Over the years, the industry has seen an increasing amount of attention given to the environmental impact from the global supply chain, resulting in regulations on emissions control and environmental protection becoming more stringent and widespread across the world.
May it be in the form of introducing or expanding Emissions Control Areas (ECA) on the regional level, meeting slow steaming requirements during sensitive seasons to avoid whale strikes at the local level, or investing in more efficient ships with the latest environment friendly features to meet emissions reduction targets, we have all been doing our part to contribute to the protection of our environment.
Moving forward, the industry will be stepping into an important chapter in its history by ensuring all ocean-going vessels in our fleets will be able to meet the International Maritime Organization’s (IMO) new Sulphur cap regulation by January 2020. With this new Sulphur cap on marine fuel lowering from 3.5% to 0.5%, approximately 85% of Sulphur emissions is expected to be reduced but at a significant cost to the entire industry, estimated at about US$60 billion each year.
Currently, the industry has been grappling with the challenges associated to fleet adjustment options, including uncertainties in the availability and accessibility of the 0.5% Low Sulphur Fuel (LSF) in the market and the premium that will be charged for the cleaner fuel. As we explore our options and what would be best for our fleet to ensure compliance by the deadline, OOCL will begin our transition into the use of LSF for our entire fleet during the second half of 2019.
By looking into the expected bunker consumption of our fleet and the projected price difference from switching to the compliant fuel which may possibly become increasingly expensive due to tight supply in the market, we expect the additional cost impact to easily fall well above half a billion dollars. Under the current industry environment and the level of cost involved in an industry that is already very cost-sensitive for survival, shippers and the consumers will need to prepare to shoulder this burden.
In preparation for the surge in this operating cost and in consideration of the continuing trend of rising fuel prices in the market, OOCL will be introducing a bunker recovery approach based on a floating bunker formula that will better reflect the changes in the industry environment. This approach will take various factors into account, including the different fuel types being used, fuel price fluctuations, ship size and capacity, and vessel utilization levels.
In sum, we believe that we are taking the right step towards a greener and more transparent direction forward in the industry as we all embrace the IMO 2020 Regulation together. As a responsible and committed member of the international community, OOCL will continue to work closely with our customers and business partners to strive for further improvements in all aspects of our businesses for a greener future in the generations to come.
“Orient Overseas Container Line” and “OOCL” are trade names for transportation provided separately by: Orient Overseas Container Line Limited (“OOCLL”) and OOCL (Europe) Limited respectively and both are wholly-owned subsidiaries of Orient Overseas (International) Limited, a public company (0316) listed on the Hong Kong Stock Exchange. Headquartered in Hong Kong, OOCL is one of the world’s largest integrated international container transportation and logistics companies, with more than 360 offices in 70 countries. Linking Asia, Europe, North America, the Mediterranean, the Indian sub-continent, the Middle East and Australia/New Zealand, the company offers transportation services to all major east/west trading economies of the world. OOCL is one of the leading international carriers serving China, providing a full range of logistics and transportation services throughout the country. It is also an industry leader in the use of information technology and e-commerce to manage the entire cargo process.