Transition to LSS (Low Sulphur Surcharge)

From January 2020 all ships and vessels operating anywhere in the world will be required to reduce their sulphur emissions. Shipping lines have already begun implementing changes in order to meet the 2020 target.
The LSS is being implemented in an aim to reduce the impact of sulphur oxide emissions that are produced from shipping vessels for both environmental and human health. 95% of the sulphur oxide emitted from the combustion of fossil fuel is sulphur dioxide. Sulphur is a toxic gas, which is directly harmful to human health. It is heavier than air and has a suffocating odour at an atmospheric concentration of around 500 parts per billion (ppb), at which level it can be fatal. It has also been linked to increased asthma attacks, heart and lung disease and respiratory problems.

How are sulphur emissions being reduced?
• All ships and vessels are required to use fuel oil with a maximum sulphur content on 0.5% m/m.
• Vessels will also have the option to put in place equivalent measures, approved by the International Maritime Organization, such as exhaust gas leaning systems (known as scrubbers), as long as the resulting emissions meet the required target.

The International Maritime Organization have released a full development plan late last year as an aid for shipping lines to plan and then execute their transition into January 2020 fully compliant. Any vessels that are not retrofitted and/or compliant by January 2020 will be detained or the carrier be forced to pay financial penalties if caught with non-compliant vessels in operation. Ship detainments or ships being removed from key trade lanes will surely result in a rise in rates as space becomes critical.
It’s worth noting that for several years now there has been a low sulphur levy applied to fuel, which has been passed on to customers in various ways via either a bunker adjustment factor, emergency risk, or an emission control surcharge. The major change as we move into 2020 will be the quantum per container. Scrubbers can cost up to USD14 Million on a large vessel and take upwards of 2 years to install. With the process already underway globally, shipping lines are now imposing a cost recovery program to fund this. On some markets a levy is already in place, but some carriers are still to decide, however are likely to do so within the coming weeks.

How will this be levied?
The world’s largest shipping line Maersk has estimated that cost to their business will be a minimum of USD200 million in fuel cost increases per year. Overall global costs are likely to rise by USD25 Billion. Carriers started imposing a fee as early as September 2018 and this is expected to gradually increase as we get closer to the implementation date in January 2020. The LSS charge is not a fixed amount, it will vary by carrier and the specific shipping route. The early indications are that it could range anywhere from USD50 – USD300/TEU, once fully implemented. The LSS is a cost from the shipping line and will therefore appear as a separate fee on the rated bill of lading and/or invoice based upon the shipping terms. This is obviously going to make international shipping more expensive for freight forwarders.

For more information on the upcoming implementation of the LSS contact Stockwell International here or call 1300 786 468.

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