Higher Ocean FSCs Coming in 2020

The International Maritime Organization (IMO) recently finalized regulations mandating a reduction in fuel sulfur levels for cargo container ships. These regulations, which reduce fuel sulfur content from 3.5% to 0.5%, take effect on January 1, 2020. 

In a supporting statement, the IMO said that “limiting sulfur emissions from ships will improve air quality and protects the environment.” 

Higher Fuel Surcharges Are Already Here

To comply with the new regulations, carriers need to buy low-sulfur fuel, which is more expensive, and install equipment that scrubs sulfur from exhaust gases. These costs will be passed through to shippers, primarily in the form of higher fuel surcharges. 

Most ocean carriers have already started increasing surcharges to offset the costs. This trend will continue up to and beyond the January 1 implementation date. 

For shippers that negotiate contracted capacity, it is important to be aware that carriers are building compliance costs into contracts. While carriers are typically seeking a 2% to 3% increase in base rates, the increase applied to fuel surcharges is much more, with some carriers seeking a tiered schedule that stairsteps higher for the duration of the agreement.