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Container shipping firms' costs soar on new fuel rules: OECD
[COPENHAGEN] Container shipping firms' annual costs have risen by a total US$500 million due to new sulphur emissions regulations that have forced vessels to use higher cost fuel, the OECD said in a report on Thursday.
Rising fuel costs will further hurt an industry already stung by overcapacity, low demand and falling rates.
From January 2015, ships entering Emissions Control Areas from the Baltics to the North American coast had to switch to ship fuels with less than 0.1 per cent sulphur content, from 1 percent, as part of a campaign to combat marine pollution.
An even lower cap of 0.50 per cent is planned for 2020 and it could add annual total costs of around US$5 billion to US$30 billion for the container shipping industry, the Organisation for Economic Co-operation and Development (OECD) report said.
For an industry operating on very slight margins it represents significant cost increases, partly mitigated by falling fuel prices, the report said.
"We will assume that container shipping lines have limited possibility to absorb cost increases, so they will likely transfer these to their customers," it said.
According to OECD calculations a global sulphur cap of 0.5 per cent in 2020 mean costs for transporting agricultural goods could rise by as much as 7.5 per cent, manufactured goods by 3.5 per cent and industrial raw materials by 16.4 per cent.
Maersk Line, the global container shipping market leader, has said weak enforcement combined with the significant cost burden could prompt some shipping companies to flout the rules.
Maersk Line, a unit of Danish shipping and oil group AP Moller-Maersk, spent US$6.1 billion on ship fuel last year of which 7 per cent spent on buying the more expensive fuel.
"Considering the significant costs to the shipping industry, effective enforcement is of utmost importance to guarantee a level playing field," OECD said.
The report said fines imposed rarely surpass the cost advantage of ignoring sulphur emissions restrictions.
In a report this month, Drewry Maritime Equity Research wrote that "container shipping is staring at a terrible 2016 with a structural slowdown in global trade volumes, historical low freight rates and ever increasing capacity could result in industry losses of US$6 billion."