to some shippers who are re-evaluating their 2020 ocean freight budgets in light of the market changes.

He recommended to shippers: “Make sure that you keep track of latest VLSFO prices. We also recommend that shippers review their BAF programmes, to make sure that they benefit from the fall in VLSFO prices and have the correct BAF levels.”