Global Sulphur Cap 2020 – Circular #3

11.29.2019

Global Sulphur Cap 2020 – Circular #3

November 29. 2019

Cuxhaven, 29.11.2019

Global Sulphur Cap 2020 – Circular #3

Dear valued Customer & Partner,

In about one month time, the Global Sulphur Cap 2020 will come into force and there is still a lot of uncertainty. As a matter of fact, for most Shipping Lines the changeover to new fuel oils has already started in order to ensure that no remaining High Sulphur Fuel Oils will be on board after 31st December. S&P Global Platts states that for worldwide more than 60.000 vessels the costs on the technical side alone will be at around 1 Billion USD! Chief Economist of German´s State Bank of Baden Wuerttemberg expects effects on worldwide economy through rising fuel costs and a reduction of number of vessels.

The International Maritime Organisation (IMO) strives to set up technical standards for the new Very Low Sulphur Fuel Oils (VLSFO) and Hybrid Fuel Oils but can only provide first preliminary drafts. Ship Owners cannot be provided with reliable specifications on these new fuels. Therefore, the risk of incompatibility and consequentially damages to main engines remains on a very high level. It is expected that most vessels will change over to Marine Gasoil at least for the first months in 2020. New 0.5% blended fuels are right now introduced to the market and will be traded at all major bunker spots worldwide.

At this particular time, there is no clear way to accurately calculate the future impact due to the volatility to come in the bunker fuel markets. Most players in the industry believe it is important to isolate the rising burden of fuel costs, so these costs should rather be visibly passed on through-out the supply chain.

All BREB-vessels have started the process of implementing the Global Sulphur Cap 2020 and will be ready for service in due time. As from 15th December onwards all our ships will be fully converted and run solely on fuels with 0.5% Sulphur content, thus ensuring a smooth transition without any breaks nor delays for our clients.

In an internal analysis BREB has investigated the impact of extra-costs for either MGO or VLSFO on today’s price levels for European Trade. This week the price difference between standard High Sulphur Fuel Oil (HSFO) and MGO was abt. 340 EUR pmt at the North Continent and abt. 300 EUR pmt in the Mediterranean Sea (MED). Between HSFO and VLSFO the difference in price was abt. 255 EUR pmt at the North Continent and 225 EUR pmt in the MED. Based on these fig-ures Northrange- and MED-shipments for the size of 4.000 – 8.000 Tonners were analysed. The effect of substituting HSFO by more expensive MGO and VLSFO varies a lot depending on sea-passage, cargo lots and vessel sizes. As a result Bunker Adjustments range from 1.50 EUR to 6.00 EUR per freight ton. As a rule of thumb it can be stated as follows: large vessel + short dis-tance = small BAF; small vessel + long distance = large BAF. The mentioned figures are solely indications and are subject to the development of market prices of the different qualities in the future.

To be absolutely transparent BREB has prepared a “GSC 2020 – BAF – Formula” for all clients and their individual trades including publicly available price references of all Fuel Oil qualities. Furthermore, together with its Bunker Trader, BREB has developed a tool to minimize the risk of possibly extremely rising Fuel Costs in 2020. This tool will be offered to each BREB-client in a custom-tailored version as value-added service.

We will keep you duly posted on all developments and remain

with best regards

BREB GmbH & Co. KG

Your BREB-Team

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