IMO 2020 prompts questions over competition and profitability

Financially vulnerable carriers could be pushed into concluding merger and acquisition (M&A) deals as a result of the extra costs associated with the new low-sulphur fuel restriction, effective from 1 January 2020.

That’s when the International Maritime Organisation (IMO) will enforce a 0.5% global sulphur cap on fuel content, lowering it from the current 3.5% limit.

Shipping consultants Drewry also warns that should M&As be signed, it will prompt questions about the ramifications for competition on key trades.

This is in addition to concerns about the impact that IMO 2020 will have on profitability.

Meanwhile uncertainty reigns as ship owners contemplate alternatives to powering their vessels and assess their ability to meet the myriad of extra associated costs brought on by the new mandate, such as unrecoverable bunker adjustment factors, capex costs to install scrubbers and extra funding requirements for bunker credit, among others.

It is also felt that IMO 2020 could lead to major carrier bankruptcy, that it could trigger more defensive M&As, or could inadvertently push industry consolidation closer to where it needs to be in order to achieve sustainable profitability.

While previous M&As have handed near-full control of the global market to a handful of lines, there are still varying degrees of competition at a trade-route level, especially on East-West routes.

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