A Financier's Take on Shipping's Post-2020 Realities

Compliance and enforcement to this regulation is still the key uncertainty, the analysts say. Upcoming IMO meetings in October could improve visibility. IMO does not enforce the sulfur cap regulation, nor does it set any fines for non-compliance. flag/port/Coastal states, signatory to IMO, are responsible for compliance to the regulation. As of April 2018, 91 members of IMO have ratified Annex VI; these members account for more than 97 percent of the global trade.

As shipping capacity is a commoditized product and globally mobile, pricing power has historically been an outcome of the supply-demand balance in a given shipping segment. YOY (year-on-year) changes in supply-demand drive the YOY change in fuel-adjusted container rates. Fuel tends to have a temporary impact on profitability; if supply-demand is tight, fuel inflation is passed through. The current context of a consolidating container market and slowing supply growth, driven by a wave of M&A and market exits, should enable pass-through, the report says.