27-04-2018

Marine fuel sulfur cap to raise costs; ban non-compliant ships: Maersk

The upcoming implementation of restrictions on sulfur emissions in marine fuels can potentially jack up the annual fuel costs for the shipping industry by a whopping $50-$60 billion, including by $10 billion for the containers sector alone, A.P. Moller-Maersk CEO Soren Skou Thursday said.

Skou favored greater use of cleaner fuels in the near term vis-a-vis other options such as LNG and scrubbers, and also strongly suggested a ban on the movement of ships using higher sulfur fuel oil, or HSFO without installing scrubbers from 2020. The new global cap of 0.5% sulfur on marine fuels will be implemented from 2020.

The shipping industry uses around 280 million mt of fuel annually and if the current differential between HSFO and low sulfur fuels persists at around $200/mt, it will be a huge additional expenditure, which can cascade into higher costs of moving goods across the globe, Skou said after delivering the Singapore Maritime Lecture.

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

Maritime analysts have pointed out that while ship owners will try to pass the additional fuel costs to consumers, but it may not always be possible since freight is a function of demand and supply. Already differences over tariffs between the US and China can reduce the trans-Pacific trade flow and thereby the demand for ships.

“The first impact of this dispute will be on the Pacific trade but if the [volumes] drop a lot, it will spread to other trade routes,” Skou said.

This is because shipping companies will then move the surplus ships to other routes and it will impact “all of us”.

“Global trade creates so much wealth. We need free trade rather than create barriers.”

The US-China trade dispute had come at a time when the container shipping industry was optimistic of better earnings in the backdrop of slowdown in the growth of fleet.

The boxship orderbook-to-fleet ratio had fallen to one of its lowest levels at 12%, sharply lower than the peak of 64% in 2007, industry estimates showed.

BAN ON NON-COMPLIANT SHIPS

Enforceability of the new norms on cleaner fuels is the key to ensure a level playing field for all ship owners, Skou said. For this to happen, there should be a ban imposed and implemented on ships which use HSFO without installing scrubbers from 2020 onwards.

“A cap on sulfur emissions is a good thing because it kills people but we should also understand that the new norms are a heavy burden on the shipping industry”.

Maersk Line, on its part, was reducing emissions by greater fuel efficiency, he said. Skou pointed out that Maersk consumed around 10 million mt of fuel annually, which was similar to what it consumed five years ago, even though its business had grown by around 50% during the period.

While there were choices to make when the new norms were implemented just over 20 months from now, Skou favored greater use of LSFO and Marine Gas Oil, or MGO.

“It makes sense for refineries to remove sulfur from fuel and sell it to us instead of we setting up refineries aboard ships,” Skou said.

Maersk Line had no plans to get LNG fueled engines installed on its existing or current ship orders, nor does it plan to place any fresh orders for new ships in the near future, he said.

However, as and when it orders new container ships, Maersk Line would definitely consider having LNG fueled ones, he added.

CMA CGM, had ordered new container ships with a capacity of 22,000 TEUs each, scheduled for delivery from 2020 onwards, with LNG propulsion. It had entered into an agreement with Total Marine Fuels Global Solutions to supply LNG fuel for these ships.

Mitsui O.S.K. Lines, or MOL, had ordered container ships that were LNG ready. The 20,000 TEU-class container ship, the MOL Triumph, was designed with a retrofit option to use LNG as fuel.

Source: Platts

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