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"You could end up chasing a ghost": huge number of ships will cheat on the scales when the global sulfur directive comes into force

"You could end up chasing a ghost"

A particular fear has grown significantly in the last couple of years, especially among the major carriers and numerous authorities.

The fear stems from the global sulfur directive and the requirement for a 0.50 percent sulfur cap in fuel, starting Jan. 1 2020, for all ships around the world – and the basis for this fear is distorted competition.

Carriers could gain a major edge by not complying with the sulfur regulations, for instance, in saving on the costs related to using the proper fuel, and this is what association Danish Shipping as well as many of the top international carriers fear.

But I do have misgivings about the fact that many parties are working from a theory that anyone and everyone will cheat on these rules.

But the fear of cheating is exaggerated and, in fact, constitutes a severe casting of suspicion on competitors, says Niels Bjørn Mortensen, who has an extensive background in the sector, including serving as Director of Regulatory Affairs at Maersk Maritime Technology and as former head of Bimco's maritime division. At Maersk he was among those citing sulfur directive cheating as a significant problem.

"There will no doubt be some who will try to circumvent the rules in light of the large sums at play," he says in an interview with ShippingWatch:

"It's clear that being able to cheat and gain a competitive edge is inconvenient, but I think it's a waste of resources to keep focusing unilaterally on ensuring the requirements are met due to competition. One risks spending a lot of resources chasing a ghost that might not even exist."

The IMO as well as organizations such as Trident Alliance, whose members include a long list of international carriers, for instance DFDS, Maersk Line, Stena, Norden and Eagle Bulk, are working hard to prevent cheating and ensure compliance with the directive.

"It's of course important that the IMO, EU and other forums develop tools to identify the vessels that fail to comply with the regulations. This is the first step to preventing this kind of cheating. But I do have misgivings about the fact that many parties are working from a theory that anyone and everyone will cheat on these rules. I'm sure that won't be the case, and I generally think it's crude to directly or indirectly accuse one's competitors of something like that," says Mortensen.
Where will the cheating occur?

It has been clear for a long time that cheating pays, as the price difference between heavy fuel and 0.50 percent sulfur fuel is significant. Bunker association IBIA recently calculated that it expects the price gap between a ton of heavy fuel and a ton of low sulfur fuel to be somewhere around USD 150 to USD 400 by 2020.

The biggest of the world's tanker and dry bulk vessels use between 50 and 75 ton fuel per 24 hours, while container ships and passenger ships can use significantly more. So there are huge sums to be saved by circumventing the rules.

But there will likely not be that many who choose to circumvent the rules, says Mortensen. And among those who do, there will be a difference between the nature of the cheating.

He notes that an obvious example of cheating will be a setup in which a ship's crew know one or more bunker traders. The ship needs to bunker 1,000 tons oil, and all the paperwork, including the bunker delivery note and the invoice to the carrier, indicate that the right volume of oil has been tanked, for instance at USD 500 per ton.

In reality, the ship has tanked heavy fuel at USD 300 per ton, and the USD 200,000 saved are then split between the ship and its bunker supplier according to a prearranged scheme.

"This is clearly cheating on the rules and something the authorities need to act on if they discover it. But this scenario, which will happen without the carrier's knowledge or involvement, will not distort competition, as the savings don't benefit the carrier, but will instead make a handful of ship officers extremely rich very quickly," says Mortensen, explaining the cheating that will distort competition:

"For the cheating to actually distort competition, it will have to be initiated at the top levels of the carrier, meaning that the executives will have to decide to not comply with the rules, and then to execute this decision all the way down through the carrier's command chain. In a setup like this, one must expect that everyone wants a small piece of the pie. The overall risk would be that just one of the participants, who get cold feet or is displeased with his or her share of the pie, turns whistleblower and thus puts an end to the cheating, which could also result in fines and negative press."

Mortensen does not see this kind of executive-level orchestrated fraud as likely. Rather, he points out that it could perhaps happen at smaller family-operated carriers with small fleets, or in the so-called "gray" oil market, namely in the interplay between carriers and bunker suppliers, which are not among the major established players in the market.

English Edit: Daniel Logan Berg-Munch