The Low Sulphur Surcharge Explained
Carriers are introducing a new LSS (Low Sulphur Surcharge) for all cargo with load port, transhipment and/or discharge port in ECA (Emission Control Areas).
The international Maritime Organisation (IMO) is the United Nations specialised agency with the responsibility for shipping. The IMO operates through a number of committees, including the Marine Environment Protection Committee (MEPC), which deals with the prevention of pollution from ships. The International Convention for the Prevention of Pollution from Ships (the MARPOL Convention) was developed by MEPC; MARPOL Annex VI’s main area of focus is implementing measures to limit the discharge of Air pollution. A significant cause of air pollution by container vessels is the emission of sulphur. Sulphur emissions are toxic and cause respiratory implications as well as acid rain, controls of this emission have been seen in the shore side industry and in transport applications for a number of years therefore an obvious transition for the IMO to implement more stringent controls on sulphur emissions in Emission Controlled Areas (ECA). Over the years, ECAs have been extended to cover The English Channel and North Sea, as well as North America (both East and West Coast) and the Caribbean Sea.
Sulphur is present to a greater or lesser extent in all crude oils, in July 2010 the maximum sulphur limit in fuel oil for shipping containers in ECAs was restricted to 1%. From January 2015 the IMO are now implementing a further reduction limiting sulphur to 0.1%, this will present significant challenges for the whole maritime shipping industry. Due to the new regulations shipping carriers who previously used low sulphur fuel oil (LSFO) to comply with the 1% regulation will now need to use much more expensive low sulphur marine gas oil (LSMGO). Sulphur emissions (SOx) from ships will be reduced by 90% in the ECA areas, which will have significant positive effects on the environment and on health in general
Implication for shippers
All shipping lines crossing the designated Emission Control Areas have to adhere to these legally binding regulations. Maersk Line estimates that it will purchase 650,000 tonnes of LSMGO a year for its fleet, equal to 7% of its annual bunker fuel requirement, at an additional cost of around $250m. Hapag-Lloyd says it faces a similar bill. As a result of the increased purchase of more expensive LSMGO carriers are introducing a new LSS (Low Sulphur Surcharge) for all cargo with load port, transhipment and/or discharge port in ECA. For other effected areas the increase is expected to be between between $50 and $150 per 40 foot container to and from main ports, depending on transit time inside ECA areas and whether touching ECA areas at both origin and destination. Maritime Gas Oil prices are expected to rise further in 2015, by as much as 20% according to some predictions, due to increased demand pressure on the distillate supply pool with carriers likely to pass this increase on to shippers. Surcharge levels will be reviewed quarterly, and will be adjusted to reflect the cost for low-sulphur fuels, i.e. significant fluctuations in the price for low-sulphur fuels will be reflected in the surcharge levels. First review will take place end Q1 2015
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