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IMO 2020 rule to leave container shipping lines with US$1bn fuel bill

Drewry Shipping Consultants estimates container shipping lines will face an US$11 billion fuel bill next year on account of the switch to low sulphur marine fuel in order to meet the International Maritime Organization's (IMO) new rule that caps sulphur content to 0.5 per cent from January 1. As a result, carriers will likely pass on the extra fuel costs to shippers. If they fail to foot the bill, the carriers are expected to cut service levels.

The degree of compensation that carriers receive from shippers will dictate the level of service disruption during 2020, according to Drewry's senior manager of container research, Simon Heaney.

"Our working assumption is that carriers will have more success in recovering that cost than previously, to the point that there will be no major disruption to supply. Most shippers accept that they will have to pay more but they rightly expect any increase to be justified with a credible and trusted mechanism - in other words, the ball is very much in the carriers' court," said Mr Heaney. If the ocean liners do fall short in recovering IMO 2020 fuel costs from customers by a significant margin, "there will be much less focus by carriers on service quality and more on cost cutting," said Mr Heaney.

"In that scenario, carriers will try to protect cash flows by restricting capacity as best they can, through a combination of measures, including further slow-steaming, more blank sailings and off-hiring of chartered vessels." There also could be a push by lines to equip ships with scrubbers to avoid the premium pricing on low sulphur fuel. Vessel demolition rates could speed up, too. "If events follow this path, the supply-demand balance will look very different from our current forecast," said Mr Heaney. "The worst-case scenario, when most shipping lines cannot operate close to breakeven and some potentially face bankruptcy, would actually be a far quicker route to rebalancing the market than the current plodding track. "It would take a very brave carrier to want such a turn of events, but for those that could be sure of coming through the other side, after some initial pain the rewards would be far greater."

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