IMO ballast water and low-sulphur rules puts pressure on ocean freight rates
November 26, 2019
The International Maritime Organization (IMO)’s upcoming regulations on ballast water and sulphur emissions have put pressure on ocean freight rates for bulk grain and oilseeds, according to the US Department of Agriculture (USDA).
Upward pressure on rates had resulted from “slow rates of dry bulk fleet expansion caused by the IMO’s regulations on ballast water scheduled to take effect in January 2020”, World Grain reported the USDA as saying.
“Further, the IMO, under Annex VI of the International Convention for the Prevention of Pollution from Ships, has mandated that ocean-going vessels reduce the amount of sulphur emissions from marine fuel to 0.5% from 3.5% by 1 January 2020, which some have called ‘the biggest change in fuel regulations since the elimination of leaded gasoline’,” the USDA said earlier this year.
As with railroads and trucks, ocean carriers had begun adding fuel surcharges in contract negotiations.
“Importers in the eastbound trans-Pacific were warned on 26 September by a large shippers association to expect at least a 9% increase in all-in freight costs next year after the IMO’s low-sulphur mandate takes effect,” the Journal of Commerce said in a recent report. “The bottom line is that carriers intend to be compensated for the higher fuel costs.”
While the IMO rules only applied directly to bunker [ship] fuel, the low-sulphur fuel would draw from the middle-distillate fuels also used by surface carriers, “so prices for rail and trucking diesel will also increase”, the Journal of Commerce said.
The World Grain report on 14 October said ocean freight rates for bulk grain had trended higher since early February, after a brief dip in January.
“Although grains exports have been down from a year ago, ocean freight rates have been driven higher by increased demand to ship coal and iron ore, in addition to China buying more soybeans from Brazil, which increase the length and time of vessel movement compared with shipments from the USA, especially from the Pacific Northwest.”
As of 19 September, shipping bulk grain from the US Gulf to Japan cost US$52.25/tonne, up 38% from the first week of February, up 12% from the same week a year ago, and up 36% from the four-year average, according to USDA data.
The cost of shipping grain from the Pacific Northwest to Japan was US$29.50/tonne, up 37% from February, up 16% from a year ago and up 40% above the four-year average. Shipments from the US Gulf to Europe were US$21/tonne, up 31% from February, up 5% from a year ago and up 24% from the four-year average.