Shipping sulphur regulation, freight transportation prices and diesel markets in the Baltic Sea region

Purpose - Purpose of this research is to shed light on the changes caused by shipping sulphur regulation, which will globally take off during years 2015 and 2020. It has significant effects on diesel markets globally, but especially in regions, where demanding 0.1 per cent level is required. One of these regions is the Baltic Sea. It is relatively undealt issue, how this forthcoming change will affect these specific sub-regions of stiff 0.1 per cent sulphur level demand and their transportation modes with different tax obligations. Design/methodology/approach - The authors use second-hand data from various different sources, earlier research as well as simulation to estimate the effects on the diesel markets and transportation prices in the Baltic Sea region. Different transportation modes have diverging taxation treatment on diesel oil use, which complicates analysis further. Findings - Based on research findings, it is rather probable that diesel markets for sulphur-free diesel oil shall face price spike in the beginning of 2015 in the Baltic Sea region. This is mostly explained with needed large-scale scrubber investment and short-time span to complete these (there are both technical and financial challenges). Therefore, numerous ships shall enter sulphur-free diesel oil market. Based on the simulation study, freight transportation will mostly be hurt in shipping, whereas road and rail shall face smaller price increases. Results are mostly explained with taxation treatment, where shipping is still using tax-free diesel oil, and no fixed taxes are hedging this transportation mode from sudden price changes. Research limitations/implications - Analysis concerns only Baltic Sea region, and effects and changes in the entire Europe from sulphur regulation change in 2015 are unknown. This would mean to extent study to North Sea. In addition, taxation system harmonization is not yet complete in Europe, and differences exist between member states. Research work was completed with diesel oil tax treatment regarding different transportation modes in Finland. Practical implications - Based on this study, short sea shipping will be hurt by regulation change in 2015. However, in the future, this transportation mode shall face additional cost increases, as most probably, tax harmonization in diesel markets shall lead to fixed taxes added on shipping diesel. So, transportation mode shall face difficult and challenging times ahead. Originality/value - Research is seminal study from possible sulphur regulation change implications in transportation mode level. It takes into account taxation treatment, cost share of diesel in transportation mode level and possible diesel price change. Until today, no other study exists in this detailed level.