As the New Year dawned shipowners were faced with just 12 months to ensure compliance with the implementation of a 0.1% sulphur limit in marine fuel in Emissions Control Areas (ECA) in January 2015. Research reported this week in Sustainable Shipping indicates that the majority of shipowners contacted by a survey report that they plan to comply by switching to the use of Marine Gas Oil (MGO), which is currently trading at around US$300 per ton over the fuel oil those ships consume today. Given that fuel oil is around US$570 per ton, this is an increase of around 50%, can these owners really sustain a 50% increase in their fuel costs indefinitely? I suppose you could argue that if the impact is the same on all operators, then the competitive position is unchanged and freight rates will absorb the changes. This approach though is rather flawed. The last six months have seen a fundamental shift in the demand for post combustion exhaust gas cleaning equipment, which allows vessels to continue to consume fuel oil whilst complying with the sulphur emissions legislation. Several household name ship operators have committed to major investment programmes in sea water scrubbers (sws) which will place these vessels at a significant cost advantage over competing tonnage. The competitive impact will of course vary with the type of vessel and nature of its trade. Consider the impact for instance of two ferries competing on the same route where one has a 50% fuel cost advantage. Much has been written in the last few years about the potential for a “two tier” hire market, with more fuel efficient vessels demanding a premium. What kind of premium would an sws fitted ship command trading into an ECA? There is a practical limit to the number of vessels which can fit sws between now and January 2015 which means that many owners will have no choice but to switch to MGO in the short term. This “bulge” in demand for MGO can only put upward pressure on the price and drive the differential from fuel oil even higher. Those ships fitted with sws will see an even greater competitive advantage early on, allowing early adopters an even shorter return on investment. The demand for sws is growing and it is in the interests of ship owners and operators for a healthy supply market to develop.