ABOUT IMO 2020

POTENTIAL IMPACT ON HAWAII

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ARE YOU PREPARED?

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FURTHER REFERENCE

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IMO 2020'S POTENTIAL IMPACT ON HAWAII

OVERVIEW

  • The International Maritime Organization (IMO) has ruled that effective January 1, 2020, marine sector emissions be slashed by over 80% through requiring ships to switch to lower sulphur fuels. While this directive is in the best interest of the environment, it is quite likely that Hawaii residents will pay more for this new requirement than any other geographic location or group of people on the planet.


  • Hawaii’s two ocean carriers, Matson Navigation and Pasha, are preparing for the IMO 2020 requirements through one or more of the following means:

  1. Purchase of new vessels (designed to burn the low sulphur fuel)
  2. Adding exhaust scrubbers to existing vessels
  3. Retrofitting ships to burn Liquified Natural Gas (LNG). 

POTENTIAL INCREASE IN SHIPPING COSTS

  • All of the above changes to accommodate IMO 2020 requirements, including the cost of the lower sulphur fuel, are predicted to dramatically raise the cost of shipping to Hawaii. 


  • Initial estimates are warning of a possible increase in fuel surcharge (FSC) from the current rate of 32% to 70%. 


  • To translate this into dollars, using the high side of the estimate, a FSC increase of this magnitude will equal a $2,000.00 increase per 40’ container shipped from the west coast to Hawaii. 



  • With over 90% of Hawaii’s food and goods being shipped into the state from outside Hawaii, this pending increase will raise the cost of goods for virtually everything that a Hawaii resident consumes.

  • Arguably, there is no other geographic location on the planet that will be as adversely impacted by IMO 2020 as the Hawaiian Islands. 


  • While most international ships carry between 15,000 and 20,000 containers, the ships servicing Hawaii carry approximately 1,000 containers each and consume almost as much fuel as the international ships.  This results in a much higher dollar increase for each of the Hawaii containers.   

ARE YOU PREPARED?

PROJECTED TIMELINE TO ADJUST

TIMELINE TO ADJUST OR RISK FINANCIAL RUIN


  • At present, both Matson and Pasha are committing to a 30 day notice to the industry for the changes in fuel surcharges. With January 1, 2020 as the start date for the IMO 2020 implementation, December 1, 2019 would be the date that the initial FSC increase is provided to the industry. 


  • With the future uncertain and with the ships sailing for the first time under the new fuels and programs, both carriers are warning of the possibility of weekly FSC swings during the first several months of 2020 as the real costs are dialed in. 

CHECK LIST

  • While the shippers are all racing forward to meet IMO 2020 compliance by January 1, 2020, grocers, clubs, retailers, and distributors need to address the following areas within the next few months:

  1. Ensure that their pricing systems and technologies involved are able to execute a price change for every single SKU carried and sold.
  2. Ensure that the pricing systems and technologies are able to execute these changes on a weekly basis as the programs and fuel prices settle.
  3. Ensure that systems are in place for all parties (wholesaler, distributor, grocer, retailer, and club) to execute and accept these changes between each other under the same timelines set by the ocean carriers, e.g. if the ocean carriers give 30 days, all parties (wholesaler, distributor, grocer, retailer, and club) honor the same timeline as the ocean carriers for price changes.
  4. Keep in mind that failure to execute and honor the price changes within the same timelines as the ocean carriers, would very likely, risk the financial distress or ruin of the party that is unable to execute and pass through the necessary pricing adjustments generated through the implementation of IMO 2020.