No shock for the market – BPO report on SECA implementation concludes

Baltic maritime transport has been experiencing a new regulation regime since 1st of January 2015 as new sulphur limits were enforced for marine fuel used by ships sailing in SECA area. BPO has carried out a study: SECA is real now that investigates how EU member countries are controlling the ships, what are the measures for non-compliance, what are the sanctions and penalties.

Moreover, the report gives the overview on how ship-owners are meeting new requirements. A substantial part of Baltic ferry and ro-ro ships has already installed or will install scrubbers (over 70 installations confirmed). Furthermore, BPO research team has been analyzing the price adjustments by shipping lines due to the increase of operation and investment costs.

Bogdan Ołdakowski, BPO Secretary General, commenting the findings of the report said: “We are just three months after the introduction of new sulphur limits so it is too early for conclusions on the impact of SECA rules on Baltic shipping and ports. By this research we wanted to study how the implementation of sulphur directive is done in EU countries. We also investigated how the market reacted so far. In container and ro-ro markets new type of surcharges (e.g. SECA surcharges) has been implemented by shipping lines. However, due to the drop of oil prices at world market the increase of maritime fright in the Baltic is rather moderate, much less than expected a year ago”

Report includes own investigations by BPO research team as well as the conclusions from BPO Seminar: SECA is real now - first implications of sulphur limits held on 18 March 2015 in Gdańsk, Poland

For more info, please contact: bpo.office@actiaforum.pl 

Content:

1. Introduction 
2. How are EU Member States controlling ships? 
3. Inspections and fuel samplings
4. Targeting ships for inspections
5. Measures against non-compliance with the Sulphur Directive
6. Sanctions and penalties 
7. Detention and reporting to the next port of call .
8. How are ship-owners meeting the new requirements? Review of the market
9. Scrubbers
10. LNG and other alternative fuels
11. LNG-powered ships
12. Ships powered by methanol
13. Development of bunker fuel prices
14. Price adjustments by shipping lines due to the new regulations
15. Summary 

Summary

• Since January 1st, 2015, ships must comply with the stricter regulations concerning sulphur content in fuel. Inspections in ports consisting of controlling relevant documentation and fuel samples are important instruments in checking a ship’s compliance with the Sulphur Directive. 
• Another important way to check ship’s compliance is are fuel samples. According to data from THETIS-S, a system run by European Maritime Safety Agency (EMSA), since the beginning of 2015 to March 12th, 676 sulphur inspections were carried out within the European Union. Most of them (512) took place within European SECA areas, i.e. on the North Sea and Baltic Sea. In the whole EU almost 6% (40) of the total number of inspections proved a ship’s non-compliance. 
• Before 2015, EU fines for violating the previous sulphur regulations range from EUR 290 to EUR 84,500; however, after January 1st, 2015, the maximum fine for breaching the new regulations may range from only a few hundred Euros to EUR 200,000.
• Currently, three solutions exist in order to meet the new requirements: switching to MGO of a sulphur content not higher than 0.1% per mass instead of IFO, installing scrubbers and using alternative fuels, with a low sulphur content, of which the most popular is LNG. 
• There are currently more than 200 confirmed scrubber projects worldwide (in operation or ordered). By the end of 2014 scrubbers had been installed on-board 75 ships, and by the end of 2015 over 160 ships will be equipped with scrubbers. Among the Baltic and North Sea ro-pax and ro-ro operators that have invested in scrubbers are: DFDS Seaways, Finnlines, Transfennica, TT-Line, Color Line, Stena Line, TransAtlantic, Brittany Ferries, and Scandlines. 
• As of March 2015 there were 138 confirmed LNG-fuelled ship projects worldwide (60 LNG-fuelled ships in operation worldwide and 78 ships under construction/refitting). 
• The significant drop of oil prices, and in consequence decrease in bunker fuel prices, in the second half of 2014 means that ship-owners have not yet suffered the consequences of the stricter sulphur regulations. But it can be expected that the prices will not stay long at such low levels. Especially, an increase in MGO price is expected due to increased demand on the distillate supply pool.
• To offset the additional cost incurred by switching to cleaner fuels in SECA, a number of ship-owners and ship operators have decided to adjust the prices. 
• In the case of large container operators, the new SECA surcharges vary from USD 30 per 40ft container (for Asia to/from North West Europe) to USD 280 per 40ft container (for the Baltic region to/from the Canada East Coast). A new surcharge was also announced by feeder/short-sea shipping container lines. Depending on the operator and route, the surcharge ranges from USD 300-100 per TEU.
• In the case of ferry and ro-ro operators, it is currently hard to tell what the level of increase in freight rates is. Several months ago DFDS Seaways and Stena Line estimated that due to the new regulation, the freight rates will increase by around 15%. However, presently the price of low sulphur fuels is much lower than was expected several months ago, so the surcharges dependent on the fuel prices are probably not as high as it was previously expected and, in a consequence, the growth of freight rates is probably below the assumed values.