Steven R. Blust, President, Institute of International Container Lessors

Steven R. Blust, President, Institute of International Container Lessors

2019 will usher in a challenging transition period for international shipping as the long-anticipated International Maritime Organization 0.5 percent sulfur cap in ship fuel will go into effect on Jan. 1, 2020. This 86 percent reduction from the current 3.5 percent allowable sulfur cap in waters outside of the existing regional current emission control areas (ECAs) will require all ocean carriers to reduce sulfur pollution through the combined use of scrubbers, low-sulfur fuel, and slow-steaming.

According to the International Transport Forum at the Organization for Economic Cooperation and Development, the 2020 requirements could add annual total costs in the order of US$5 billion to US$30 billion for the container shipping industry.

Furthermore, intermodal equipment demands are also expected to increase as a result of the expected slow-steaming, and from governmental intervention, including recent trade tariffs that will likely cause longer commodity supply chains, as cargo interests adjust to new sourcing locations to avoid the application of tariffs to commodities.

Most of the major container vessel operators have announced plans to install sulfur scrubber machinery to a part of their vessel fleet prior to the end of 2019 and are expected to continue scrubber installations beyond the Jan. 1, 2020, enforcement date. This initiative is likely to put a damper on other capital expenditures, including intermodal equipment, resulting in the use of leasing, alternative financing, and chartering from third parties for the sourcing of intermodal equipment and ships.

Intermodal equipment lessors will continue to play an important role in supporting the international containerized trades as greater reliance on equipment leasing will free up capital, which can then be used to acquire the pollution- reducing scrubbers or lower polluting ships, as well as the sourcing of additional equipment to meet demands of longer and slower transit times.

ARO Category: 
ARO Issue Year: