A new rule that's bobbing on the horizon is set to come ashore in 2020, requiring container ships that visit Charleston and other port cities around the world to use a cleaner-burning and more expensive fuel.
Ultimately the cost of the shift will be passed down to shippers and consumers. Just how big that price tag is going to be remains uncertain.
For now, the low-sulfur fuel mandate is the talk of the commercial maritime industry.
The international rule is aimed at curbing air pollution that cargo vessels emit. According to predictions, it will raise fuel prices for container shipping lines from roughly $450 a ton now to an estimated $700 or more — costing an industry that already operates on razor-thin margins an additional $12 billion to $15 billion annually.
"For the carriers, this is a bill so large there is no way they can pay it," maritime analyst Lars Jensen of SeaIntelligence Consulting said at the recent South Carolina International Trade Conference held at the Gaillard Center in Charleston.
Jensen said businesses that ship their goods on ocean-going vessels will have to pick up the costs, and those shippers will certainly pass them on to the buyers of their products. That could be a good thing, he said, because it will spread the expense among billions of consumers scattered worldwide rather than a handful of shipping lines.
By Jensen's estimate, the average price of a $200 mattress would rise by about 79 cents if the expected increase in fuel prices is spread among the more than $4 trillion worth of goods moved by container ships each year. A $150 flat-screen television would cost about 39 cents more, he said.
The relatively small increases don't mean consumers will be happy. The chemical and energy industry consultant KBC found few people are willing to pay anything extra to help reduce global sulfur emissions. For example, fewer than 1-out-of-10 U.S. consumers would pay 10 percent more for a mobile phone to help shipping lines meet the new regulations.
Philip Verleger, an analyst with Denver-based PKVerleger LLC, takes the opposite view of Jensen's prediction of a full-out fuel price "Armageddon." But his predictions aren't exactly rosy, either.
Verleger said in a recent white paper that refiners aren't producing enough low-sulfur fuel that the worldwide fleet of cargo ships will need to meet current demand.
The increased production needed by 2020, he said, will cause oil to spike to between $160 and $200 a barrel — more than double current prices. That means U.S. consumers could be paying $6 for a gallon of gasoline while the costs of food and other consumer goods soar on higher transportation expenses.
Verleger's outlook is gloomy.
"The global economy likely faces an economic crash of horrible proportions in 2020," he wrote. "Food costs will climb as farmers, unable to pay for fuel, reduce plantings. Deliveries of goods and materials to factories and stores will slow or stop. Vehicle sales will plummet, especially those of gas-guzzling sport-utility vehicles."
Shipping lines are already announcing surcharges that will take effect as the International Maritime Organization rule, designed to slash the amount of sulfur in marine fuel by more than 80 percent, is implemented.
"Carriers cannot absorb this — it's not possible, and it's also not right," Allen Clifford, executive vice president of Mediterranean Shipping Co., said during the trade conference.
Maersk Line, the Port of Charleston's biggest customer, said it will charge a fee that's based on fuel prices and the distance that cargo is being shipped. Hapag-Llloyd will introduce a similar formula while some shipping lines are adding a flat fee to each container.
"It has to be passed on, the cost is too great," said David Zimmerman, the head of sales, international transportation and logistics for Denmark-based Maersk. "We've put out what we think is a fair and transparent formula."
Jim Newsome, president and CEO of the State Ports Authority, which operates the Port of Charleston, says the switch to low-sulfur fuel will "have a dramatic impact" on the shipping industry.
"Getting this right by the ocean carriers is critical for their survival," he said. "They have to recover this difference in fuel costs or it's going to be a very difficult time for them."
A survey by maritime consultant Drewry, however, shows considerable unease among cargo shippers and freight forwarders about the new regulation, with about 75 percent saying carriers are not being fair or transparent about their plans to recover the higher costs.
"The level of uncertainty today as to the total cost impact is so large that nobody is able to provide a confident forecast of the cost of compliance," Drewry stated. "The only certainty is that the extra cost will run into billions of dollars globally come 2020."
For Jensen, there is at least one other certainty.
"This is going to shape most of the discussion of 2019," he said.