A flurry of new regulations has entered into force since the beginning of the decade for shipping, leading to an increasing cost burden, depending on the ships class and type, as well as its area of activity. In its latest weekly report shipbroker Gibson said that “the shipping markets have had to face significant regulatory burdens over the last years. Starting with the IMO 2020 regulations 5 years ago, a deluge of new environmental regulations has come into effect. The cost burden that the industry has had to face differs strongly across industries and asset classes, as well as jurisdiction, with the EU imposing the most stringent regulations. Having a scrubber installed has been a great boon since IMO 2020 came into effect, as the spread between VLSFO and HSFO prices (also known as the Hi-5 spread) has been sizeable. On average, earnings on an Eco VLCC when bunkering in Singapore have been $2.3 million higher per year since 2020. This advantage is lower when bunkering in Rotterdam, falling to below $1.8 million, as the spread between HSFO and VLSFO has been lower here. However, the Hi-5 has been on a declining trend, averaging just over $50/tonne in Rotterdam so far this year, declining from nearly $100/tonne in 2023”.

According to Gibson, “beginning in 2023, the IMO introduced the Carbon Intensity Indicator (CII) and Energy Efficiency Existing Ship Design Index (EEXI), aimed at improving carbon intensity and vessel efficiency. Importantly, the CII standards could be achieved through operational measures, e.g. by slow steaming, whereas compliance with the EEXI standards was only possible through alterations to the vessel itself. The impact in terms of these measures is difficult to assess, though generally the consensus is that impacts were less than feared. Nonetheless, it is safe to say that costs were incurred, in particular for owners of older ships. In 2024, the EU emissions trading scheme (ETS) was introduced, applying to all vessels above 5k GT. The EU ETS made shipowners responsible for buying EU allowances to offset a share of their emissions during a voyage which ended and/or began at an EU port. A staggered approach was adopted, with costs increasing each year between 2024 and 2026, and vessels incurring half the offsetting requirement for extra-EU voyages. This has led to significant costs for shipowners, although costs are frequently passed on to charterers. Carrying a crude cargo on an Aframax between Houston and Rotterdam (TD25), incurred an average cost of nearly $150k this year, which will rise to around $200k in 2026 on a round voyage basis”, the shipbroker said.

Gibson added that “this year, FuelEU and the Mediterranean Emission Control Area (ECA) were introduced, both aimed at cleaning up the type of fuel used in vessels. The Med ECA requires ships to burn fuel with sulphur content no higher than 0.1% in the Mediterranean from the 1st of May, either requiring a scrubber capable of lowering the sulphur content to this level or for a vessel to burn MGO or other low sulphur fuels (e.g. LNG). With scrubber retrofitting currently costing over $1m on a VLCC, and the cost of using MGO compared to VLSFO as a bunker fuel adding on average over $150/tonne when bunkering in Rotterdam this year, costs aren’t negligible. FuelEU applies to the GHG intensity of the fuel, and the maximum compliant GHG intensity will gradually be lowered over time. The scheme has the same application method as the EU ETS, at 50% for inbound/outbound voyages to EU ports. Fuel Oil/MGO are not compliant unless blended with biofuel, and the standard cost for a TD25 voyage burning VLSFO on an Eco vessel this year is around $35k, rising to over $100k in 2030 and nearly $250k in 2035 based on a round voyage. However, compliance can be pooled across the fleet, so if a fuel with a lower CO2 intensity (e.g. LNG) is burned, this can be used to offset VLSFO usage”.

“Finally, this April, the IMO Net Zero Framework was established at the 83rd session of the International Maritime Organization’s (IMO) Marine Environment Protection Committee, also known as MEPC83. It introduced a GHG Fuel Intensity (GFI) standard as well as economic measures involving two tier carbon trading system requiring high emitters to offset their CO2 emissions, while rewarding low- or zero-emission ships, as outlined in our report in May. If this framework is adopted at the October 2025 MEPC meeting, vessels will start incurring noncompliance costs from 2028 onwards, with an Eco VLCC burning VLSFO carrying a cargo from the AG to China incurring a cost of over $150k in 2028, which would rise to nearly $1m by 2035. Lower emission ships will be rewarded with surplus units, which can be banked or traded. However, by 2031, LNG, one of the most common lower carbon intensity fuels, will become noncompliant”, the shipbroker noted.

“In 2026, there will be a brief reprieve when it comes to the introduction of major environmental regulations, though the thresholds for EU ETS will be increased, and the carbon intensity targets of CII will become more stringent. Though significant uncertainty remains, if the IMO Net Zero Framework is adopted in October, one positive takeaway is that the industry will at last have regulatory clarity going forward”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide