Trade tsunami from IMO 2020 fuel rule never materialized
FreightWaves to shipping analyst: “So, we’re doing a follow-up story about IMO 2020 and scrubbers …”
Shipping analyst to FreightWaves: “Oh, Jesus.”
IMO 2020 is the Y2K of ocean shipping. After years of dire warnings on fallout to world trade — and dubious pitches on stocks poised to profit — the IMO 2020 regulation ended up being a damp squib.
What went so wrong with all the forecasts? And is this story really over for vessel owners, cargo shippers and stock investors?
The short answers are “coronavirus” and “not yet.”
For the longer answers, FreightWaves analyzed scrubber-installation data from Clarksons Research and conducted an in-depth interview with Richard Joswick, head of oil pricing, refining and trade flow analytics at S&P Global Platts.
What was supposed to happen
On Jan. 1, the IMO 2020 rule required all ships to switch from 3.5% sulfur heavy fuel oil (HFO) to either 0.5% sulfur fuel known as very low sulfur fuel oil (VLSFO) or 0.1% sulfur marine gasoil (MGO). Ships equipped with exhaust-gas scrubbers could keep burning cheaper HFO.
Virtually everyone predicted that there would be a gaping spread between HFO and VLSFO and that ships with scrubbers would reap formidable savings. It was predicted that VLSFO would be much more expensive than pre-2020 marine fuel, that there may not be enough VLSFO to go around, that there would be mass scrubber installations, and that there would be no place to dump all the unwanted HFO.....MUCH MORE
Many feared higher fuel costs would have a severe cost consequences for container lines and force bulk ships to sharply reduce speeds. They expected carriers to pass along costs to consumers, spurring inflation.
What did happen
As it turns out, there’s plenty of VLSFO to go around.
The average price of VLSFO at the top 20 ports on Thursday was $329.50 per ton, according to Ship & Bunker. One year prior, the price of HFO was $462 per ton. Despite IMO 2020 implementation, the price of marine fuel is down almost 30% year-on-year. Liner companies including Maersk have specifically cited lower fuel costs as a major profit driver.
The spread between HFO and VLSFO collapsed in the first quarter and has hovered at around $50 per ton since March. The lower the spread, the longer it takes for shipowners to pay back the cost of installing scrubbers.
Scrubber installations have yet to pay off for investors in the shipping companies that installed them. Star Bulk (NYSE: SBLK) paid $212 million to install scrubbers on 114 of its 116 ships. Year to date, its stock is down 40%....
