Who Will Win From 2020 Sulphur Cap Disruption?
Disruption is currently trending within the marine industry: Autonomous Ships, Blockchain Technology, Connected Vessels, Augmented Engine Rooms et cetera. But it is a paradigm shift in one of shipping’s fundamentals which will lead to the largest disruption to the status quo in shipping in the last 50 years: The 2020 Sulphur Cap.
The 2020 Sulphur Cap disruption to the status quo has been on the horizon for some time now. However, it has only been since the start of 2018, with the realisation from the industry that implement at ion is certain, action is finally being taken. What ‘action’ owners should take, however, is the conundrum in the 2020 Sulphur Cap equation. With more unknowns than knows around the topic at present, there is currently no black and white answer to what strategies owners should be pursuing.
A complicated combination of technical, commercial, operational and regulatory issues has made decision making particularly challenging. Every alternative has its pro and cons; LNG has limited infrastructural support and is complex to store and handle, Methanol has issues with low energy content, questions of cost surround Low Sulphur Fuel Distillates, will a supply of High Sulphur Fuel Oil still be available at ports post 2020 for ships with a Scrubber installed?
Unlike other regulatory compliance issues, in which a solution is generally selected to meet set requirements, choosing the correct solution for 2020 Sulphur Cap compliance is akin to preparing for a soccer match without knowing who the opposition are or indeed the rules! The challenge for owners is not about choosing a solution which reduces their SOx emissions, rather choosing the correct solution which does not lose them their competitive advantage in a post 2020 Sulphur Cap operating environment.
From the owners’ perspective, it is clear to see the 2020 deadline will be the start of something rather than the end. Indeed, some have predicted that choosing the wrong solution will result in putting some owners out of business.
So with all this uncertainty and lack of clarity, what is the prudent and sensible approach? At CleanshipCON London, Fernando Alvarez of Bunker Metric suggested that diversifying and hedging risks was the order of the day. “If you consider a portfolio of stocks, you generally have a mixture of solid stock options and riskier bets. If you treat a fleet of vessels in the same way and diversify with different compliance options, it allows for the hedging of risks and an ability to be more agile in changing market conditions.”
Indeed, there is evidence of this approach currently being adopted by shipping companies with John Fredrickson of Frontline recently joining an ever growing number of owners announcing plans to install scrubbers to approximately 20-30% of their fleets. Thus, allowing them to remain flexible in a post 2020 Sulphur Cap market.
It is not clear who will be the winners and losers of post 2020 Sulphur Cap disruption. However, for those who plan, remain flexible and diversify it is expected that they will be the best prepared for the new norm – whatever that may be. In the months remaining before the deadline, it is imperative that owners plan for 2020 Sulphur Cap disruption and make provisions to protect their competitive advantage.