24 December 2019 by jbchevrel
It might be worth reminding that on next January 1, the International Maritime Organization (IMO) will impose new emissions regulations designed to significantly curb pollution produced by the world’s ships. Maritime transport is critical to the global economy as things stand, with more than 90% of the world’s trade being currently carried by sea. The IMO is poised to ban shipping vessels using fuel with a sulfur grade higher than 0.5%. Just for context, the upper limit on sulfur oxides grade is currently seven times higher than that, at 3.5%. Major oil companies have spent billions of dollars preparing for the changes but CNBC reported that despite that preparation, energy analysts have expressed some concern that many in the oil and shipping industries still appear to be unprepared. Some analysts argue that this window may be a big opportunity for shipping liners to raise their prices, as the industry expected higher costs, but shipping companies are seemingly not capitalizing on this opportunity. 170+ countries (incl US) have signed on to the fuel change and ships found in violation of the new laws risk being impounded, ports in cooperating countries are expected to police visiting vessels. In our CDS space, high-beta shipping companies have tightened a lot from the wides, especially helped by the phase one deal agreed between China and the US, which most market participants see as a guarantee that the trade tensions are over for the time being (are they?). CMA CGM 5y CDS is now in the area of 22% and Kawasaki Kisen Kaisha is in the area of 200bp.