RE: Ocean Freight – IMO Regulations – IMO2020 Fuel Surcharge (ISOCC) – Pre-Notication/Update September 2019
We are being advised that some Shipping Lines are looking to implement a new IMO2020 surcharge effective 1st December 2019, with others still to decide upon their own actual implementation date, but nearly all of them will be implemented as at 1st January 2020at the latest.
Below is some information about IMO2020, with guidelines as the potential effect but this will differ from Shipping Line to Shipping Line.
We expect shipping lines that currently build in a Lower Sulphur Surcharge (LSS) to their rates, will drop this once the IMO2020 is implemented thus reducing the final impact, however we await clarity on this point.
SGL will look to implement as a separate surcharge only if incurred, SGL will try to avoid incurring by avoiding certain lines until it becomes mandatory as from 01/01/2020, but this may not be possible so please be aware.
“The main type of “bunker” oil for ships is heavy fuel oil, derived as a residue from crude oil distillation. Crude oil contains sulphur which, following combustion in the engine, ends up in ship emissions. Sulphur oxides (SOx) are known to be harmful to human health, causing respiratory symptoms and lung disease. In the atmosphere, SOx can lead to acid rain, which can harm crops, forests and aquatic species, and contributes to the acidification of the oceans.
Limiting SOx emissions from ships will improve air quality and protects the environment.
IMO regulations to reduce sulphur oxides (SOx) emissions from ships first came into force in 2005, under Annex VI of the International Convention for the Prevention of Pollution from Ships (known as the MARPOL Convention). Since then, the limits on sulphur oxides have been progressively tightened.
From 1 January 2020, the limit for sulphur in fuel oil used on board ships operating outside designated emission control areas will be reduced to 0.50% m/m (mass by mass). This will significantly reduce the amount of sulphur oxides emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts.”
“There is an even stricter limit of 0.10% m/m already in effect in emission control areas (ECAS) which have been established by IMO. This 0.10% m/m limit applies in the four established ECAS: the Baltic Sea area; the North Sea area; the North American area; and the United States Caribbean Sea area. (Countries bordering the Mediterranean Sea are currently considering the possibility of applying to designate the Mediterranean Sea or parts thereof as an ECA.)”
ISOCC (IMO SOx Compliance Charge)
Except specific ECA zones in Europe which require 0.1% Sulphur content cap, the International Maritime Organization (IMO) will enforce a new 0.5% global sulphur cap on fuel content worldwide from January 01, 2020, further reducing the Sulphur content from the present 3.5% limit. To reflect the increased cost for compliance with this new regulation, all the ocean freight shall be subject to ISOCC (IMO SOx Compliance Charge) that will go into effect on October 01, 2019. The amount of the ISOCC will be calculated per below format and updated periodically.
Payment Term : In accordance with payment term of ocean freight
Effective date : Oct/01/2019
When the ISOCC goes into effect, the LSS/L (West Bound) and LSS/D (East Bound) will be replaced by ISOCC with terminated from 0ct/01/2019.
LSS will remain in effect for ECA zones.
Determine the reporting period:
Bunker Charge Period Calculation Period
Jan/01 to Mar/31 September–November
Apr/01 to Jun/30 December–February
Jul/01 to Sep/30 March–May
Oct/01 to Dec/31 June–August
Track Marine Fuel Prices:
The weekly prices gap between IFO 380 and 0.5% Sulphur Marine Bunker Fuel will be used to establish separate charges for Asia-Europe W/B & E/B Services based on the gap between IFO 380 and 0.5% Sulphur fuel price based on a straight average.
Charges shall be adjusted quarterly as per formula, based on average weekly IFO 380 and new 0.5% Sulphur Marine Bunker Fuel prices over each 13 weeks calculation period specified in SINGAPORE & ROTTERDAM average fuel price.
It reflects carrier’s assessments of fuel as a percentage of total voyage costs. It factors in the imbalance ratio between Asia-Europe W/B and E/B and other factors affecting fuel consumption, and uses an average in the interest of uniformity and price predictability.
ISOCC amount for Q4 2019
UK – Westbound Imports = USD106 per 20ft / USD212 per 40ft / USD305 per 40ft Reefer.
UK – Eastbound Exports = USD 29 per 20ft / USD58 per 40ft / USD165 per 40ft Reefer
What does this mean for you?
Our principal will be tracking the fuel prices and we`ll announce the quantum prior to each quarter. Please make sure to always check the correct quarter. For long term deals please bear in mind that ISOCC may change during the validity. Please note ISOCC is different for each trade.
Currently Low Sulphur Surcharge (LSS) is charged on your shipment as follows:
· LSS for ECAs zones paid along ocean freight
· LSS/L for China / HK / Taiwan (they introduce a 0.5% low emission zone from 1st Jan 2019)
charged as prepaid for your shipments
· LSS for ECAs zones paid along ocean freight
· ISOCC to follow IMO 2020 regulations paid along ocean freight replace LSS/L as they`ll be using 0.5% fuel everywhere
We have to change the fuel in the tank to this new fuel, and it takes time, we simply can`t do this in any random port.
Our longest loop is 86 days (W/B + E/B) in total so we have to prepare in advance to avoid issues in December.
How ISOCC will affect your rates?
I`m afraid we don`t have full information yet on how this new surcharge will affect the rates. We`ll keep you posted as soon as we learn more.