TPM Asia focuses on IMO 2020 and how to cope with new fuel rule

ANXIETY was expressed by delegates and speakers at Shenzhen's annual TPM Asia shipping conference about the costs and impact of IMO 2020, the UN's low-sulphur mandate that comes into force on January 1

11 October 2019 - 19:00
ANXIETY was expressed by delegates and speakers at Shenzhen's annual TPM Asia shipping conference about the costs and impact of IMO 2020, the UN's low-sulphur mandate that comes into force on January 1.

There was little new that emerged at this year's conference. There was talk of the trade war, but few insights on its outcome. The United Nations low-sulphur fuel mandate - with fears of decarbonisation mandates yet to come - were more hotly discussed among shippers, carriers and forwarders.

One interesting aspect was that the sponsors of the conference were from the east coast and Gulf coasts. No US west coast port was prominently displayed on the hoardings of the conference hall, though Canada's west coast Vancouver and Prince Rupert were front and centre as was Canada's two Class I railways, CN and CP, while US rail was absent.

Uppermost was the fuel question facing carriers and shippers alike, focussed on the three possible fuels likely to dominate the market and to what degree because one fuel - LNG (liquefied natural gas) - had too small a tranche of the market to matter much at this point, the size of the other two, relative to each other, is yet unknown.

'We shall have to have a fair volume of shipping before we know about the heavy fuel oil versus low-sulphur fuel,' said Damian Kennaby, IHS Markit oil analyst, adding that such experience would provide information on availability and greater clarity on price.

The problem, he said, with others in agreement, is that the availability of low-sulphur blends, which have yet to be concocted in volume, using various methods at the refineries is still unknown, but as Mr Kennaby said: 'No one had ever had trouble selling a mandated fuel.'

'As long as there is a market for selling heavy fuel oil, though, and supplies are readily available, the refineries are ready to sell it before they make investments in new equipment to produce high volumes of low-sulphur fuel,' he said.

Heavy fuel oil is used legally if sulphur is scrubbed out of its exhaust, which apart from the front-end cost of installing a scrubber, which also consumes valuable cargo space, is cheaper and more reliable some feel. Low-sulphur fuel blends are largely untried on engines accustomed to burning heavy bunker fuel. Many fear blends will damage engines, and risk them losing power mid-voyage.

Said Kuehne + Nagel south China seafreight chief Arne Voller: 'We estimate fuel will cost 30 to 40 per cent more, and will be more expensive in the Asia-Europe trade than the transpacific given the distances.'

But Mr Voller said he was assured that shippers would not suffer more than necessary because the increases would be dealt with in bunker surcharges and not bundled into freight rates, and that this would become apparent and that surcharges from carriers would be in line with each other.

Speaking at an earlier panel discussion, Hong Kong Trade Development Council research chief Nicolas Kwan said options like 'tariff engineering' had all but been exhausted, and worse, misunderstood.

'There are those who think that by moving the last stage of production to another country from China, they can avoid the tariff. But they didn't know that mid-stream production is what counts. Fortunately, the man was directed to a US lawyer who informed him of the application of the rules.'

Given the situation, Mr Kwan advised shifting production entirely to a new jurisdiction as many have done at the lower end of the supply chain. More importantly, he advised exporters to look to often overlooked local markets, which are growing in number and affluence.

Mr Kwan also expects regional trade deals to play greater role than they did. 'This will lead to a proliferation of regional trade. It is a trend to have production move closer to the markets they serve,' he said.

Supply chain expert formerly with the World Economic Forum Wolfgang Lechmacher said that 'labour arbitrage', that is shifting production to cheap labour zones, only affects 20 per cent of today's production. 'So much more production is accomplished by highly skilled labour,' he said.

'China is moving up the value chain, and Asia as a whole will benefit. Because China must make its own microchips because of trade disputes it will do so and begin to impact the world of technology through its Belt and Road Initiative. Of course, it will face competition from US and European producers,' he said.

This news 616 hits received.