New Fuel Emission Standards to Increase Freight Rates

Seabury Capital’s Maritime Subsidiary Releases a Report with
Insights for Carriers and Shippers on How to Navigate the New IMO 2020
Regulation

LONG BEACH, Calif.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/IMO2020?src=hash” target=”_blank”gt;#IMO2020lt;/agt;–Seabury Maritime LLC (“Seabury Maritime”), the global maritime and
transportation investment & merchant banking and industry advisory firm,
a division of Seabury Capital Group LLC, today released a whitepaper,
produced in cooperation with Gemini Shippers Group, providing insight
and a general overview of the issues related to the implementation of
the International Maritime Organization 2020 (“IMO 2020”) regulation on
sulfur oxide emission.

With less than ten months before the IMO 2020 regulation on sulfur oxide
emission goes into effect Jan 1, carriers and shippers alike are facing
an uncomfortable uncertainty over its potential effects on costs and
freight rates as they enter the 2019-2020 trans-Pacific contracting
period. The IMO 2020 regulation mandates the reduction of sulfur oxide
emission from 3.5 percent m/m to 0.5 percent m/m.

“The 2020 deadline to reduce sulfur oxide emissions is one of the most
significant regulations impacting liner shipping in recent memory,”
commented Seabury Maritime Vice President Nikos Petrakakos. “With fuel
costs already representing more than 50 percent of total operating
expenses, the IMO 2020 poses an increase too significant for carriers to
absorb and stay operational.”

Based on Seabury Maritime’s analysis, “What today costs approximately
USD 1,600 to ship a container from China to the USEC, will now cost USD
600 more after the IMO 2020 regulation goes into place. Shippers should
be prepared to share in the risk of changing fuel prices through the
assessment of reasonable and transparent fuel-surcharge calculations.”

The whitepaper details that the lack of industry standard for
fuel-surcharges computation or a clear picture of the underlying costs
for low-sulfur fuel allows participants to only roughly estimate its
economic impact. Several factors affecting a carrier’s calculation of
the fuel surcharges add complexity, making transparency ever so
paramount to building trust on both sides.

Kenneth O’Brien, Chief Operating Officer of Gemini Shippers Group,
commented: “Through our collaboration with our partners at Seabury
Maritime, we have identified the inherent risks and cost drivers
represented by the IMO 2020 regulation. Our desire to add transparency
to the issues will help shippers and carriers alike navigate the
2019-2020 contracting season.”

Petrakakos further elaborates that “the intention of this whitepaper is
to promote open dialogue between carriers and shippers by providing
insight and a general understanding around metrics used behind bunker
calculations.” The whitepaper’s key takeaways include:

  •  January 1, 2020 will mark the full implementation of IMO 2020
    regulations reducing sulfur oxide emission from 3.5 percent m/m to 0.5
    percent m/m;
  • Carriers have several ways to comply with these new rules. Each method
    brings its own advantages, disadvantages, and cost implications;
  • New emission standards will lead to significant improvements in
    pollution derived from ships’ emissions;
  • Compliance will lead to an increase in operational costs, which
    carriers will attempt to pass on to shippers through new bunker
    formulas;
  • 2019-2020 trans-Pacific contract negotiations will occur amid the
    uncertainty of this pending cost increase;
  • Shippers should accept and endorse that the benefits of environmental
    improvements come with some increases in costs for low sulfur fuel,
    while engaging in a thorough dialogue and review of fuel surcharge
    trade factors with their carrier partners; and
  • Fuel costs already represent more than 50 percent of total operating
    expenses, and IMO 2020 poses an increase too significant for carriers
    to absorb and stay operational.

“Transparency is key to creating trust that the carriers are truly just
passing these new costs in an equitable way. Most fuel data may seem
like an important trade secret, but more transparency can actually lead
to deeper relationships and less pushback from rightfully suspicious
customers, while better highlighting carriers’ efforts to improved fuel
efficiency and lower costs as a result. Lack of clarity can even cause
undue blowback to carriers in some cases, simply because of the lack of
understanding of the metrics, a self-inflicted wound for carriers,”
concludes Petrakakos.

Seabury Maritime can help both shippers and carriers in creating mutual
trust by analyzing the data from an independent advisor’s vantage point.
All parties benefit when there is a clear understanding of the
underlying costs for carriers to provide their services to shippers. A
transparent method to calculate fuel surcharges and the impact of
low-sulfur fuel is imperative to securing the financial health of
carriers and shippers supply chains.

The whitepaper was presented during The Journal of Commerce’s
Trans-Pacific Maritime Conference held March 3-6 in Long Beach, CA.
Access the complete document at www.seaburymaritime.com.

ABOUT GEMINI SHIPPERS GROUP

Gemini Shippers Group, one of the largest shippers associations in the
United States, has been serving its members for nearly 100 years. The
group includes Gemini Shippers Association and the Fashion Accessories
Shippers Association (FASA). For more information on Gemini Shippers
Group please contact us at: [email protected]
or (212) 947-3424. www.geminishippers.com

ABOUT SEABURY CAPITAL GROUP

Seabury Maritime is a subsidiary of Seabury Corporate Finance, which is
a division of Seabury Capital Group LLC (“Seabury Capital”), which
operates a number of specialty finance, investment banking, technology,
and software companies with a core focus anchored in aviation, aerospace
& defense, maritime, and financial services & technology.

Seabury Maritime is focused on global trade and transportation. Our team
has developed a thorough understanding of the underlying competitive
economics that drive strategic investments and decision-making, while
assisting companies operationally to adapt for success and maintain
sustained competitive advantage. www.seaburymaritime.com

Since its founding in 1995, Seabury Capital has taken ownership stakes
in software and asset management businesses servicing the aviation and
travel industries. Within the last few years, Seabury Capital has
expanded its portfolio by investing in early stage startup companies
within the financial technology industry and structured investment
products. In addition, Seabury Capital owns and operates FINRA and FCA
regulated investment banking services firms in the U.S. and U.K.,
respectively, serving external clients as well as assisting the
companies in which Seabury Capital has invested. Seabury Capital has
operations in New York, Amsterdam, Berlin, Chicago, Cordoba, Dallas,
Dublin, Durban, Edison (NJ), Hong Kong, Houston, Jersey City, London,
Los Angeles, Manila, Minneapolis, Singapore, Summit (NJ), Stamford (CT),
and Tokyo. www.seaburycapital.com

Contacts

Media contact: John Luth
[email protected];
+1 612 263 6953

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