While the recent increased awareness of environmental preservation is a step forward for reducing our carbon footprint, the far-reaching effects have begun to touch all facets of industrial movement.In a bid to enact measures for the long-term reduction of environmental damages caused by ocean transportation, the International Maritime Organization (IMO) will be implementing new regulations on January 1, 2020. These regulations specify a 0.50% global sulfur cap for marine fuels—a reduction from the current standard of 3.50%.
What Does the New Regulation Mean for Importers?
The new regulation was a hot topic at the Trans-Pacific Maritime Conference and the National Customs Brokers & Forwarders Association of America. The speculation is that we’ll be seeing a price increase on shipments, but not so much so that importers won’t be able to adjust to the new fees.
The low sulfur diesel will undoubtedly have a higher cost to ocean carriers, as will the cost to install proper scrubbers on their steamships’ engines. An alternative option is to replace ships with those that will run on low sulfur, an option that also carries a hefty price tag. Instead, ships running on natural gas and propane are already compliant with the new legislation, but they too are expensive.
Increased transshipping for imports is on the horizon in response to IMO 2020, covering shipping needs with the few compliant ships currently on the water, however this also means longer shipping times. This is a consideration for importers shipping perishable commodities.
Production of low sulfur diesel is also a topic of concern. Refineries will have to increase their production in order to meet the demands of the shipping industry as it transitions over to the cleaner fuel.
How Does Transshipping Affect Importers?
As an industry practice, whether a shipment is transshipped depends on its country of origin. For example, any shipment leaving the Semarang port in Indonesia will have to be transshipped, as direct shipping isn’t an option. Shipments leaving base China ports and Amsterdam or Antwerp can be directly shipped. However, with fewer regulation-compliant ships on the water, transshipments are set to increase in 2020.
The main concerns for importers include longer ship times and increased risk of product damage. A transshipment will take longer to arrive than a direct shipment, which importers will need to take into consideration. Shipments are sometimes delayed due to restrictions on the transfer ship. If your shipment makes it from Semarang to Singapore, and the ship leaving Singapore heading to its final destination doesn’t have room for your shipment, your freight will be waiting in Singapore until the next outgoing shipment. In certain cases, this may result in a week-long delay.
Product damage or loss is also a concern when a shipment moves from one ship to another, without recourse for the transporter.
The good news is that ocean freight rates are lower when transshipped, and there are no additional costs associated with the extra handling. If the cost savings outweigh the potential risks, transshipment is potentially a better option for some importers.
What Should Importers Look Out For?
Changing regulations will—without a doubt—increase shipping costs, and importers should keep themselves aware of possible implications for their business.
When considering cost savings through cheap freight, it’s important to ask if the shipment is to be transshipped, because that will cause a delay in its arrival. Complete transparency on the side of the freight forwarder is vital, and in some cases information is missed simply because the importer did not know to ask it.
With the advent of IMO 2020, steamship lines will have to publish their routes, especially concerning transshipments, in order to eliminate as much confusion as possible. These routes are typically available eight weeks ahead of time, allowing freight forwarders to have the most up-to-date information to pass on to importers. As a broker and forwarder, A.N. Deringer ensures complete transparency concerning freight, estimated transit times, and steamship lines.
As an importer, when dealing with a freight forwarder, you’ll want to make sure that you’re doing business with a company that has your best interests in mind.
Approaching the end of the year, importers can expect to see an influx of announcements concerning anticipated cost increases and route changes. It is vital to take note of these changes and to anticipate the increases to your bottom line. Working with a freight forwarder who will watch out for you is your best defense against unwanted surprises.