Increase in Container Shipping Increases Dirty Fuel Usage

When compared to other methods of transportation, marine shipping is one of the most energy-efficient ways to move cargo. That is not to say, however, that marine shipping does not produce its share of pollution.  In fact, the drastic increase in container shipping in the latter half of 2020 has meant the use of dirty fuel has surged. 

Increase in Container Shipping

While the COVID-19 virus threw the logistics industry into a frenzy in the first part of the year, container shipping has experienced a surprising uptick in 2020 despite the global pandemic. Now in the period that is usually considered the ‘off-season’ for container shipping, it continues to remain steady.  Danish shipping company A.P. Moeller-Maersk predicts the global container market could continue to increase by 5% in 2021.  As retailers need to restock their inventories and e-commerce shopping remains at an all-time high, shipping volume is not expected to decline any time soon.

Dirty Fuels on the Rise

Dirty fuel, which is fuel that comes from tar sands, oil shale or liquid coal, is on the rise due to more goods being shipped via ocean liners. In accordance with the International Maritime Organization (IMO) 2020, carrier vessels must use lower-sulfur fuel oil (LSFO) to reduce emissions. This order reduced the maximum sulfur content allowed in shipping fuel from 3.5% to 0.5%, except for ships that install scrubbers, which lower the amount of sulfur that flows out of the ship’s stack.

Due to the implementation of IMO 2020, the number of ships that were fitted with scrubbers increased 80% from the months of January to October in order to avoid using cleaner, yet more expensive fuels.  The number of ships using scrubbers has grown from only three ships in 2008 to more than 4,300 in 2020. 

The surge in global trade has contributed to maxed-out ships from Asia, with many exporters waiting to get containers.  As a result, the discount of HSFO as compared to crude has gone down by almost 90%.  Hedi Grati, head of Europe refining and marketing research at IHS Markit states, “A considerable share of those ships have got exhaust gas cleaning system fitted.  This will keep high-sulfur fuel oil balances tighter for longer.”

The amount of High Sulfur Fuel Oil (HSFO) supplies is diminishing, despite a surge in output at refineries. In the month of October, HSFO was the only fuel sold in Singapore that experienced an increase. 

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The Future Use of Scrubbers

Scrubbers have been installed in only about 3% of the total vessels worldwide so far, in part because they are a huge investment.  But some carriers are not quite as eager to make this investment right now. The tighter HSFO discount now means that those companies that did install the ships because HFSO is a cheaper source of fuel are not saving as much as expected.  With consumer demand showing no signs of slowing down, HFSO could represent 20% of the total global marine fuel demand by the end of next year, according to IHS. 

The price difference between LSFO and HSFO has narrowed so much that scrubbers are now a more expensive option for carriers to comply with IMO 2020.  From January 2020 to August 2020, the price spread between these two fuels went from $296/t to $60/t.  The oil price crash due to the pandemic has played a role in this, with crude oil futures predicting the price spread might stay narrow for the foreseeable future.  This means that ocean liner companies are rethinking how they will comply with the regulations next year. 

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