May.30--New low-sulfur limits for ships that come into effect in North America and northern Europe at the beginning of 2015 could add almost $50 to the cost of transporting a standard container across the Atlantic, according to Drewry Maritime Research.
Under MARPOL Annex VI, sulfur oxide, or SOx, content in marine fuel was reduced globally from 4.5 percent to 3.5 percent in 2012 and as of 2020, SOx content in marine fuels will be further cut to 0.5 percent subject to a feasibility review to be completed no later than 2018. Container lines are hoping that the 2020 implementation will get pushed back to at least 2025.
Limits inside designated emission control areas, or ECAs, in North America and northern Europe, were reduced to 1.0 percent in 2010, from 1.5 percent, and will be reduced again to 0.1 percent in 2015.
To comply with these regulations, vessels will have to be fitted with expensive exhaust scrubbers, use liquefied natural gas or burn marine gas oil. Marine gas oil is the most practical solution in the short-to-medium term, according to the London-based Drewry. Although some vessels are now being ordered with LNG or heavy fuel oil engines, they require “enormous” fuel tanks that will reduce cargo space, and major cities are reluctant for LNG stations to be built in nearby ports. So far, few, if any, container vessels have installed scrubbers, though they may become common place in the future.
“When you go from burning bunker, to burning a distillate fuel everywhere, you’re talking about the better part of $100 billion, annually, for the container industry, alone,” said Ron Widdows, former CEO of Rickmers Group, at the TPM Conference in Long Beach, California, in March. “Who pays for that? The carriers today haven't yet figured out a way to pass on the full cost of bunker fuel changes.”
With marine oil gas costing around $300 per metric ton more than heavy fuel oil, ocean carriers have warned shippers they face surcharges starting next year. Hapag-Lloyd estimates its fuel bill will increase by $120 million to $200 million a year based on current fuel prices and its service network. Maersk Line and its Safmarine and Seago affiliates face a $200 million hike in their bills.
In the week of May 23, 1.0 percent low-sulfur bunker fuel cost $645.30 per gallon, compared with high-sulfur fuel, which cost $586.50 per gallon, according to Bunkervision.
Drewry estimates using the more expensive fuel will add $29 to the cost of shipping a 20-foot container between northern Europe and the U.S. East Coast calling at only New York; Norfolk, Virginia; and Charleston, South Carolina. The round trip voyage cost increase between northern Europe and the U.S. East and Gulf coasts calling at Charleston; Port Everglades, Florida; Houston, Texas; Savannah, Georgia; and Norfolk is estimated at $49 per TEU. In the week of May 22, World Container Index rates from Rotterdam, the Netherlands, to New York reached $2,078 per FEU, and rates from New York to Rotterdam totaled $1,436 per FEU.
The extra costs will be higher for the many smaller and older vessels on the trans-Atlantic route, according to Drewry.
There will also be additional costs for feeding containers between continental European ports and the Baltic to and from the east and west coasts of the U.K. For a typical round trip voyage between Hamburg, Germany, and St. Petersburg, Russia, for example, there will be an additional cost of $21 per TEU.
The additional costs will be much lower on Asian routes to and from North America and northern Europe partly because there are no Emission Control Areas in Asian waters yet and partly because ships on these routes are far more fuel efficient.