The recent regulation set by the International Maritime Organization (IMO) regarding fuel intensity targets is poised to significantly impact the shipping industry and its S&P (Sales and Purchase) activity. This regulation mirrors the Fuel EU regulation implemented earlier this year but has a broader scope, applying globally to the entire shipping fleet.
A primary consequence of this new rule is the financial penalty imposed for the use of cheaper, carbon-intensive fuels, such as Heavy Fuel Oil (HFO). The revenue generated from these penalties will contribute to the “IMO Net-Zero Fund,” aimed at promoting green shipping initiatives.
One of the main goals of this regulation is to create a level playing field for alternative fuels like ammonia and methanol. These alternatives currently face substantial economic challenges due to higher costs associated with the construction and operation of vessels designed to utilize them.
Financial penalties on conventional fuels can help mitigate this disadvantage and encourage the adoption of greener technologies. As the IMO GHG regulation takes effect, several trends are likely to emerge in the S&P market.
First, there will likely be increased demand for dual fuel-capable vessels, which offer flexibility in responding to shifts in fuel prices. These vessels can utilize “excess compliance” from low-carbon fuel usage to offset deficits incurred from cheaper fuel use, thereby making them a more attractive investment despite their higher acquisition and operational costs.
Additionally, older vessels built before the Energy Efficiency Design Index (EEDI) criteria were introduced in 2013 may face accelerated scrapping. Many of these older vessels, now aged over 15 years, are becoming uneconomical due to upcoming financial penalties for excessive emissions.
The use of biofuels as a compliance measure could also prove challenging for these vessels due to their higher operational costs and lower fuel efficiency. Lastly, there will be heightened demand for new vessels that meet the latest EEDI phase 3 criteria, which necessitate a 30% improvement in efficiency from a 2009 baseline for ships built after 2025.
The emphasis on modern, efficient vessels is already evident, as illustrated by the surge in sales of 10-15-year-old vessels in the strong S&P market of 2024, reflecting a strategy of fleet renewal towards high-efficiency options. As the IMO’s new fuel intensity targets come into force, the shipping industry’s landscape is evolving, pushing stakeholders to align their fleet compositions with future emissions targets.
This shift is crucial for maintaining competitiveness in an increasingly decarbonized maritime market.