This time, we will take a look at Low Sulfur Surcharge.
There was a new mandatory rule in January 2020, and a new surcharge was added to ocean shipment. International Marine Organization, (IMO), has amended MARPOL Convention.
It outlines prevention of pollution from vessels,and requires them to use LSC fuel, which is low sulfur fuel for sea shipment.
In short, shipping lines cannot continue to use the fuel, which is not environmentally friendly. After this rule was introduced, it requires the shipping lines to use low sulfur fuel.
Now, let’s have a close look.
As you may be aware, PM2.5 air pollution has become an international problem. It is contained in emission gas and composed of sulphur oxide.
What harm could be caused to human bodies by PM2.5? It could cause lung cancer, heart disease, or infantile asthma.
Therefore, to reduce harmful PM2.5, IMO has introduced a new rule to reduce sulfur caused by emissions.
Then, what is low sulphur? It contains lower sulfur in fuel. In the past, the fuel mainly used by vessels was fuel oil C. Sulphur content of fuel oil C must be below 3.5%.
With the new treaty, the maximum level of sulfur content must be under 0.5%, which requires shipping lines to use “low sulfur fuel”.
This new rule is called SOx rule. SOx is short term of Sulfur Oxide. This treaty amendment to use low sulfur fuel, which does not exceed 0.5% was decided in 2008.
However, oil industries needed to have time to prepare, and it took 12 years to go live, finally happening in January 2020.
With the MARPOL convention, as the effects of emissions is higher with vessels which operate in coastal areas.They strengthened the rule in emission control area which is called ECA.
The current ECA coastal areas are North America, Scandinavia, and the Baltic Sea. Requirement in these areas is much stricter, and the content of sulfur must be under 0.1%.
So, do shipping lines really have to change their fuel? No, it’s not always the case. If they implement a “scrubber”, which cleans the emission on their vessel, they can continue to use heavy oil C.
However, to implement one scrubber, they need to invest millions dollar, and also it will reduce cargo capacity in the vessel.
Why there will be a surcharge? Low sulfur fuel costs more than heavy oil C, therefore shipping lines are required to cover this extra fuel cost.
Also, vessels with scrubber units are required to cover the cost of the investment, and they are required to compensate this cost as well.
LSS reduces PM2.5 and is friendly to human bodies and the environment. Therefore, you can take this as an environmental cost.
Now, this environmentally friendly LSS, price is different for each shipping line.
When we were panicking to deal with the introduction of LSS in November 2019, our company was questioned by our customers, due to uncertain information provided by shipping lines.
Maybe each company was trying to find out what other companies were doing first.
There are a tariff and selling price on LSS. The tariff is a list price and it is shown on the shipping lines website.
Some shipping lines produce the same LSS for freight forwarders, however, there are shipping lines with lower prices. In general, LSS is a tariff for three months without changes.
However, our company receives a lower price by specific shipping lines, and we negotiate each month.
If it’s a tariff, there is no price increase during its period, however, LSS may increase if we are negotiating for our customers.
There are different organizations involved in international logistics, and rules are reviewed periodically.
To improve our environment and work, rules will continue to change, and we are required to adopt these changes to manage our business.
LSS is required for our environment, and although the cost increase is not easy for us, I hope everyone will understand this issue.