What's All This About A Low-Sulphur Charge?
IMO 2020 Rule poised for implementation January 1, 2020.
On January 20, 2020, the International Marine Organization’s next phase of legislation aimed at reducing the sulfur content of marine fuel will take place. The IMO, a specialized Agency of the UN and its Marine Environment Protection Committee (MEPC), initiated over the past 27 years mandates aimed at reducing air/sea pollution in international shipping. This low sulfur mandate takes effect globally on January 1st and will impact all ocean shipments.
Compliance with the IMO 2020 Rule will significantly impact all the stake holders in the marine industry including shippers, petroleum refiners, and vessel owners. It is estimated that compliance costs may exceed $30 billion. This estimate does not take into account fuel availability, failure to comply fines, costs of retrofitting vessels and other unknown circumstances.
Increased costs will most likely be passed on to shippers in the form of fuel surcharges, revised BAF or bunker fees, increases in ocean freight or specially named fees.
As the January 1, 2020 date draws near, definitive information on the form these additional fees will take or the amount to be assessed is still unknown. Until the increases are rolled out or announcements are made the following suggestions may help protect sellers and shippers.
1. Resist freight forwarder pressure to accept additional charges prior to the end of the 4th quarter of 2019
2. Account for IMO 2020 costs in sales contracts by specifically excluding the expense from your pricing. Be prepared to explain the exclusion to your clients by offering supporting documentation in your sales package.
3. If you choose to include the additional cost in your Cost of Goods Sold, be mindful that steamship lines may have different costs and methodologies and will therefore assess different fees. If your company ships with multiple carriers, or your client requests specific carriers/sailings, make your quotation based on a specific carrier and include language that will allow for rate changes if the carrier’s surcharges increase more than a certain percentage.
For additional information or assistance with managing the Low-Sulphur Charge, please contact us. We’re always here to help.