Ship and Bunker magazine has described the 0.5% global sulphur cap, which is being implemented in 2020 as ‘one of the most influential forces that will shape marine fuel markets over the next decade and beyond.’
With the decision last year by the IMO to implement these regulations in 2020, industry needs to focus on how to comply, the costs of compliance and if there are ways to offset any potential increased costs.
Compliance options facing operators
If we look at compliance first there are three main options for operators:
• Using Liquefied Natural Gas (LNG) – this is a reliable and safe fuel option. However, it is still relatively new and the bunkering infrastructure is not yet widespread. Fitting the infrastructure to existing ships is also not a simple task, so this means that any large scale move to LNG is likely to be a slow one, be long-term and more likely to be focused around new builds.
• Installing scrubbers – these can be fitted onto an existing ship, eliminating the need for a new fuel infrastructure. Operators can therefore continue using existing high sulphur fuels. However scrubbers are an expensive option requiring long-term maintenance.
• Using low sulphur distillates – these ensure that the resulting emissions comply with environmental regulations. However, with low sulphur distillates, operators face uncertainty around price, availability and on-going fuel quality.
With each option there are elements of uncertainty and cost implications.
In fact when considering the cost of compliance there are still a lot of unanswered questions. One report I recently read by the Organisation for Economic Co-operation and Development (OECD) estimated that the cost of compliance for just the container shipping industry could be anything from $5billion to $30billion, annually.
Inatech research supports industry views
Interestingly, our own research reinforces the industry’s concerns. We recently asked webinar attendees the question – how will regulatory unknowns affect marine bunkers? Price, availability and quality were the big issues highlighted.
Detailed results from this specific question were as follows:
• 55% of respondents expect increased price volatility
• 17% expect prices to rise
• 15% anticipate tighter availability
• 13% expect quality issues with bunkers
Mitigating the costs of compliance
Faced with rising costs, potential fuel availability issues and quality problems – is there anything that can be done to help mitigate the costs of compliance?
Something we have found that is helping operators effective manage costs is the adoption of a fuel procurement strategy.
It can help streamline processes, control fuel costs, while also ensuring compliance.
Other benefits to operators include:
• Better planning – Delivering operational efficiency, improving fuel supply accuracy and ensuring you get the best deals on fuel.
• Effective negotiation – Having up to date information about the bunkering market puts you in a much better position to negotiate with fuel traders.
• Managing supplier performance – Tracking suppliers on key performance KPIs allows you to be better informed about local market conditions.
• Easily handling claims – By monitoring fuel quality and by keeping lab reports and fuel delivery notes in one place and having easy access to all this information you can ensure you aren’t caught out and forced to make an expensive claim later on.
Technology makes managing your fuel procurement easier
Deploying technology and using specialist procurement software can simplify the whole fuel purchasing process.
When looking to buy a specific fuel procurement software product you need to:
• Consider a product that covers the entire procurement process from handling fuel RFQs, to order management, fuel delivery, labs, claims, invoicing and reconciliation. One of the likely outcomes of the new global 0.5% sulphur regulations will be a decline in fuel quality. Make sure the software you choose can accurately record the quality of fuel burned, the sulphur content of fuel purchased and quantity purchased and as additional reassurance includes a robust claims management system should things go wrong.
• Be able to optimise fuel purchasing as 0.5% product availability may be limited in some areas. Great software will enable you to get the best product at the best price and avoid you needing to make unplanned fuel stops at more costly ports.
• Ensure you also include contract management to cover terms and conditions, negotiation, pricing rules and quantity agreements.
• Look for applications that offer supplier ratings, supplier history and document management so you can ensure you only do business with reputable suppliers.
• Thoroughly assess the reporting functionality of the software available. Analytics and easy to use dashboards give you the tools and access to the information you need to plan and develop an effective fuel procurement strategy, negotiate and develop a long-term outlook of the business. They also provide a view of real time information about credit lines, inventory and finances.
Combating some of the increased cost of compliance can be achieved through better fuel procurement
The clock has started ticking and by 2020 compliance will become more important than ever.
There will be challenges over fuel availability, significant price differences across regions and ports, fuel quality and quantity issues and a likely need to prove compliance.
By adopting an effective fuel procurement strategy now and implementing the very latest fuel procurement software you will put yourself into the best position to plan, negotiate, buy and comply and ensure you’re ready for the 2020 regulation changes.
Inatech has developed Shiptech – a cloud-based bunker fuel management system specifically designed to ensure ship operators can buy the highest quality of fuel at the lowest price. Our experts are on-hand to help you navigate through the regulation minefield.