On January 1, 2020 the International Maritime Organization’s (IMO) regulation on limiting sulphur content in marine fuel will go into effect. IMO 2020 will allow a maximum of 0.5% sulphur in fuel, the current content gap is 3.5%. The new regulation will disrupt fuel supplies to transportation industries such as trucking, airline, ships and railroads. Which will result in an increased price in diesel by 20 to 30 percent.
The goal of this regulation is to reduce sulphur emissions which causes acid rain. This will significantly reduce the amount of sulphur released into the atmosphere and have major environmental benefits. However, for workers in the transportation industry this will result in a higher cost to operate. Trucking companies are already suffering from a driver shortage as a result from high labor costs. When the IMO regulation goes into effect, the trucking industry will take a hit, once again. Because bunker fuel is tied to the price of oil, set by Brent Crude Oil price which has been increasing since the Organization of Petroleum Exporting Countries (OPEC) started reducing their oil supply in the beginning of 2017. Because they didn’t adequately prepare for the increased use of bunker fuel in 2018, they executed a cost-recovery program called emergency bunker surcharges (EBS), which passed the costs to shippers.
Sergey “CJ” Karman, founder and CEO of Ezlogz, recalls when he was an OTR driver. He averaged 6.7 mpg and round trip from Portland to Dallas would cost CJ about $1,900 in fuel. However, after the regulation goes into effect the same trip will cost a lot more. One way Ezlogz can help, is with our point of interest (POI) map which shows weigh stations, truck stops, gyms, rest stops, parking lots, hotels, service centers and gas stations. On the POI map, Ezlogz also shows the current prices at each gas station which can help save money once the regulation goes into effect.
We’re already anticipating an increased cost, but we might not be prepared for a shortage. There are a number of issues regarding the government’s capabilities to enforce this regulation, and determine overall compliance mainly with ocean freight. Initially, the regulation will be enforced to ships docked at port. Those who are non-compliant are subject to violations. However, not all ports have the capability test the fuels. According to Allegro, “Oil refiners around the world are not equipped to produce enough low-sulfur fuel by 2020, so many ships may resort to diesel, causing consumer prices to go up.” Allegro concluded, “the replacement of high-sulfur oil will require refineries to run at high utilization, increasing costs and compressing margins. From the refiners’ point of view, some of the refined bunker fuel will not reach the level of low-sulfur needed to meet regulatory standards.” Everything has a cause and effect. We can’t predict what’s going to be the outcome inflicted upon the transportation industry. Despite our best intentions, all we can do is utilize our resources to be more cost efficient, especially if there’s a shortage in bunker fuel.