Published on JOC.com (https://www.joc.com) Author: Lars Jensen, CEO & Partner, Vespucci Maritime, and JOC Analyst Nov 01, 2021
Almost all the attention in the maritime supply chain is focused on the current congestion problems, especially on the impact this has on the availability of Christmas merchandise. And when talk turns to the future, this is almost exclusively focused on when — and how — the market will normalize such that transit times come back down to being measured in weeks rather than months, and freight rates get back to levels where you don’t have to mortgage your firstborn in order to get your cargo loaded.
The current problems are indeed significant and need a lot of attention, but all market participants should consider devoting some more effort into planning for additional changes and challenges waiting just around the corner.
One element that needs more attention is the International Maritime Organization (IMO) 2023 rules aimed at reducing emissions from vessels. That’s when the IMO will adopt revisions and make additions to its initial strategy to cut greenhouse gas (GHG) emissions, particularly reducing total GHG emissions from shipping by at least 50% from 2008 levels by 2050.
If we think back to the IMO 2020 low-sulfur rules, they were well-known for basically a decade before implementation. Yet many market participants appeared to only start to devote significant effort into the issue as we got into 2019. Many shippers only learned of this from their carriers during the second half of 2019 and were very surprised. But this should not have come as a surprise to anyone. It can of course be debated whether the carriers should have been out much earlier to inform their clients of the impending changes or whether the shippers should have been more proactive in considering what IMO 2020 was going to mean for them. Regardless of perspective, the fact remains that many market participants appeared ill-prepared for an issue that was known for years.
The IMO 2023 rules were agreed upon in 2018, giving everyone five years to prepare. These rules now come into effect only 14 months from now, yet there is no overview in the container shipping market as to the actual impact. Some carriers have begun to look into the ramifications which may involve having to slow some of their vessels in order to meet the new requirements. But the number of vessels affected and how this potentially can reduce the global capacity is presently unknown.
Effect on vessel varies
From a purely practical standpoint, it is exceedingly likely that the rules will be more difficult to adhere to for older — and hence smaller — vessels than for newer, more fuel-efficient vessels. This could lead to a situation where the impact is disproportionately heavy on smaller regional trades than major deep-sea trades. Should this be the case, that will have a clear impact on shippers as this will favor those reliant on freight between very large ports and will be a disadvantage for shippers reliant on sourcing in smaller locations dependent on feeder services, just to give one example.
It helps a little that the entry into the new IMO 2023 is not a “big bang” on January 1 as was the case for the low-sulfur rules, but gradually comes into effect as the vessels get to their next certification. But presently it appears the market is on track for a repeat of the IMO 2020 debacle where many shippers felt it was a surprise sprung on them at the last minute.
The IMO 2020 rule change was very simple to explain: “We need to buy more expensive fuel.” The IMO 2023 rules are more complicated and technical, and as such more difficult to communicate. And the impact will be more indirect in the form of possible tightening of the supply/demand balance in some trades.
It would therefore appear that the market right now is on a path to repeat the IMO 2020 situation, but with the added issue that it will be more difficult to communicate the impact to shippers. And this brings us full circle. Even though we have severe problems to deal with in the supply chain right now, we know there is another impact coming in just 14 months and efforts need to be increased to prepare for the coming changes — especially from a shipper perspective.