Intra-regional trade routes across Asia and Europe could suffer from shipping capacity shortages when IMO 2020 rules take effect, warns a top shipping analyst.

“We believe Intra-Asia and intra-Europe regional supply chains will sustain the greatest impact from the implementation of IMO 2020 emission regulations, with ships required to burn expensive, low-sulphur fuel starting 1 January 2020,” said Bloomberg senior transport analyst Rahul Kapoor.

“Smaller containerships will become less effective to operate, and smaller ports’ supply of compliant fuel could be sporadic.”

Kapoor said costly, low-sulphur fuels will make vessels more than 15 years old “effectively uncompetitive”, boosting the likelihood that owners will send them to the scrap heap.

“Replacement orders and scrapping of smaller ships has lagged in recent years as owners squeeze maximum returns from older vessels before higher costs make them less competitive,” he said.

“Our estimates call for nearly 30% of smaller ships – with capacities under 6,000-teu – will be candidates for scrapping as IMO 2020 implementation nears.”

Our estimates call for nearly 30% of smaller ships to be candidates for scrapping as IMO 2020 implementation nears.

Rahul Kapoor

However, Kapoor said that while some “short-term pain” for the smaller sized container fleet is likely, this will be followed by a return of carriers’ pricing power as “inefficient capacity is purged”

Kapoor said container operators’ decade-long focus on expanding their fleets with larger vessels – and neglecting smaller containerships – has resulted in a “low order book, which could cause supply shortages”.

“Ships with cargo capacities of less than 3,000-teu are the backbone of regional trades, and remain critical for the seamless flow of goods, he said.

In contrast, Kapoor said scrapping is less likely for larger containerships serving key long-haul routes, as most of these vessels were delivered over the past decade.

He said long-haul Asia-US and Asia-Europe container trade lanes should likely steer clear of the most perilous pitfalls from potential vessel shortages due to IMO 2020.

“Most capacity is controlled by large operators running relatively young fleets – with many installing scrubbers – which should prevent major disruptions,” he said.

Kapoor said as much as 16% of the global containership fleet by vessel count and 36% in terms of capacity had been equipped with scrubbers at the end of May, most of them ULCCs, which ply the major east-west trade lanes connecting Asia with the US.

“We expect low-sulphur fuel to be readily available at the bigger ports typically served by ULCCs such as Shanghai, Singapore, Rotterdam and the Los Angeles-Long Beach port complex,” he added.