Ships and the Global Economy

The ocean shipping industry is, and always has been, a major enabler of global trade. Air freight is very important, as are communications technologies such as the Internet…however, there exists a vast array of products and commodities for which the only economically-viable means of transportation is the ship. Hence, anything that affects the ocean shipping industry has the potential to influence the shape of the global economy.

The International Martime Organization has approved new rules which will ban ships from using their traditional fuel (very heavy oil, known as bunker fuel) in most parts of the world. The rules are stated in terms of sulphur oxide targets, which will phase in over time. Specially-treated bunker fuel may meet the initial targets in some areas, but only distillates are likely to meet the long-term targets. This implies an eventual potential fuel cost increase for shipping operators of fifty per cent. More at the WSJ.

Increased shipping costs will, at the margin, encourage domestic and regional production of goods at the expense of imports. The strength of this effect will of course depend on the nature of the particular products–shipping costs as a percent of overall value are much higher for washing machines, for example, than for flat-screen TVs.

The new regulations are probably good news for this company. But even if their technology is very successful, overall costs per ocean freight ton-mile will still likely be going up as a result of the new regulations.

A commenter at the WSJ link asks some interesting questions:

What is difficult to discover is just how many people will be adversely affected by increased shipping costs. How will it affect sub-Saharan economies? Will it cause more problems for the shortest lived poorest people on the planet? will it reduce their life expectancy still further? There are reports that indicate the importance of low shipping costs to these economies but unfortunately no one seems to have measured the cost in lives of the current high fuel costs nor what it will be when the new measures kick in.

12 thoughts on “Ships and the Global Economy”

  1. What will the refineries do with the bunker grade fuel? How will it deposed of? These oils and Asphaltic bitumens account for 12.3 to 13.3 barrels per metric ton.

  2. Just guessing, but maybe the excess bunker could be burned in shore-side power stations, for which it would presumably be more practical to install scrubbers than on ships. Although some people are talking about sea-going scrubbers as an alternative approach to distillate fuels.

  3. Power stations have been getting out of burning bunker fuel a/k/a No. fuel oil. If this new rule for marine fuel really takes effect, the bottom end streams from the refinery are going to be harder and harder to dispose of. If it drives prices of the fuel oil down far enough, I make make sense to use it to generate power.

    My suspicious mind is activated by this. I have to think that domestic industries are pushing this “green” measure to raise the cost of imports. That is how the regulatory game is played.

  4. It’s also conceivable that cheaper bunker fuel would get diverted to power generation in places that don’t require scrubbers. The net result then might be less pollution over the open ocean at the expense of more pollution near big cities with already-dirty air.

    I suspect that Lex’s suspicion re the motive for this measure is correct.

    The International Maritime Organization is a UN agency. What authority does it have? And do we have a treaty obligation to accept its diktat? If not, and if legislative ratification on our (and other countries’) part is required, we will get the information we seek if we determine who is lobbying for ratification of the new rule.

  5. The first link explains the applicability of the rules applying to all members of the IMO. If this makes bunker oil cheap enough some countries could just drop out of it (I’m thinking of the very practical Chinese who will not buy into the AGW scam unless it pays off for them). What is disturbing here is our polities supinely roll over for bureaucracies like this. The biggest train wreck here is EU which is wrecking Europe’s economies with its heavy handed regulations. For the gory details there see which is the go to place for that monstrosity.

    We have thus far been spared the International Criminal Court and Kyoto but we’ll see how long that lasts. Transnational organisations involve more than junkets to Bali and singing Kumbaya- they are not innocuous-they often kill people (e.g. DDT guidelines)and GMO rules.

  6. It wouldn’t seem feasible for China (for example) to walk away from the IMO rules as long as these rules are being enforced by countries in which they have important ports of call. Seems like only a coalition of several countries, having important volumes of trade with one another, could do that.

    My understanding is that these IMO rules are *not* about CO2/global warming, but rather about the health effects of emissions from the bunker fuel. Indeed, I think I read somewhere that the higher-quality fuels will actually have somewhat *greater* CO2 emissions than the bunker.

  7. I believe it’s possible to “upgrade” low grade oils by reacting them with, say, natural gas. This is currently done at the Syncrude project which produces a sweet synthetic crude oil out of tar sands in Alberta, CA. One of their production units is actually called an “Upgrader”. So it’s feasable to upgrade this oil, but it requires special equipment/investment.

    In any case I think these rules are stupid and will probably end up hurting vulnerable folks on the margin.

  8. EU Referendum is a great blog. I been reading it for about a year.

    They called out the food crisis a year ago.. very smart people there.

  9. There is a thing called a horizon. Once commercial ships are over the horizon from the nearest national maritime law enforcement, they will shift to bunker fuel. There is nothing that can be done about this. Shipping agencies may charge more for the increased fuel costs, but they will just pocket the difference, or the captains of the ships will.

    The decline of available first world maritime forces combined with increases in global missions makes this another fraud in the guise of serving public interest. Expanded national health care systems are ill-equipped to enforce maritime law, and the EUrocrats decided how they want to spend your money.

  10. At a refinery, bunker fuel and the other heavy stuff goes into the cracking units and gets turned into gasoline blending components. At least that’s what happens in the US and most of Europe. Not so much in the rest of the world.

  11. Bill R,

    You must have made some math error. 13 barrels of petroleum product would weigh about 1.5 metric tons, so there can’t be 13 barrels of some fractional element in 1 metric ton of crude. (1 barrel = 42 gallons, petroleum weighs about 6 lbs. per gallon; 13 barrels = 13*42*6 = 3276 pounds; 1 metric ton = 2204.622 lbs)

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