07 January 2019

Transition to 2020 Low Sulphur Fuel Surcharge (LSS)

From January 2020 all ships and vessels operating anywhere in the world will be required to reduce their sulphur emissions. In order to meet the 2020 target, many shipping lines are implementing changes to their vessels now.

How are sulphur emissions being reduced?

  • All ships and vessels are required to use fuel oil with a maximum sulphur content of just 0.5 per cent m/m.
  • Vessels will also be able to use an IMO (International Maritime Organisation) approved equivalent method such as exhaust gas leaning systems (known as scrubbers) providing of course that the resulting emissions meet the required target.

Ships, ports, refineries and fuel suppliers will need to make sure they are ready for the global implementation of this regulation.

Why is LSS being implemented?

The new limits aim to reduce the impact of sulphur oxide emissions from shipping for both the environment and human health.

When is the LSS being implemented?

The IMO was to have completed a full development plan for vessel implementation by October 2018, but this has been delayed. When it is finally released, it will be non-mandatory however, they expect it to be used by shipping lines to plan and then execute their transition into January 2020 full compliance. Further additional measures and guidelines will be announced by the IMO and then released to the market throughout 2019. Any vessels that are not retrofitted and/or compliant by January 2020 will be detained or the carrier be forced to pay yet to be determined penalties if caught. The overall result of any such action could be that if ships are removed from key trade lanes then then rates will only rise as space becomes critical.

What I need to know about LSS?

It’s worth noting that for several years now there has been a low sulphur levy applied to fuel, which has been passed on to customers in various ways via either a bunker adjustment factor, emergency risk, or an emission control surcharge. The major change as we move into 2020 will be the quantum per container. Scrubbers can cost up to USD14 Million on a large vessel and take upwards of 2 years to install. With the process already underway globally, shipping lines are now imposing a cost recovery programme to fund this. On some markets a levy is already in place, but some carriers are still to decide, however are likely to do so within the coming weeks.

How does this affect me?

Now that you understand a little about what LSS is, let’s try and break it down how the charge will be levied. The world’s largest shipping line Maersk has estimated that cost to their business will be a minimum of USD200 million in fuel cost increases per year. Overall global costs are likely to rise by a staggering USD25 Billion. Regardless, the LSS charge is not a fixed amount, it will vary by carrier and also the specific shipping route. Deep sea movement will obviously be higher than shorter sectors, but early indications are that it could range anywhere from USD50 – USD300/TEU. Some carriers have already started to impose a fees, others have announced similar for exports.

LSS common questions

I have agreed contract rates, will these be effected?

Many high volume customers have contracts (named account) with locked in rates for the duration of the agreement. It remains to be seen if the carrier will try to adjust these levels in accordance with the LSS or wait until the end of the period before renegotiating then. For any non-contracted rates (FAK or LCL) the charge will either be included in the all-in rate, or more likely shown as a separate line item fee per cubic metre or container.

Is there a difference between and LSS or ECA charge?

The current ECA (Emission Control Area) is not actually a surcharge, but rather an area in which carriers currently have to use fuel with a sulphur content in the range stated. Having said that, if you do see an ECA as a listed charge on your invoice it is basically an LSS fee.

Does LSS come under the FOB or ocean freight charge?

FOB and any other terms of sale (prepaid or collect) have associated freight charges. The LSS is a cost from the shipping line and will therefore appear as a separate fee on the rated bill of lading and/or invoice based upon the shipping terms.

For further information please contact your local branch who will be happy to assist.

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