THE impact of an "obscure new rule" forcing shipping companies to use cleaner fuels in commercial vessels has the potential to make WA producers some of the most disadvantaged and uncompetitive in the world, according to the Pastoralists and Graziers Association (PGA).
On January 1, 2020, the International Maritime Organisation (IMO), which is based in London, will introduce radical new guidelines that will force shipping countries around the world to stop using dirty fuel oil and instead shift to low-sulfur marine diesel to help clean up the environment.
This will mean all ships and vessels operating anywhere in the world will be required to use fuel oil with a maximum sulphur content of 0.5 per cent compared to 3.5pc now, unless a vessel has equipment to clean up its sulfur emissions.
The Australian Government signed up to the agreement in 2017 and any vessels failing to comply will face fines, could find their insurance stops being valid and might be declared "unseaworthy" which would bar them from sailing.
"Western Australian primary producers, who export of 85pc of their product will be hardest hit by the new regulations, as less than 4pc of the 60,000 ships on international routes have installed scrubbers which strips out sulphur emissions allowing them to use the low grade fuel oil," said PGA president Tony Seabrook.
Most of the equipment costs between $US1 million to $US6m, putting it out of reach of many operators, especially the live export fleet, which is one of the oldest saltwater fleets in the world.
"Less than one half of a per cent of ships in the global fleet registered with the IMO are considered 'live export' ships," Mr Seabrook said.
"The live export fleet has an average age creeping above 40-years-old, which is double the 20 year average scrapping age of most ships and when this sulphur cap is implemented, there is a good chance many of these ships will be headed to the scrap yard beaches in India, Pakistan and Bangladesh.
"In addition, on January 1, 2020 new Australian Maritime Safety Authority (AMSA) regulations will see the end of double tiered decks.
"This will of course halve the carrying capacity of those decks, which already have a reduced stocking density for sheep of 17.5pc and are also facing a trade moratorium from June to August, with the months of May, September and October also under review.
"This could lead to many WA sheep and cattle producers facing delays and reduced prices as exporters struggle to secure space for their cargo."
However, the impact of these changes will reverberate far beyond the export of sheep and cattle.
Mr Seabrook said demand for diesel fuel was expected to surge as a consequence of the new regulations, with supply remaining constrained by the ability of refiners to adapt quickly enough.
"According to energy analysts, bulk wholesale prices for diesel could increase by up to 30pc as ship operators scramble for supplies of cleaner marine fuels in order to comply and avoid potential penalties," he said.
"This will mean that businesses that use these fuels - especially farmers and trucking firms - will pay higher prices for their on farm fuel and will potentially face significant increase in prices for fertiliser and grain transportation costs, both upstream and downstream, as exporters and importers pass on their increased fuel costs."
Mr Seabrook said IMO 2020 was flying under the radar for most politicians at the moment, however the economic risk to the competitiveness of primary industries could no longer be ignored by policy makers.