Delos Shipping’s Brian Ladin Explores Fuel Regulations’ Impact on the Logistics Industry
The logistics and shipping of goods is often taken for granted by the average citizen — their connection to the matter usually fails to surpass the ordering of material and the tracking of an item’s delivery online. Exactly how it arrives is not a top priority, but that could change in the not-so-distant future. Upwards of 90 percent of global trading transpires on the oceans and policy and adjustments will affect people in all walks of life (consumers, sellers, manufacturers, employees etc). With newly introduced shipping regulations slated to be enforced as early as 2020, Brian Ladin, founder and CEO of Delos Shipping in Dallas, Texas, explains why this is set to drastically alter the landscape of the shipping and logistics industry.
Regulatory Effects
IMO, better known as the International Maritime Organization, is the UN agency tasked with establishing a clean, safe and efficient global shipping industry. IMO 2020 is their upcoming regulation that is to take effect on January 1, 2020. In it, a 0.5 percent sulfur emissions cap will be the new norm, putting an end to the previous limit of 3.5 percent. Brian Ladin sees this as having a three-pronged effect:
1) Naturally, the demand for fuel oil that is rich in sulfur will dwindle, causing the price to drop;
2) Diesel, with its lower levels of sulfur, will become the fuel oil that is craved, and its rising prices will reflect that;
3) Refiners will reap the rewards of the new regulations, as the amount of refining runs increase and create more profits.
Shipping companies can combat this and try their luck with ‘scrubbers’, a component that handles the removal of sulfur oxides from the ship’s engine and boiler exhaust gases. On paper, it is a fantastic solution, but the installation fee of $5-$10 million dollars, a waiting period of more than six weeks for completion and the few manufacturers that provide this service does complicate the decision.
Economic Consequences
Economy wise, IMO 2020 will have a far-reaching impact, as the regulations are bound to factor into freight fees. These rates, put in place for cargo deliveries, are decided by fuel costs, transport mode, freight classification, cargo weight, distance and time between ports and tariffs and taxes. Availability of lower-sulfur fuel will be a topic of discussion, as it obviously will not be as simple to load up on. Lower-sulfur fuel could cause the annual costs of fuel to skyrocket by 25 percent in 2020, totaling $60 billion dollars. A shortage of fuel would also leave ships with the unwanted need to stray from their path in order to fill up, possibly throwing them in a limbo. Esben Poulsson, Chairman of the International Chamber of Shipping, states that uncertainty is looming with regards to the type, quantity and pricing of fuel that will be available. Consumers, in the eyes of Brian Ladin, will also bear a portion of the after-effects here, as the rising fuel costs and its underwhelming availability will translate into higher freight rates, which will be absorbed by the masses. Goldman Sachs believes that a plausible scenario is to the tune of $240 billion dollars being seized from the consumer’s pockets.
Environmental Developments
Between the transport ships, oil tankers and cargo ships, combining for a total of roughly 59,000 vessels, it is easy to understand how IMO 2020 will be serviceable for the environment. Bunker fuel makes up 7 percent of transportation oil consumption, equaling 3.5 million barrels per day, and burning this fuel results in 90 percent of all sulfur oxide and dioxide emissions worldwide. To put that into perspective, Brian Ladin states all of the world’s cars combined produce less sulfur emissions than the 15 largest ships on the oceans.
With the bulk of the vessels carrying sulfur-laden bunker fuel, the emissions are doing no favors for the environment’s dry land. According to Brian Ladin, releasing sulfur oxides into the atmosphere leaves society exposed to the possibility of respiratory illnesses, cardiovascular and lung diseases, haze, acid rain, lighting storms and crop failures. IMO 2020’s emission cap will help preserve the environment and the health of its inhabitants to a degree. Vessels, when traveling at a slower speed, can also reduce the emissions that the environment takes in. A large ship can, in theory, use one-third of the metric tons of high-sulfur fuel oil (HSFO) that is required to travel at quick speeds.
