Tuesday, August 26, 2014

New Sulfur Emissions Regulations: What’s the Impact on Your Business?

By Sri Laxmana - Director of Ocean Services, C.H. Robinson

Sulfur Emission Regulations
You may have already heard that on January 1, 2015, ocean vessels will face stricter sulfur emissions regulations. While this may seem like it won’t affect you, think again. It’s true that carriers will be responsible for compliance with the change. However, the cost of compliance is often passed on to shippers.

What’s Changing?
To protect the environment and reduce global pollution, the International Maritime Organization (IMO) has regulations in place to control particulate matter emanations, including sulfur emissions. Sulfur—a natural element of the crude oil that ships use as fuel—is a primary cause of air-polluting particles emitted by ships. The new sulfur level regulations are intended to reduce the amount of air pollution generated by the shipping industry to improve air quality. There are two standards carriers must follow—emissions inside an emission control area (ECA) and emissions outside of an ECA. Since 2010, the limit of sulfur emissions inside an ECA was 1.00% m/m by weight. Starting in January, that limit is reduced to 0.10% m/m. [1]
As many ships operate both in and out of these ECAs, it’s already common for ships to operate on different fuel oils for the areas in which they travel. To maintain compliance, carriers will now need to use a different type of fuel inside ECAs—one that is not as readily available.

The Impact on Shippers

Right now there are concerns that refineries cannot produce enough of the marine fuel that meets with the new sulfur emissions standards. In a proactive strategy, carriers and refineries worldwide are in discussions to ensure there will not be a shortage in supply to satisfy the level of demand coming in the near future.
When the regulation goes into effect, it’s likely that carriers will pass the cost difference to shippers. Initial estimates indicate that container costs may rise by $20-30 per TEU in transpacific lanes and $40-50 per TEU in transatlantic lanes. This is a significant price surge to overcome in today’s competitive marketplace, especially for companies who have not budgeted for such an escalation.

What You Can Do

It’s critical to stay up to date on this and other changes to regulations that can impact your business so you aren’t blindsided by them. Whether subscribing to trade magazines, industry blogs, or following reliable sources on social media channels, find a way to stay in the know.
Your transportation provider is also a good source of information. Starting a conversation with your provider can help identify the potential impact the sulfur emissions change (or any change) will have on your business. By understanding a change’s influence on your business, you’ll be better prepared to properly budget for the future.

Still have questions about the new sulfur emissions regulation? Check out the IMO web page about the regulation at http://www.imo.org/ourwork/environment/pollutionprevention/airpollution/pages/sulphur-oxides-(Sox)-–-Regulation-14.aspx

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