By K Murali Pany
JTJB LLP (Singapore)
IMO 2020: Industry experts reflect on industry challanges
On 1 January 2020, a new limit on the sulphur content in the fuel used on board vessels was implemented. Commonly known as the “IMO 2020”, the rule limits the level of sulphur content in fuel used on board vessels outside designated emission control areas to 0.50% mass by mass, a substantial reduction from the previous 3.5%. The new cap was made compulsory following an amendment to Annex VI of the International Convention for the Prevention of Pollution from Ships.
At a panel discussion during the Sea Asia 2021 virtual event, industry experts including Captain Siva Mani Raaj, Fleet Director at Clearlake Shipping, Christian Bækmark Schiolbord, Marine Environment Manager at BIMCO, David Roberts, Managing Director at the Standard Club Asia Ltd, Elizabeth Leonhardt, General Counsel at Swissmarine and K. Murali Pany, Managing Partner of JTJB, gathered to reflect on and discuss the myriad of challenges and issues their businesses and clients encountered in transitioning to very low-sulphur fuel oil (VSFLO).
The panellists kicked off by reviewing their concerns leading up to implementation day. Some key concerns include the supply level and availability of VSFLO, uncertainties around the consistency of enforcement globally and the inconsistencies around sample testing. The potential rise in disputes and claims was also disconcerting; not all vessels are suited to run VSFLOs and compatibility issues were expected to trigger substantial claims.
But all speakers expressed a level of relief as in reality the transition had gone more smoothly than anticipated. Supply did not become an issue, in part, due to the COVID-19 pandemic. The consequent drop in jet fuel demand made diesel and kerosene a common option for shipping’s low sulphur blends. However, some shipowners have found issues with these blends, especially when it comes to quality. To lower the sulphur content below 0.50% m/m, companies use less viscous and light distillates such as diesel and kerosene, which produce thinner blends that can affect the fuel’s stability or its capacity to resist breakdown.
There were also other teething challenges.
Leonhardt and Raaj both cited experiences where fleets had gone out to sea with sulphur levels tested at 0.51%-0.53% m/m, but as there was little guidance around the variability of that cap, fuel compliance became a bee in the bonnet for suppliers, shipowners and charterers. It was also unclear what steps needed to be taken in order to declare uncompliant fuel, and the consequences relevant stakeholders can face. All of that added a layer of strain on commercial relationships.
The speakers also discussed how the industry could learn from the IMO 2020 experience as it now works towards future targets in 2030 and 2050 for decarbonisation.
Alternative fuel presents even greater challenges. Unlike VSFLO, much of future fuel in shipping is unchartered territory, new technology will need to be created, vessel engines will need to be redesigned and the industry will face a new matrix of risks and regulations.
The novelty of incoming new technology not only requires hefty investment from stakeholders across the value chain but has, on the flipside, also created a level of apprehension among all participants. Engagement and collaboration are key, with all stakeholders needing to communicate effectively and work together to ensure fuel availability and quality, and avoid stressing commercial relationships.