Good Reads #5: New sulphur cap could be disruptive to ocean freight

Pharma cold chain logistics is very complex with many stakeholders involved. We all work hard to ensure that pharmaceuticals maintain optimal quality all the way to the patients. At Envirotainer we believe that the best way to reach our common goal is to improve collaboration and mutual understanding across the logistics chain, we call it our eco-system thinking. Here, we share articles with our network that we think could benefit us all.

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By January 1st 2020, new sulphur regulations come into force that reduce the limit on sulphur content in maritime fuel from today’s 3.5% to 0.5% in most parts of the world. Presently, most ships use so called bunker fuel that emits more sulphur than other fuels and is poisonous to marine life as well as humans. While beneficial for the environment, the new sulphur cap will have a substantial impact on the shipping industry. The following articles give an overview:

Rarely you see such a potentially massive disruption. Delays, a reduced active fleet supply, slow steaming and port congestion can push freight rates to decade highs, and beyond.

This comment is from John Kartsonas, managing partner of Breakwave Advisors, in this article targeting investors in the oil and shipping industries. The article gives a good summary of the massive changes that the industry must undergo when thousands of ships may have to be scrapped or refitted.

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The statement is from Spencer Welch, director of oil markets and downstream at IHS Markit, from this informative article in Supply Chain Drive that analyses the effects of the sulphur cap on shipping rates.

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The laws of economics tell us this will raise prices for carriers filling their ships with low-sulfur fuel. It's possible that the fuel price of a ship may go up by around $200 per ton, and at the moment it's around $300 per ton.  We don't think the price of ship fuel will double, but it's reasonably likely to go up by 50% in 2020.
There is a considerable potential for supply chain disruption due to delays in fuel supply, denied port calls, retrofitting or downtime of ships. Expect choppy waves in the months leading up to and stretching beyond the IMO2020 sulphur cap.

This warning comes from freight forwarder Panalpina, cited in aircargonews (page 26). Panalpina believes that carriers will pass on the increased costs to cargo owners, third-party logistic providers and end consumers.

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Sea freight is often regarded as a less costly and more environmentally friendly choice than air freight. However, in reality the opposite might be just as true – sea freight can be unpredictable, expensive and dirty, evidenced by the new sulphur regulations coming into effect January 1st, 2020, reducing the limit on sulphur content in maritime fuel.

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