How can the fuel changes of the IMO before 2020 affect the exposure of shipping companies?The global maritime industry is well on the way to a new global 0.5% fuel sulfur limit, which will be imposed by the International Maritime Organization (IMO) on 1 January 2020. From that date, shipowners and charterers can legally travel anywhere in the world. bunkers with a maximum sulfur content of 0.5%, a decrease compared to the current level of 3.5%. If found in violation of the new IMO regulation, they will be penalized and their vessels declared non-seaworthy and therefore uninsurable.

It is no wonder that ship owners and shippers can comply with the 0.5% sulfur cap scheme of the IMO. The simplest options would be to switch to using low-sulfur marine gas oil or ultra-low sulfur fuel oil (ULSFO) with a sulfur content of 0.1%, currently required in designated emission management areas (ECA), such as coastal waters in North America.

"One of the most important questions surrounding the IMO 2020 regulation on sulfur dioxide emissions is whether refineries will be able to meet the demand," said Jorge Pecci, RSG Underwriting Managers' practice director. "Are there enough refineries around the world to supply these low sulfur fuels for ships?" Like the shipping industry, the refineries know that these regulations have been in place since 2008. They have worked on a solution, but there is certainly a question mark about availability, especially in less developed countries. "

Another challenge for ships that currently operate on fuel with a sulfur content of 3.5% is that they have to clean up their tanks, pipes and pumps before they make a complete transition to fuel according to the 2020 standards. This is a costly and time-consuming process, which can take about six months, and it is something that shipowners and shippers must initiate well before 1 January 2020.

Any vessel that does not comply with the new IMO fuel specifications will face penalties and these penalties will depend on the laws and requirements of each country. Some jurisdictions, such as Hong Kong, could even go so far as to criminalize the captain of a non-conforming vessel, while others may be much more lenient. The enforcement of the regulation will "vary considerably," according to Pecci.

"The most interesting issue regarding insurance is that if a ship does not comply with the fuel specifications, it can not be declared seaworthy, and if a ship is declared non-seaworthy it has no insurance coverage," Pecci said. Insurance business. "If a ship runs on fuel with a sulfur content of more than 0.5% after 2020 and there is a problem, then that vessel will not have insurance because it is not technically seaworthy." Seaworthiness is the absolute essence of maritime insurance. "

While the global marine industry is moving to fuels with lower sulfur content, the insurance sector is waiting for protection and compensation (P & I) and is watching carefully, explains John Hearn, managing director at Lodestar Marine. Until the IMO regulation comes into force, "we will not really know what the consequences are," he said.

"There are a number of different reasons why problems can arise, not least the adequate supply of compliant fuels, but also how strict each jurisdiction will enforce the regulations," Hearn notes. "It is very difficult to say how the changes will affect the P & I market, especially if there are seaworthiness problems and the cargo delays due to all this."

The shipping industry has step by step in the direction of IMO 2020 since the 1960s, says Pecci. Although shipping is one of the most environmentally-friendly ways to transport cargo (it is much cleaner than road or air transport), the IMO has persistently tried to reduce harmful emissions from ships.

Pecci commented: "When people talk about the 0.5% sulfur foot that comes in 2020, there is a sense that the industry is suddenly tackling the change and there were no restrictions at all, which is simply not true. there is a sulfur limit of 3.5% and the industry has been talking about the 0.5% limit for a long time. "