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Container lines face 'daunting challenge' from IMO 2020

Another analyst has warned of impending financial doom for container lines if they fail to recoup the additional costs of meeting the IMO 2020 0.5% sulphur cap.

Marcus Hand, Editor

March 1, 2019

2 Min Read
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AlixPartners estimates container lines could be looking an additional $10bn in fuel costs, based on 2018 prices for low sulphur fuel oil (LFSO), to comply with the sulphur cap.

In a report the analyst said that carriers would face a “daunting challenge” from the IMO 2020 regulations. The choice of lines is either burn LFSO or marine gas oil (MGO), significantly more expensive than high sulphur fuel oil (HFO) used at present, or install scrubbers. However, in the case of the latter solution concern was noted among lines over the supply scrubbers not being able to meet demand.

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“This fundamental change to such a large component could make or break carriers' margins depending on how successful carriers are in passing along fuel-cost increases,” the report said.

greayzoneWhile carriers finances are no longer in the “distressed zone” on the basis of an aggregate Altman-Z Score of 2.02 in 2018, the highest since 2018, they remain in what is classified as the “grey zone”, at a time when IMO 2020 could further financial stress. “That improved score is not in the immediate danger zone, but it’s a reminder that the industry remains under serious financial strain,” the report said.

The warning by AlixPartners is similar to that made by Bimco recently, which said container lines could face bankruptcy if they failed to pass on the additional fuel costs associated with IMO 2020.

Read more: Bankruptcy warning for container lines if they fail to pass on IMO 2020 costs

According to AlixPartners analysis lines would have to increase their bunker adjustment factor (BAF) on the Asia – Europe trade by 40%, or $270 per feu, over 2018 levels to achieve the same financial result. For the eastbound transpacific route the BAF would need to be 33%, or $150 per feu, higher. For these two trades combined the additional annual costs would be $3bn, and for the industry as whole the analyst estimated additional cost to be $10bn per year.

“Carriers will have to impose significantly higher fuel surcharges in 2019 and beyond to maintain their margins, with no guarantee that those charges will stick or that they'll be able to realize recovery in a timely manner. Failure to do so will depress cash flow significantly,” the report warned.

Added to that there is uncertainty of supply and price of low sulphur fuel come 2020. “And if tight supplies of LSFO trigger higher prices, fuel costs could climb even higher, making the difficult task of cost recovery even more urgent.”

About the Author

Marcus Hand

Editor

Marcus Hand is the editor of Seatrade Maritime News and a dedicated maritime journalist with over two decades of experience covering the shipping industry in Asia.

Marcus is also an experienced industry commentator and has chaired many conferences and round tables. Before joining Seatrade at the beginning of 2010, Marcus worked for the shipping industry journal Lloyd's List for a decade and before that the Singapore Business Times covering shipping and aviation.

In November 2022, Marcus was announced as a member of the Board of Advisors to the Singapore Journal of Maritime Talent and Technology (SJMTT) to help bring together thought leadership around the key areas of talent and technology.

Marcus is the founder of the Seatrade Maritime Podcast that delivers commentary, opinions and conversations on shipping's most important topics.

Conferences & Webinars

Marcus Hand regularly moderates at international maritime events. Below you’ll find a list of selected past conferences and webinars.

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