IMO 2020: Key implications and risks to the demand side
IMO 2020: Key implications and risks to the demand side
Insight

IMO 2020: Key implications and risks to the demand side

As shippers seek new fuel and equipment options, one of the more significant challenges to IMO 2020 compliance will be the impact to their credit lines.

United Nations’ International Martine Organization (IMO)’s mandate, known as IMO 2020, requires the global industry to lower carbon emissions by 3 percent. Shippers are currently searching for answers to compliance, including how to source the new fuel and onboard new suppliers and/or equipment. However, a significant challenge to IMO 2020 compliance will be the impact upon their credit line, and a risk analytics-based approach can help organizations on the demand side learn how their credit profile will change and what effect it will have on their business.

Shopping around for new solutions

IMO 2020 presents new challenges to shipping companies and their credit lines. New fuels, e.g. very low sulfur fuel oil and marine gasoil, could cost significantly higher depending upon a variety of factors, including port and region, and will change under the various scenarios. A risk analytics-based approach can illustrate these scenarios and provide evidence for additional working capital, which shippers can use to negotiate better terms with their suppliers.

Shippers need to complete this three-step process, which will help to establish a strategic response to IMO 2020:

            1. Develop current state understanding

By understanding their current credit lines from fuel oil/gas oil suppliers, shippers can evaluate the four strategic options available for IMO 2020 compliance—very low sulfur fuel oil, marine gasoil, new or refit scrubbers, and LNG (reduced Sox, Nox, and PM emissions liquefied natural gas)—and assess their current receivables and payment terms.

            2. Model future-state impact

Forecasting future-state fleet characteristics, such as scrubber installs, deployment plans, new builds, and fuel capability, etc., can help create models for a future-state product mix, assess impact on receivables and understand the need for increased credit/increased credit risk.

            3. Develop strategic response

With enhanced credit, e.g. credit lines, volume, payment terms and collateral, shippers can begin to formulate their strategic response by leveraging supplier relationships, meeting vessel needs, lowering the risk of fuel supply disruption, reducing working capital and optimizing credit capacity.

Through a risk analytics-based approach, clients can decide where they need to be, what they need to do, how they need to get there, and how to get started with IMO 2020 compliance. Models reveal how to optimize assets, routes, refueling, and pricing, so clients can increase efficiencies and reduce risks and costs.

Regional regulatory differences

While United Nations’ International Martine Organization passes new regulations, implementation resides with the individual ports. This process creates opportunity for regulatory or compliance arbitrage. While U.S. regions require vessels to meet a 0.1 percent sulfur standard (higher than IMO 2020’s mandate)1, and Denmark and Norway plan to use sniffer drones, some ports may not enforce the mandate as strictly as others. This can lead to companies using noncompliant fuels in other parts of the world.            

However, a risk analytics-based approach provides the necessary insight to develop an effective response to IMO 2020. KPMG’s Risk Analytics’ professionals can help with a dedicated data and analytics team using Bloomberg technology and tailor-made models to enhance the benefits of the four strategic options for shippers. We can help transform your business to comply with IMO 2020 and find opportunities to gain a competitive edge.                                             

Begin by visiting “How do you use analytics insights to drive action today?” to explore how risk analytics can help to tackle key IMO 2020 implications, including bunker price changes, the shift from price to service/solution providers, and new equipment.

Find out how refiners are meeting IMO 2020 compliance in “IMO 2020: Key implications and risks to the supply side.”

 

1Forbes, Oil Markets Could See Volatility, Arbitrage As Shipping Fuel Shifts, August 9, 2019.