Nigeria, others to pay $240bn shipping emission surcharge

In October 2016, the Marine and Environmental Committee (MEPC) of the International Maritime Organization (IMO) agreed to implement a global 0.5 percent m/m sulfur oxide emissions limit, effective Jan. 1, 2020. The current global limit is 3.5 percent.

According to IMO, new emission standards will lead to significant improvements in pollution derived from ships’ emissions. Compliance by ship owners will lead to an increase in operational costs, which carriers will attempt to pass on to shippers through new bunker formulas.

But, stakeholders in the maritime industry had said the switch from high- to low-sulphur fuel could cost the shipping industry between $46 billion and $69 billion a year based on current fuel demand.
For instance, container ship operators alone are forecast to see their annual fuel bill rise by $25 billion a year, leading to increase in freight rate especially to West and Central Africa with low vessel ownership.

Executive Secretary, Nigerian Shippers’ Council (NSC), Barr. Hassan Bello said consumers are expected to pay about $240 billion in 2020 as majority of the cost would be passed to consumers.

He disclosed this at the just concluded Sub-regional Summit on Unfair Shipping Surcharges and High Local Shipping Charges at the Ports of West and Central Africa Sub-region which held in Abuja.

He said, “by 1st January 2020, IMO will regulate global sulphur levels from  3.5 per cent to 0.5 per cent mass by mass. We must pay close attention to the most dramatic fuel regulation change ever implemented considering the economic impact. The ripple effect of this change could have significant implications on the global economy.”

Bello who charges members of the sub-region on how to enhance competition and improve efficiency at the seaports warned that rising fuel cost would lead to increase freight rate.
“Rising fuel cost will translate to rising freight rate with majority of the cost being passed on to shippers. It is estimated that the total impact to consumers’ wallets in 2020 could be around $240 billion.”
“As a result of varying cost factors, shippers will ne forced to make a choice about how to make a choice about how to stay competitive. As we are all aware, freight rates to the sub-region are relatively high compared to other parts of the world due to low vessels ownership in the sub-region.”
Recall that before the introduction of the 0.5 per cent sulphur limit, Nigeria already paid in excess of N150 billion yearly on surcharges such as Bunker Adjustment Factor, Currency Adjustment Factor, War Risk Surcharge, Congestion Surcharge Peak Season Surcharge.
Others are, Extra Risk Insurance Surcharge, Freight Rates Surcharge, Port Operations Recovery Surcharge among others. Nigeria as an importing nation with no ships for its import and export cargoes is bound to be badly hit by this impending freight hikes. Nigerian shippers will pay astronomically high freight rate, and this, no doubt, will be passed on to the consumers.

Also speaking on the emission surcharge, the secretary general, Global Shippers’ Forum, James Hookman said the first reaction shippers’ should expect is lot of surcharges from shipping companies.

The GSF boss said the shipping lines have already started introducing what shippers will be as extra surcharges.

“The first reaction that shippers got from the shipping lines with this new regulation is for the shipping lines to announce a whole load of new surcharges.

So, shippers were naturally cautious because once again there are new costs confronting the shipping lines without any consultation or discussion with shippers. They are simply posting on their websites the amount extra that shippers are supposed to be paying.”
“As if that was not bad enough, some of the shipping lines were putting these charges in place more than twelve months before the new regulation takes effect.  The first postings went up in the autumn of last year, which was 15 months before the regulation applies and the shipping lines started including the costs.”
“I think shippers were naturally disappointed and jaded because it was the same old reaction from the shipping lines; new regulations, new surcharges and shippers saw this as an unverified gross mass speculation only a couple of years previously. So, that’s why we think that for shippers, the IMO 2020 Sulphur cap will be a surcharge issue rather than an environmental issue.”