Question

Explain how a sulphur cap adopted effects the market of ship-owners?

How does this policy effects supply, freight-rate, demand, shipping investment, canals such as Panama, regulators like IMO, world fleet, shipping investors ,

Answer 1

Sulphur oxide is very dangerous to human health and causes various respiratory and lung diseases. This can also cause acid rain which can destroy the crops. To control this the limit for sulphur content of fuel oil burner on board ships operating outside designated emission control area has been limited to 0.5% m/m w.e.f. 1st January 2020. It is called Sulphur Cap. It has been implemented by IMO which stands for International Maritime Organisation. There are two options available to ship owners. Either use compliant fuels which includes sulphur content no more than 0.5% m/m i.e. such as LNG or scrubbers. It affected market of ship owners in a great manner. It increased their overall expenses because they had to comply with the rules. They need more space for scrubbers and power supply for operation of scrubbers. Scrubbers are exhaust gas cleaning systems on board. These need more electricity to run so the costs of the ship increase. Their market was affected negatively and their profits were also reduced. Open loop scrubbers were also banned at some ports. Discharge of wash water from open loop scrubbers were also banned so they had to store this water in their tank. Any technical failure to these scrubbers could lead to fines and revenue loss because of delay in repair of scrubbers. It affected supply in a negative manner because it became costlier to maintain a scrubber up to date, it took an extra time for it so supply was reduced and freight rate were increased because of extra cost and expenses on scrubbers maintenance. Demand was decreased because they take too much time to deliver the goods at higher freight rates. Shipping investment was also decreased because there were guidelines for ship owners to maintain sulphur cap. Ports of Canals such as Panama banned the open loop scrubbers for implementation of the rules of sulphur cap. IMO had to also re-examine the rules and guidelines in sulphur cap because these were very strict to ship owners. World fleet had also affected negatively because business of ship owners was reduced. Maintenance of scrubbers was very expensive. So world fleet business was also affected. Shipping investors were discouraged to invest in shipping business because restrictions on ship owners in sulphur cap were very strict. Any negligence in any rule led to heavy fines.

Summary : So sulphur cap was made to control dangerous diseases like cancer, asthma etc. but strictness of this act had negative effect on shipping owners and shipping business.