Supply Chain Monthly

Shippers Face Uncertain Supply Chain Impacts as IMO 2020 Approaches - Experts to Dig into Potential Impacts at Upcoming EDGE 2019

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Article provided by Brian Straight, FreightWaves.

Maritime interests have certainly heard about, and are preparing for the IMO 2020 regulations that go into effect on Jan. 1, 2020. But those without direct interest in ocean shipping may not understand the potential impact these regulations could have on global trade.

To counteract this lack of information, the Council of Supply Chain Management Professionals’ (CSCMP) upcoming EDGE 2019 Conference, to be held September 15-18, at the Anaheim Convention Center in Anaheim, CA, will feature a panel discussion on this topic. “The Cost of Clean Air: Complying with the IMO 2020 Sulfur Cap,” will feature the following experts from the space: Paul Bingham, Economics & Country Risk, Transportation Consulting, IHS Markit, John Janson, Director, Global Supply Chain, SanMar, Inc., Jack Mahoney, Head of Automotive Industry, North America, Maersk, Matt Muenster, Senior Manager, Applied Knowledge, Breakthrough, and Mark Murphy, District Sales Manager, Pacific Northwest NAM Western, APL. These thought leaders will be providing updates and guidance for beneficial owners of freight and other stakeholders affected by IMO 2020.

“That is one of the intentions [of the panel], to find the issues that shippers may not be paying attention to,” explained Gail Rutkowski, executive director of the National Shippers Strategic Transportation Council (NASSTRAC). Rutkowski is responsible for organizing the panel discussion, which will take place on the last day of the conference,the morning of September 18.

Paul Bingham, Director of Transportation Consulting for IHS Markit, will serve as moderator. 

You can visit the EDGE 2019 conference website to register.

For those that believe IMO 2020 is simply a vessel operator issue, they are greatly mistaken. IMO 2020 promises to raise fuel prices for marine fuel, but also diesel fuel for vehicles, and could have broader implications across the supply chain.

“We believe there is going to be much broader impact than what we’re reading about,” Rutkowski said. “I’m seeing more [information] recently on the subject, but up until a couple of months ago, it was hard to find anything on it.”

IMO 2020 is a low-sulfur emissions regulation. The International Maritime Organization (IMO) has directed that sulfur emissions of oxide in the marine sector be reduced by more than 80 percent. Vessel operators have two approaches they can take – use ultra-low-sulfur fuels or install a so-called “exhaust scrubber” that will clean the vessel’s emissions and reduce the emissions.

Rutkowski, whose association, NASSTRAC, is the leading shipper association for transportation and logistics professionals that manage freight across all modes of transportation, thinks her members may not be adequately prepared for the impact IMO 2020 could have. The operative word being could, as she told FreightWaves that she would rather members prepare for the worse and be pleasantly surprised.

“This could be very impactful on their operations, particularly if you are an importer or exporter,” she said, noting that those responsible for supply chains are increasingly coming from the non-transportation ranks and may not understand the potential impacts.

“Within the transportation function in the shipper community, it is less and less manned by transportation professionals,” Rutkowski said, “… so this is one of those issues that … folks … are not going to be paying attention to. We’re using this session to reach out to those folks.”

Whichever option container line operators choose – ultra-low sulfur fuel or a scrubber – the cost and impact is likely to be enormous. It is estimated that shipping will see a $50 billion to $60 billion increase in annual fuel costs, with container lines facing $12 billion in additional fuel costs. Goods may take longer to traverse shipping lanes as container lines slow vessel speeds to burn less fuel. Off the water, the impact could be felt as on-highway diesel prices could increase as much as 30 percent, driving up the costs to move goods.

The experts on the “The Cost of Clean Air: Complying with the IMO 2020 Sulfur Cap” panel will explore options available to shippers to mitigate disruption and cost increases, and how potential sourcing changes and shipping shifts may affect supply chains.

“There is no doubt that the world in general needs to embark on an all-encompassing transformation process away from the reliance on fossil fuels. This goes for shipping as well, and we have taken steps to respond to this need. The implementation of IMO 2020 is one way to address this issue and ensure our industry mitigates its impact on the world and human health. It is a significant change for the entire shipping industry and we, at Maersk, have been preparing for its implementation, both operational as well as in the level of transparency and predictability we provide to our clients," Jack Mahoney, Head of Automotive Industry North America, Maersk, said.

Shippers were impacted by trucking regulations like the electronic logging device (ELD) mandate and the greenhouse gas regulations (EPA 2010) that went into effect in 2010, but Rutkowski thinks the potential is there for IMO 2020 to be more disruptive to the supply chain.

“Because there are so few ocean carriers, the impact is going to be felt across the entire industry at once,” she said. “When emissions 2010 hit, a lot of the big carriers were already compliant; similar to the ELD mandate.”

With less than five months to the deadline, there isn’t much time for supply chain changes to occur, if they are necessary. Rutkowski, though, doesn’t think the impact will hit full force on January 1.

“What I’m hearing talking to some of these folks… is that it is going to be a gradual buildup and it might not have a big impact in the first quarter of 2020, but [more so] in the second quarter,” she said.

“If may not be a big deal, but what if it is?” Rutkowski asked.