UNITED NATIONS rules, subject to little legislative review by environmentally friendly governments, are raising alarm in the supply chain as new eco compliance costs threaten to raise fuel bills 51 per cent, which is more than 50 per cent of voyage costs.
"If shipowners replace the use of traditional heavy fuel oil (current cost of US$584 per tonne) by cleaner marine gas oil (current cost of $883 per tonne), it will increase fuel costs 51 per cent," reports Drewry, the London shipping consultant.
"Given that fuel costs account for more than 50 per cent of shipowners' voyage costs, it follows that this switch could translate into a big hike in freight rates for shippers," said the report.
At issue in the Nordic states are clean air sulphur limits hatched by diplomats at the UN's International Maritime Organisation (IMO), that will soon cover the Baltic Sea and its approaches and the entire coast line of North America.
Not only do shipowners worry about "Emission Control Areas" due to be enforced in large parts of Europe in January 2015, when sulphur exhaust limits will be cut from one per cent to 0.1 per cent, importers and exporters will have to bear the costs in increased rates.
"Exporters of price-sensitive products, such as Scandinavian paper, will find it impossible to absorb the extra costs or add them to their sale price. Industry insiders say they will lose markets due to the IMO and European Union restrictions," said the report.
The MARPOL (Marine Pollution) Annex VI contain the IMO limits on sulphur oxides and nitrous oxides, and "prohibit deliberate emissions of ozone depleting substances".
"Pollution limits will apply to both old and new ships, so there will be no way to circumvent them. An alternative and less costly way for shipowners to comply with the sulphur limits would be to switch from heavy fuel oil to liquefied natural gas (LNG) when in an Emissions Control Area.
"But nobody believes that there is enough time left for existing ships to be converted to LNG by then, nor are there the infrastructures for bunkering the vessels with LNG. Conversion is also a heavy investment," said Drewry.
A third costly compliance option are "scrubbers" to clean the sulphur content of ships exhaust gas.
From January a new Emission Control Area, where the one per cent will apply, will be added the United States Caribbean Sea, covering Puerto Rico and the US Virgin Islands.
In 2020, a global limit on sulphur emissions, outside the designated Emission Control Areas will be cut from 3.5 per cent to 0.5 per cent.
"This is a classic case of environmental policy clashing with competitiveness policy. Did the politicians not talk to business people?" said Drewry with uncharacteristic vehemence.
"As we get nearer the January 2015 deadline, policy-makers will surely come under increasing pressure from the business community to either postpone the deadline or allow a longer transition period to convert ships to LNG," Drewry concluded.