Seaboard Marine is committed to providing the highest level of customer service, without exception. In our ongoing effort to uphold that commitment, we would like to provide you with information concerning environmental regulations that will impact the ocean transportation industry.
The International Maritime Organization (IMO) 2020 sulfur emissions regulation, effective January 1, 2020, impacts all ocean carriers. This sulfur reduction regulation is an effort to lessen the impacts of vessel emissions. This stringent regulation will require ocean carriers to reduce the emissions of sulfur oxides (SOx) from vessels operating outside Emission Control Areas (ECA). Today, ships can use fuel with a sulfur content of 3.5% but effective January 1, 2020 ships can only use fuel with sulfur content of 0.5% outside of the ECA zones. Seaboard Marine supports the regulation as part of our ongoing focus on reducing adverse impacts on the environment.
The utilization of the compliant low-sulfur fuel will dramatically increase the cost of fuel used to power our vessels. Some experts estimate that this IMO imposed regulation will cost the shipping industry potentially US$ 40 – 60 billion annually to comply with this directive. To provide transparency so that our customers, in a simple, fair and predictive way, can track and plan how changes in fuel costs will impact the total shipping freight rate, Seaboard Marine has developed the Marine Fuel Surcharge (MFSC), based on a Marine Fuel Surcharge Index, which will be gradually introduced throughout our service network beginning March 17, 2019. The Marine Fuel Surcharge will replace our current Vessel Fuel Surcharges.
Effective March 17, 2019, Seaboard Marine will begin implementing this change for the trades of Central America, Dominican Republic, and Haiti by adjusting existing freight charges, displacing the current Vessel Fuel Surcharge and introducing the new Marine Fuel Surcharge for future fuel adjustments. The adjustments we are making in the structure of tariff and service contract freight rates and surcharges are intended to be revenue-neutral. However, going forward every month, Seaboard Marine will adjust the Marine Fuel Surcharge using calculations based on Platts Bunkerworld benchmarked IFO380 (3.5% sulfur) fuel in Houston and New York. Any necessary adjustment will be per our published Marine Fuel Surcharge Index. We will convert the benchmarked fuel from the current IFO380 (3.5%) to fuels that comply with the new regulation effective November 1, 2019 because we will need to start purchasing compliant fuel (0.5% sulfur or lower) beginning in November to completely clear our vessel tanks of the high sulfur fuel by year-end.
You may visit: Marine Fuel Surcharge to view additional information about the Marine Fuel Surcharge and view the Marine Fuel Surcharge Index.
The current Low Sulfur Diesel Charge will remain in effect as is today as ships are still required to use even cleaner fuel (0.1% sulfur content) in the Emission Control Areas (ECA).
Through establishing the Marine Fuel Surcharge, Seaboard Marine is providing more transparency on necessary adjustments to changes in fuel costs as we embrace the IMO 2020 regulation while furthering trade in the Western Hemisphere.
As always, we thank you for your continued support.