As of January 1, 2020, the International Maritime Organization (IMO) has mandated a lower cap for sulfur in fuel oil used by oceangoing vessels, including container ships and other vessels engaged in global trade. The intent behind the stricter cap on sulfur is to reduce airborne emissions of sulfur oxides, which harm respiratory health and damage the environment.
In the leadup to the January 1 implementation date, ocean carriers adopted a range of solutions and technologies to comply with the new requirement. These include the use of very low sulfur fuel oil (VLSFO); adoption of compliant fuel alternatives such as LNG, biofuels, marine gasoil (MGO), or methanol; and use of open-loop or closed-loop "scrubbers" (i.e., exhaust gas cleaning systems) to remove sulfur oxides from a ship's engine and boiler emissions. In the United States, the Federal Maritime Commission (FMC) has vowed to monitor the transparency of bunker-adjustment factor formulas used by carriers in implementing the new cap.
The specific consequences of IMO 2020 are still very much in the air for carriers and shippers alike, and it will likely take at least a few months for the new transportation landscape to come into focus. Whether sufficient amounts of compliant fuel will be available at main bunkering ports, for example, remains an open question. In the meantime, it is not too late for companies to create a game plan for the best approach to this "new normal" for bunker fuel – and related costs.
IMO 2020 is one of the most high-profile regulatory changes in current headlines that the shipping and maritime industry should be monitoring in the new year. If you are interested in discussing this or other upcoming changes to the regulatory environment, and the potential impact on your business activities, please do not hesitate to reach out to attorneys in Venable's International Trade and Logistics Group for more details.