IMO 2020 makes waves in ocean shipping

IMO 2020 makes waves in ocean shipping

A freight forwarder shares her outlook on ocean shipping in 2020.

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February 6, 2020

I must have read more than 75 articles about the trends we’ll see in 2020, some of them are related to the shipping industry and some are not. No matter what I read, there are positives and negatives, as there are every year. However, this year, I do see some really important changes coming in the shipping industry and, luckily, I have this platform where I can share them.

The shipping world is intertwined with the fate of plastic, paper and metal scrap alike. These recyclables form a majority of the exports out of the U.S. As a nonvessel operating common carrier (NVOCC), we use the term “ship fillers” quite a few times. Without these commodities being shipped out from the United States, most times we would have empty vessels leaving our ports.

2018 already saw China ban a commodity—plastic scrap—that it had accepted for years. Recent changes in this region show more such bans will occur. For us shipping folks, the coming year is going to be quite a challenge as concerns over exports of recyclables grow daily. Let us not forget that we still face several other challenges, a primary one being the IMO (International Maritime Organization) 2020. Starting Jan. 1, marine sector emissions of sulfur must be reduced by more than 80 percent, which entailed switching to lower sulfur fuels.

IMO 2020

Starting in January, the IMO banned ships from using fuels with a sulfur content greater than 0.5 percent. This content was 3.5 percent previously.

The regulation is aimed at improving human health by reducing air pollution. This move is highly commendable, seeing that the world is faced with many pollution-related issues. The automobile industry already is gearing up to phase out nonelectric cars. The shipping industry has every reason to get involved in this movement too.

But this means shipping lines will have to incur additional costs, with companies like Maersk investing $2 billion per year in this area. And where does all this money go? It goes into using liquefied natural gas (LNG) to power its container ships, which results in a 99 percent reduction in sulfur oxides and fine particle emissions. It also goes toward new scrubbers for ships, and some shipping lines even have had to order completely new ships.

At a time where exports of recyclables are slowing down because of bans and new regulations and when the industry could have used a break on freight rates, we will instead be faced with higher freight costs and most likely lower capacity owing to the consolidation among carriers. Though most of the higher price increases have been borne by import trade lanes, export trade lanes have seen an increase too. And if anyone is interested in the numbers, the highest increase was apparently on the Far East to European trade lanes. It's likely that trade will be affected by these increases, and we don’t yet know what domino effect that might have.

The industry was just recovering from the bunker surcharges in December 2019, when the increases in bunker surcharges for January of this year were announced. And it doesn’t end in January. We are going to see these increases coming up every month. Some lines might spread it out over a longer period, while others might take a shorter time. One thing is for sure, these increases are here to stay. Shipping lines need some way to recover the fuel cost increases as a result of IMO 2020, otherwise, it is obviously going to bring bad news for all of us because we have all seen what happens when a shipping line shuts down.

Space shortages

What is additionally crippling is the shortage of space. We see this phenomenon at the start of every year with blank sailings, Chinese New Year and extreme weather conditions. The supply chain is heavily disrupted because of this space shortage. And, over the past couple of years, with the decrease in the number of shipping lines because of mergers and general capacity reductions, it has been even worse.

When questioned, shipping lines are unable to give a reliable solution because for them cargos of recyclables are a low-level priority. They must work on profitable merchandise if they are going to recover their ever-increasing operating costs.

The past few years have seen not only some large shipping lines shutting down but also continued consolidation, which everyone has gotten so used to. We are left with a handful of shipping lines. and yet there is a constant struggle to make profit. Growth in the container market is slowing more than previously thought as global economies weaken and escalating trade restrictions weigh on the industry.

Plan for disruption

What is the solution? That seems to be the most pertinent question today. How do exporters and traders alike make sure that their deadlines are met and that their businesses carry on without being affected by these challenges?

Coming from the view of a freight forwarder, we have seen that it is absolutely essential to plan well and to be thorough. One other thing we’ve noticed is the importance of having options ready. If one shipping line isn’t working, make sure the next one is lined up, otherwise you will be left with very little choice. Having all your ducks in line will go a long way. Although this is easier said than done, we have actually had a great amount of success with purchase order management tools that help shippers plan their shipments.

It does take a lot of attention in the beginning and getting used to! But it is also quite easy to lose discipline and fall back into your old way of doing things. (Kind of like that New Year’s resolution that wears off within the first month!)

One more observation is that in this industry you see an influx of smaller sized, almost one-man/woman operations that don’t always have the manpower to have their i’s dotted a t’s crossed.

It isn’t as if there is no silver lining. This industry with all its crazy has a very focused, persistent and positive attitude. No matter what, no one loses sight of what needs to be done. We meet our deadlines every day and multiple times a day.

I, for one, go into work thinking, What am I going to learn today? I see the same determination and tenacity in my colleagues and in my clients. No one ever wants to give up, and no one wants to hear the word “No.”

I am definitely welcoming the new year with more patience, which I know I will need one way or the other, and with excitement to see how we can overcome these challenges thrown at us.

Anupa Pradhan is regional sales manager, Northeast, for Sealink International Inc. She can be contacted at anupa@sea-link.com.