The shipping industry faced two critical issues in 2020: the ongoing COVID-19 pandemic and implementation of International Maritime Organization (IMO) 2020 0.5% sulfur fuel norms, also known as IMO 2020. IMO 2020 led to operational challenges related to very low sulfur fuel oil (VLSFO) or 0.5% sulfur fuel usage for shipping companies. COVID-19 also led to some unique operational and economic challenges, including reduced on-board and onshore support and closed ports, plus a decline in international trade. Lastly, upcoming regulations related to maritime decarbonization present new challenges to the shipping industry.
The World Trade Organization’s (WTO) estimates for 2020 suggested that the world trade recovery has been rather quick, and trade growth in 2021 could be higher than the current estimates of 7.2%. However, strict lockdowns implemented in Europe for the next few months and a continuing high caseload of coronavirus in the United States, along with reports of lockdowns in some parts of China, could result in lower growth than anticipated.
COVID-19 did not have much impact on marine lubricants demand, as deep-sea shipping, which accounts for close to 90% of demand, was not severely affected even though world trade declined. The reason: Deep-sea vessels still sailed. However, marine lubricants demand from the domestic marine segment, which includes fishing, inland waterways, and coastal marine, was impacted but varied from one country to another depending upon local restrictions due to COVID-19. Given that domestic marine accounts for 10% of total marine lubricants demand, the decline in the domestic marine segment did not have much impact on the overall marine lubricants demand. Marine lubricants demand is estimated at around 2 million tonnes in 2020.
COVID-19 also provided time for marine fuel suppliers and shipping companies to work through the challenges of IMO 2020 implementation or VLSFO. The availability of VLSFO was a major issue toward the end of 2019, but as countries went into lockdowns, demand for shipping plummeted, easing the supply situation. Digitalization growing in the shipping industry, together with restrictions caused by the pandemic, led to further changes in operations. For example, onboard inspections became difficult or could not be conducted due to COVID-19 restrictions in vessels as well as at ports. As a result, marine fuel and lubricants suppliers were not able to send specialists on board and had to use digital technology to do inspections and provide various services; this reduced operational costs for suppliers. The other key change in the shipping industry was the implementation of IMO 2020. The fuel sulfur content was reduced from 3.5% to 0.5% on January 1, 2020. Most of the vessels (90%-95%) are currently operating on VLSFO. There were other options, such as using LNG as fuel and retrofitting vessels with scrubbers. However, most vessels have opted for VLSFO due to a lack of LNG infrastructure globally, plus uncertainty about scrubbers’ capability of meeting any future fuel norms if and when they are changed.
As a result of VLSFO introduction, the market for marine engine oils has changed significantly. For example, for cylinder oil, 70 base number (BN) and 100 BN were the main types used for 3.5% sulfur fuel. However, 40 BN cylinder oil became the main type of cylinder oil as VLSFO became the main type of fuel. VLSFO has also led to changes in lubrication practices. It was observed that the existing 40 BN cylinder oil was not enough to keep piston rings and crowns clean and that there is a need for a 40 BN cylinder oil with better detergency. The next challenge that the shipping industry is expected to face is the Decarbonization 2030 and 2050 norms. These norms aim to reduce the average carbon intensity (CO2 per tonne-mile) by a minimum of 40% by 2030 and 70% by 2050 compared to 2008. Further, greenhouse gas emissions need to be reduced by 50% by 2050 compared to 2008. One of the ways the shipping industry is looking to meet these norms is by using low-carbon fuels. Various fuels that are being tried right now include ammonia, methanol, LPG, hydrogen, and electricity. Currently, these new fuels are being tested or used in some vessels, but the overall usage remains low. However, it is safe to say that the usage of different fuels is expected to change the shipping industry even further. But it must be noted that it is expected to take around 20 years, i.e. until 2040, for new fuels to have a significant share in the shipping industry. Adoption of new fuels will grow gradually, with respective fuel vessels adopting these new fuels first. For example, LPG vessels will adopt LPG, while ammonia vessels will adopt ammonia. Secondly, the adoption will start with dual-fuel engines that can run on VLSFO and any of the new fuels.
Another challenge presented to the shipping industry is technology trends such as 3D printing and nearshoring of manufacturing, especially due to COVID-19. These trends have the potential to reduce the need for shipping, eventually negatively impacting marine lubricants demand. Further, engines are expected to become more efficient, leading to higher demand for better-quality marine lubricants but overall lower demand for them. Based on the aforementioned trends, it is expected that marine lubricants demand will decline at an annual rate of about 1% until 2025. At the same time, marine lubricants demand will experience value growth as demand shifts toward better-quality lubricants.
Going forward, the marine lubricants industry is expected to change and become more complex in the future as the industry shifts toward multiple fuels and category I and II marine engine oils. The industry will also be affected by the growing importance of detergency over acid neutralization for marine engine oils and increased demand for better–quality marine engine oils. The increased adoption of digital technologies will impact lubrication–related services. This is expected to increase the entry barriers for new and regional suppliers in the industry while providing opportunities to existing suppliers. To gain deeper insights into the marine lubricants industry, subscribe to our Marine Lubricants: Global Analysis and Opportunities report, which is coming this March.