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            may 23, 2019

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Weaker box lines risk bankruptcy because of IMO 2020


New York's AlixPartners' latest Global Container Shipping Outlook warns shippers to brace themselves for demands from carriers for money to retain their profitability in the face of rocketing fuel costs brought on by the United Nations.
"The implementation of the IMO 2020 regulations will pose a daunting challenge for carriers," says AlixPartners.
"The price difference between low-sulphur and high-sulphur fuel may become even wider, "and if it does go up sharply, that is enough to drive carriers into bankruptcy if they can't recover that cost".
Starting next year the IMO mandate will require carriers globally to use more expensive fuel with a maximum sulphur content of 0.5 per cent or use emission scrubbers to clean engine exhaust. Today, bunker fuel can have a sulphur content of 3.5 per cent.
"Carriers will have to impose significantly higher fuel surcharges in 2019 to maintain margins. Failure to do so will depress cash flow significantly," said the Outlook report.
Vancouver's Ship & Bunker said the average price of high-sulphur ISO 380 for the 20 largest bunkering sulphur marine gas oil.
AlixPartners says the IMO mandate could raise fuel costs as much as US$10 billion annually, $3 billion alone on the eastbound transpacific and Asia-to-Europe routes.
Ships on those two routes account for about 20 per cent of shipping trade volume but use a greater amount of fuel because of their longer voyages.
"According to our analysis of large carriers that publish bunker adjustment factor (BAF) rates (tracked by maritime research consultant Drewry), carriers plying the Asia-Europe route in 2018 would have had to increase their BAF rates by 40 per cent, or $270 per FEU, to achieve the same financial result," said AlixPartners.

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