Your Guide to the Low Sulphur Regulation and Low Sulphur Surcharge
If you’re an importer or exporter you may have heard of the new Low Sulphur Regulation which is due to come into effect on 1 January 2020. This regulation requires all sea-going vessels to reduce sulphur emissions by 85% to meet strict new guidelines.
You may also have heard about a Low Sulphur Surcharge (LSS), set to be levied by all major shipping lines to offset the higher fuel and compliance costs of meeting the new regulation. This will increase shipping costs for importers and exporters across the globe.
To prepare you for these changes, we’ve put together a guide to the Low Sulphur Regulation and the accompanying Low Sulphur Surcharge.
What is the Low Sulphur Regulation?
The International Maritime Organisation (IMO) is introducing a Low Sulphur Regulation on 1 January 2020. This regulation will require all sea-going vessels to reduce sulphur oxide (SOx) emissions by 85%. This means sulphur fuel oil must be reduced from 3.50% to 0.50%, on top of the 0.10% sulphur limit already enforced in Emission Control Areas (ECA).
The aim of the Low Sulphur Regulation is to reduce the amount of SOx emissions worldwide and minimise adverse effects on human health and the environment. It’s expected that the regulation will reduce overall SOx emissions across the globe, improving air quality and reducing the risk of acidification in the oceans.
What is the Low Sulphur Surcharge?
Complying with the Low Sulphur Regulation and achieving an 85% reduction in SOx emissions requires a change in the fuel used by the global shipping industry. As extra processing is required to reduce the sulphur content in fuel to compliant levels, the cost of Very Low Sulphur Fuel Oil (VLSFO) will be significantly higher than existing High Sulphur Fuel Oil (HSFO).
To offset the higher cost of fuel under the new Low Sulphur Regulation, shipping lines are set to introduce a Low Sulphur Surcharge (LSS) from January 1. This means all importers and exporters will pay a surcharge (on top of the freight they already pay) to cover the increased costs of VLSFO and compliance with the new regulation.
The Drive for Low Sulphur
The harmful effects of SOx emissions on human health and the environment have been known for years, with the IMO working to reduce the impact of shipping since the 1960s. In humans, SOx emissions can cause respiratory symptoms and lung disease, while in the environment, SOx emissions contribute to acid rain and the acidification of the oceans.
Up to now, commercial ships have run on a range of bunker fuels with high sulphur content, including Marine Gas Oil (MGO), Marine Diesel Oil (MDO), Intermediate Fuel Oil (IFO), Marine Fuel Oil (MFO) and Heavy Fuel Oil (HFO).
Recognising the need to reduce these emissions, regulations for the Prevention of Air Pollution from Ships (Annex VI) were developed to control airborne emissions. In 2018, more than 100 member states met at the United Nations IMO in London and agreed to a strategy to reduce emissions from ships by at least 50% by 2050 (compared to 2008 levels).
Complying with the Low Sulphur Regulation
To help ships comply with the new lower emission standards, the IMO has provided the following advice:
● Ships can meet the requirement by using low-sulphur compliant fuel oil (VLSFO).
● Ships can use gas as a fuel in line with the International Code for Ships using Gases and other Low Flashpoint Fuels (the IGF Code).
● Ships can also use approved exhaust gas cleaning systems (scrubbers) to “clean” the emissions before they are released into the atmosphere.
Regardless of the method used to comply with the Low Sulphur Regulation, it will cost shipping lines more to operate their fleet once the regulation comes into effect. This is why all major shipping lines are expected to pass on this cost by levying a surcharge on importers and exporters.
What the Low Sulphur Surcharge Means for You
While final costs to importers and exporters are not yet confirmed, the new compliance regime will lead to increased costs as shipping lines move to a more compliant fuel source. It’s estimated that more than 90% of the global shipping fleet will need to rely on more expensive VLSFOs from January 1, with the rest needing to invest in scrubbers to remain compliant.
To offset these costs, all lines are preparing to levy a mandatory surcharge, in addition to freight and other surcharges, on all trade lanes. Variations on an LSS have been announced by the major shipping lines over the last few months, although final costs are yet to be determined as surcharges may vary based on the trade lanes.
More Information on the LSS
Check out these links for more information on the Low Sulphur Regulation and the LSS:
2020 Low Sulphur Fuel (AMSA)
Sulphur 2020 - Cutting Sulphur Oxide Emissions (IMO)
What is Low Sulphur Surcharge and Why is it Applicable? (Shipping & Freight Resource)
As the Top End’s preferred logistics supplier, PJ’s is here to coordinate your freight and transport needs. If you’d like further information on the LSS and its potential impact on your business drop into our Darwin office, email us logistics@pjscustoms.com.au or give us a call on 1300 395 760.