Dive Brief:

• ONE will implement a bunker surcharge on all new contracts beginning Jan. 1, 2019, "to be valid till further notice," to help offset the costs of preparing for the International Maritime Organization (IMO) 2020 sulfur regulations change, the shipping line said in an advisory. 
• The surcharge, referred to as OBS (ONE Bunker Surcharge) will be calculated using fuel price, trade-wise loading factor and trade imbalance.
• ONE said switching to low-sulfur fuel is the "most realistic and cost-efficient, short-term solution," and it will also consider scrubbers and liquefied natural gas (LNG), "which may be employed in the future."

Dive Insight:

ONE joins a host of major carriers — including Maersk, MSC, OOCL and Hapag-Lloyd — looking at shippers to help foot the bill for IMO regulation compliance.

Emission reductions carry long-term benefits for the environment and human health, but they also come with upfront costs to adapt. Scrubbers cost between $1 million and $10 million per ship, according to a report from A.T. Kearney. As a result, less than 3% of the global fleet is investing in scrubbers.

Carriers are scrapping ships, realizing it's more cost-efficient to invest in new fleets than upgrade old ones. "The IMO low sulfur mandate will pressure smaller and less fuel-efficient container vessels ... for which the installation of scrubbers is uneconomic, which could lead to further scrapping of ships smaller than 5,000 TEUs," Moody's investor service wrote in an analysis. 

Each shipping line varies in how it will calculate its surcharge and when the charges will take effect. Some of the carriers, including ONE, are implementing surcharges a full year ahead of the Jan. 1, 2020 deadline. 

The majority of shippers seem unprepared to handle the increased costs. In an October survey by Drewry Maritime Consultants, only 10% of shippers had conducted a cost impact assessment of the surcharges. 

"Given the low level of readiness to comply with these regulations, the global shipping industry will undergo a disorderly and disruptive transition to the new environment in 2019," A.T. Kearney wrote. "The drama will continue to unfold in 2020."

Shipping lines acknowledge the need to reduce their emissions, not only to meet the IMO standard, but also for the health and benefit of the planet. "In line with our ongoing commitment to operate an environmentally sustainable business model, we welcome the reduced sulfur limits," ONE said in its advisory. 

Sustainable maritime transport was the subject of one of the events during this week's COP 24 climate conference in Poland. This same week, Maersk announced it's taking its climate goals a step further, pledging net zero emissions by 2050 and calling on the industry to develop ships that can help meet that goal.