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May 19, 2016 9:55 AM, EDT

Container Shipping Firms' Costs Soar on New Fuel Rules, New Report Shows

SeongJoon Cho/Bloomberg News

COPENHAGEN — Container shipping firms' annual costs have risen by a total $500 million due to new sulfur emissions regulations that have forced vessels to use higher-cost fuel, the Organization for Economic Co-operation and Development said in a May 19 report.

Rising fuel costs will further hurt an industry already stung by overcapacity, low demand and falling rates.

Since January 2015, ships entering Emissions Control Areas from the Baltics to the North American coast had to switch to ship fuels with less than 0.1% sulfur content from 1%, as part of a campaign to combat marine pollution.

An even lower cap of 0.5% is planned for 2020, and it could add $5 billion to $30 billion to annual total costs for the container shipping industry, the OECD report said.

For an industry operating on very slight margins, it represents significant cost increases, partly mitigated by falling fuel prices. "We will assume that container shipping lines have limited possibility to absorb cost increases, so they will likely transfer these to their customers," the report said.

According to OECD calculations, a global sulfur cap of 0.5% in 2020 mean costs for transporting agricultural goods could rise by as much as 7.5%, manufactured goods by 3.5% and industrial raw materials by 16.4%.

Maersk Line, the global container shipping market leader, has said weak enforcement combined with the significant cost burden could prompt some shipping companies to flout the rules.

Maersk Line, a unit of Danish shipping and oil group A.P. Moller-Maersk, last year spent $6.1 billion on ship fuel,  7% of which was spent on the more expensive fuel.

"Considering the significant costs to the shipping industry, effective enforcement is of utmost importance to guarantee a level playing field," OECD said.

The report said fines imposed rarely surpass the cost advantage of ignoring sulfur emissions restrictions.

In a report this month, Drewry Maritime Equity Research wrote that "container shipping is staring at a terrible 2016, with a structural slowdown in global trade volumes, historical low freight rates and ever-increasing capacity that could result in industry losses of $6 billion."