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Maersk Group favors low sulfur fuels, working on new Bunker Adjustment Factor: exec

The AP Moeller Maersk Group will focus on low sulfur marine fuels under the new regime from 2020, though it will also install scrubbers in some of its ships just to test and understand new technologies, a senior company executive said.

The company is also closely working with customers on a new Bunker Adjustment Factor, or BAF, that will better reflect the fluctuation in marine fuel prices when the new low sulfur marine fuel regime is implemented from 2020, Rene Piil Pedersen, the company’s Group Representative for Asia-Pacific and Managing Director for AP Moller Singapore Ltd, said Friday on the sidelines of an outreach event of the European Union-Singapore Free Trade Agreement.
“Our main policy is to opt for compliant fuels but also test scrubbers in some of the ships,” Pedersen said.

The new global cap of 0.5% sulfur in marine fuels, from 3.5% currently, will be implemented from 2020.

“Maersk’s key focus will be to use low sulfur fuels including blended ones that are compliant in all geographies,” he said.

The main reason for Maersk to opt for compliant fuels instead of scrubbers is that the latter are tantamount to “creating refineries at sea,” he said. A better solution is for refineries to produce compliant fuels as they can do so more efficiently, he added.

This does not imply that Maersk will not use scrubbers at all — it plans to invest an overall $80 million in its scrubbers related initiative, Pedersen said.

“As a big company we want to test and understand other technologies as well, which may open up other opportunities in future,” he said.

Maersk Line is the world’s largest container shipping company by volume.

Ahead of the new marine fuel regime, Maersk is having discussions with its customers in a bid to implement a new BAF. The proposal is to calculate it in a different way than in the past, Pedersen said.

The use of new compliant fuel and scrubbers will result in a fluctuation in bunker prices, which needs to be reflected in the BAF, he said. “We are having a conversation with customers that the new rules on sulfur in marine fuels are aimed at a cleaner world and this involves costs,” he added.

The new BAF will be calculated by multiplying the fuel price with the trade factor. The average fuel price in key bunkering ports worldwide will be taken into account, while the trade factor will reflect the average fuel consumption of a given trade route as a result of variables such as transit time, fuel efficiency and trade imbalances, according to a recent Maersk advisory to customers.

The proposed new BAF aims to replace the current Standard Bunker Factor, or SBF, from January next year so that customers become familiar with the mechanism one year ahead of the new marine fuel regime, and will be reviewed on a quarterly basis, the advisory said.

The proposed BAF allows customers to simulate and calculate the tariff at any fuel price for a given trade route. It is designed to recover fuel related costs and, when implemented, will be charged separately from the basic ocean freight, as the cost of fuel is a significant and volatile part of the shipping cost, the advisory said.

“The aim is to create a fair BAF for both Maersk and customers and we are having a dialogue to this end,” Pedersen said.

Maersk has said that for next year, the proposed BAF formula will be based on the fuel price for high-sulfur fuel, IMO380, and from 2020 it will be on marine fuels that have 0.5% sulfur.

The SBF is being decommissioned because it is based on several variable factors that are not as predictable as the new BAF. The contracts with start dates before 2019 will continue to be subject to SBF until their expiry, it added.

The growth in global container trade is expected to see less growth in 2019, at 2%-3%, from this year’s projected 4%, due to the cyclical slowdown in the global economy and therefore Maersk has no plans to expand its fleet, Pedersen said.

There are already enough ships and we will only take deliveries of ships that were ordered earlier, he said. The trade dispute between the US and China was adding to the uncertainty, he added.
Source: Platts

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