Gordon Campbell on why shipping is New Zealand’s big new trade problem

So Jacinda Ardern and Theresa May have signed a piece of paper promising peace in our time when it comes to our trade with Britain.

Hard Brexit deal or no Brexit deal at all, there will be something called ‘regulatory continuity’ that will ensure the rules governing our trade with Britain won’t change overnight. Reportedly, Ardern thinks this should re-assure our meat industry, even though (small detail) this piece of paper is not a guarantee of trade access. So if and when Britain crashes out of the EU causing goods to pile up on both sides of the Channel and our lamb exports can’t get through to Britain for the Easter trade etc etc at least we’ll be able to sleep easy in our beds knowing that the red meat quota hasn’t changed for now. Small comfort, one would think.

Right now, a statement from Theresa May on Brexit has as much credibility as a statement by Donald Trump about North Korea’s plans for scrapping its nukes. Despite her recent crushing defeat in the Commons, May is continuing to playing chicken with Britain’s future, for personal and party advantage. No change there. She is still gambling she can terrify enough of her MPs (and the public) about the chaos of a ‘no deal’ such that Parliament will eventually ratify her wretched deal as the least worst option available. In these circumstances, New Zealand is useful only insofar as we can contribute to the illusion that Number 10 is open for something that looks like business as usual. It isn’t, of course. On both sides of the Atlantic, the practices of normal government are in virtual shutdown.

The Marpol Treaty “Tax”

Brexit is not the only concern. To date, the Ardern government’s biggest crisis came in the spring of 2018 when global fuel prices rose, and the public chose to blame the price hikes on domestic fuel tax increases. At the pump, people largely ignored the major global spike in the price of oil and raged instead about the relatively minor tax add-ons imposed by central and regional government. Panicked, the government blamed the oil companies. Luckily for all concerned, the global oil price suddenly slumped, and the political problems have largely subsided. Holiday motoring, which could have been a nagging reminder all summer of the intersection between fuel taxes and petrol prices, has caused no ripples on the political pond.

In 2019 though, a new and different kind of fuel price Godzilla is coming over the horizon, and it is likely to boost the prices of everything going in and out of the country, from Amazon packages to milk powder. It is called the Marpol Treaty, and like many things that change the world for better and worse, it started out with the best of intentions. Basically, the Marpol Treaty is a set of UN-mandated regulations (devised by the International Maritime Organisation) that among other things, is aimed at cracking down on the pollution emitted by ships, and the crucial bits are in Annex VI. As Bloomberg News recently reported, the global shipping fleets currently consume about 3.8 million barrels a day of fuel oil — in the main, this is heavy, lower-value stuff from a refining process that contains about 1 to 3.5 percent sulphur. That content level is about to change:

From January 2020, new rules from the International Maritime Organization will limit sulphur-dioxide emissions from ships. All else equal, a ship would need to burn fuel with only 0.5 percent sulphur content or less to comply.

Oh sure, there are a few ways of mitigating the impact. “Scrubbers” can be installed on board to wash the bad sulphury content into the sea, but they’re expensive to install and operate, and obviously they add to marine pollution. Very few ships will have them in place by 2020. New ships can be built to run on liquified natural gas, but obviously, that’s no answer for the existing fleets. Also, ships can be induced to steam at slower speeds, which would cut down on their emissions. New Zealand, which is famously far from its markets, would probably not welcome any move guaranteed to bring its exports/imports to market at a slower pace.

In fact, distance is one reason why the Marpol Treaty regulations may impact more severely on New Zealand than on most other nations. The advent of the Internet and digital commerce may have shrunk distance in many respects, but lets not kid ourselves. As the New Zealand official briefing papers on Marpol point out:

New Zealand relies on international shipping to move some 98 percent (by weight) of its imports and exports.

And moreover:

Over 96 percent of international maritime trade, including almost all ships involved in New Zealand’s international trade, is carried on ships registered to States that have acceded to Annex VI [which contains the sulphur emission rules]

Oh, and there’s yet another problem. The Marsden Point refinery does not seem able to cope with the changes that are coming down the pike:

The cost of retooling Marsden Point to convert all high-sulphur residues to MARPOL-compliant product will be high and prohibitively expensive. The refinery is currently exploring if it is possible to produce smaller volumes of 0.5% sulphur fuel, and what may be required to achieve this. This has not yet been fully scoped nor costed. Currently, high sulphur by-products from refining have commercial value to Marsden Point. Once the 0.5 % sulphur requirement comes into force, this situation may change, affecting the refinery’s business model in this regard. In the event that there is a major shift to low SOx fuels, there is an open question as to how the high sulphur residues will be disposed of or used.

Do I hear the cliché “perfect storm”? Here’s another contributing factor to that storm. As the folks at Bloomberg point out, the transition to a low-sulphur diesel or gas oil fuel is also likely to push the price of the good low-sulphur diesel sharply upwards. At which point of course, President Trump could decide to intervene, if only to stop any sharp increase in fuel costs for MAGA-cap wearing truckers from undermining his chances for re-election in 2020:

While fuel-oil prices would tank, the price of low-sulphur diesel would, all else equal, jump. That’s a problem for truckers — like the ones ferrying Amazon’s goodies around — for whom fuel has fluctuated between roughly 20 to 40 percent of the cost-per-mile over the past decade. This explains why President Trump…might want to slow the International Maritime Organisation’s roll in 2020. However, since the U.S. effectively agreed to the rules a decade ago via an act of Congress, delaying or thwarting them isn’t a simple process. Despite efforts by the Trump administration to turn it, a supertanker is bearing down on drivers, oil majors, and even Amazon.com Inc.

Footnote: According to the government briefing document linked to above, New Zealand needs to get its position together on the Marpol Treaty Annex VI process quite soon. A Cabinet decision to accede to the process is expected in the first half of 2019. All going well, a parliamentary select committee would then consider the National Interest Analysis (NIA) and treaty text, and report back to Parliament by mid-2019. Government agencies would complete work on the regulatory amendments required to put the Treaty provisions into domestic law by the third quarter of 2020, and New Zealand would hope to deposit its instrument of accession with the IMO by late 2020, with the aim of putting our compliance into effect by the beginning of 2021. Right now, public submissions are being invited, and the closing date is 11 February 2019. Werewolf will continue to report on this issue.

Interislander ferries to be replaced with rail ready fleet


KiwiRail has confirmed plans to replace its three ageing Cook Strait ferries with two new, larger, purpose-built rail ferries.

The Aratere

The Aratere. Photo: RNZ

Interislander’s current fleet, comprising the Kaitaki, Kaiarahi and the Aratere, is due to be replaced by 2024.

KiwiRail’s decision follows a two-year consultation process which found rail-enabled ferries were the most cost effective, efficient and best in the long-term.

The new boats will be able to carry more people and freight, and be faster, making six return sailings a day, the maximum.

The decision represents a shift by KiwiRail, which in the past dismissed rail ferries as “very rare and really expensive”.

KiwiRail acting chief executive Todd Moyle said that was a different era, when KiwiRail was comparing the cost of second-hand ferries versus buying new ones.

But investigations found there was little difference in the price of a new rail ferry and a new non-rail ferry.

“They’re an inter-generational investment,” Mr Moyle said.

“These are going to be around for 30-odd years so we need to make the right decision to ensure that we’ve got that long term resilient outcome.

“We’re a rail company we want to grow rail, we see that as being really critical for New Zealand.”

Rail and Maritime Transport Union general secretary Wayne Butson said KiwiRail’s decision represented a shift to sanity.

Only one existing ferry, the Aratere, can take rail. The other two rely on a system which involves loading containers off railway wagons onto rubber wheeled trailers, then driving the trailers onto the ferries.

This is a lengthier process, which Mr Butson said was also more labour intensive.

“Using rail ferries, you can have three people that load 1500 tonnes of freight onto the ferry. If you use road bridging you’ve got 30 people doing the loading and unloading.

“Safety issues around [the] interface between the passengers and the vehicles is significantly heightened.”

Mr Butson said in recent years KiwiRail had been dogged by short-term thinking, as shown by its decision to close workshops in Dunedin.

“We’re now all struggling with the difficulties that the closure of Hillside poses when you’re in a KiwiRail that’s trying to grow quickly to meet the needs of New Zealand, and also the wishes of the current government for increased wagons, carriages, locomotives.”

Mr Moyle said the new ferries would not come cheap, with Mr Moyle estimating they would cost more than $200 million each.

A more accurate estimate will be known later this year.

Any potential job losses could be dealt with by attrition

Mr Moyle denied the decision was dependent on the will of KiwiRail’s political masters, saying process began under National.

“The rail-enabled element is only one component of these ferries. We’ve had the largest tourism season on the Interislander and also commercial vehicles, trucks and other elements, so we’ve got the three bits that work on the ferry.

“We’ve had to make the decision based on all the elements.”

Both the union and KiwiRail said staff had welcomed the announcement even though it could signal job losses.

But Mr Moyle said reductions in staff numbers could be mostly dealt with by attrition given the new ferries were five years away.

The ships would likely to be built in Europe or Asia.

Mr Moyle said while the bulk of the ferries would be a standard design, there will be elements that are customised for Cook Strait like the lower decks and the passenger areas.

Mr Butson said designing the ferry from scratch had its advantages.

“There are now new hull configurations which are able to deal with the wake issue in terms of the [Marlborough] Sounds.”

Annabel Young: Get ready for fuel price rises in 2019

Prices are expected to climb rapidly as demand increases, especially in New Zealand. Photo / File

NZ Herald By: Annabel Young

COMMENT:

Prices at the petrol pump were a regular item in the 2018 news but spare a thought for businesses that buy fuel by the tonne (1000 litres). In shipping circles, the expectation is that the price of oil-based fuel products will rise steeply in 2019 and that they will keep going up. International price rises will be reflected in prices in the domestic market, at the suburban fuel pump.

Here is why this is happening and how it will affect you.

By January 2020, most ships in the world will be subject to restrictions on sulphur emissions. This is the effect of a treaty known as Marpol Annex VI which imposes a maximum level for sulphur content of emissions at 0.5 per cent. Currently the maximum limit is 3.5 per cent sulphur content although it should be noted that in practice, many ships operate below that level.

New Zealand has not ratified Marpol Annex VI yet but it is assumed by the sector that this will be done by at least 2023. In the meantime, the majority of ships operating around New Zealand are flagged to countries that have ratified the Annex and they are therefore bound by it.

Sulphur emissions from fuel are a result of the fuel used and there are a number of ways to address this, but there is no easy option. The fuel oil used by most ships originates from crude oil as the fuel is the residual left after the diesel or other distillates have been extracted. The residual becomes bitumen and fuel oil, termed HFO, IFO and LFO. When the residue is no longer used as a shipping fuel, it may continue to be used in shore-based oil-fired consumers, eg power stations.

Designing a new vessel to operate on an alternative fuel to oil is much easier than retrofitting an existing ship. By way of example, a shift to methanol would be a great way to solve the emissions problem but it costs about $2 million extra to build a methanol ship; whereas it costs significantly more to retrofit an existing vessel. So methanol, being emissions free and locally sourced from Taranaki, looks perfect but may be difficult to implement as a replacement.

Liquefied Natural Gas (LNG) is another option widely available in Australia, but in New Zealand it is tricky to source. Nuclear power is not currently an option for commercial vessels (it is for warships) but may feature as a civilian propulsion choice in the future.

The practical option for most current ships operating on fuel oil is to shift to a lower sulphur oil-based fuel. The obvious choice is diesel because other low sulphur oil-based fuels are not yet in significant production.

An alternative to switching fuels is to install so-called “scrubbers”, that is equipment that uses sea water to clean emissions. About 1 per cent of the current world fleet uses scrubbers; and it is not expected that scrubber production will be able to scale up in the short or medium term. Of course, the scrubber option is only useful if the current higher-sulphur-content fuel remains available.

So what is the likely impact of most ships in the total worldwide fleet shifting to diesel? Ship operators expect significant increases in fuel costs and also worry about availability. At current prices, diesel is at least 35 per cent more expensive than the fuel currently used by ships. Prices are expected to climb rapidly as demand increases, especially in New Zealand as we already rely on importing at least 30 per cent of current diesel needs and would have to import any increased usage.

To achieve the 2020 deadline, it is expected that the worldwide conversion of ships to a low-sulphur fuel will begin in mid-2019. The effect will be a steep rise in demand for diesel. And increased demand means increased prices. The six month lead-in is because changing the type of fuel used by a ship is not as easy as switching on a lamp. It is almost a case of saying that the engine has to want to change.

Around the world, the change in fuel is expected to throw up a range of engineering issues on every vessel, and in some cases the issues will be unable to be resolved leading to the removal of that vessel from the fleet. Some ship lines have already imposed an additional tariff to cover the cost of the switchover.

As the price rises in the world market, the effect on the price of any oil-based fuel (not just diesel) at the local petrol pump is likely to be substantial and immediate.

The impact of higher costs of ship operations will also play out in the cost of everything that you buy because virtually everything has a component of transport in its price.

Ship operators are even wondering if they will be able to source fuel at all.

• Annabel Young is the executive director of the New Zealand Shipping Federation which represents coastal ship operators.

MSC Zoe: Islands hit as 270 containers fall off ship

Extensive debris has washed up on islands off the Dutch north coast after some 270 containers including chemicals fell off a cargo ship in a storm.

As the extent of pollution became clear on five islands including Terschelling, coastguards searched the North Sea for missing containers.

The cargo fell off the MSC Zoe near the German island of Borkum, but the tide carried many of them to the south-west.

Initial images showed children’s toys and TVs on Dutch beaches.

But officials said three containers carried toxic substances, and Dutch and German coastguards warned local people to steer clear of them.

One of those containers had a cargo of peroxide powder, and a 25kg bag of the chemical was found on the island of Schiermonnikoog on Thursday, along with several containers and their contents.

What happened to the MSC Zoe?

The Panama-registered ship is described as the biggest in Europe, with a potential cargo of 19,000 containers.

Containers in the Wadden Sea
Image captionThe Dutch coastguard searched for containers near the islands on Thursday

As Storm Zeetje buffeted northern Germany with gale force winds late on Tuesday night, 270 containers of Zoe’s cargo fell off the ship as it made its way through the Wadden Sea from the Belgian port of Antwerp.

Waves of up to 10m (33ft) in height were reported on the night and images from the Dutch coastguard showed dozens of containers balanced precariously like dominoes on the deck, about to fall into the sea.

By Wednesday morning, strong tides had already swept some of the containers on to beaches on Terschelling, Vlieland and Ameland and Dutch and German coastguard planes scoured the sea for the others.

Map of Wadden Sea

There were fears that other shipping could be damaged by the cargo. The Geneva-based MSC company which owns the ship has asked a salvage company to use sonar equipment to help retrieve the missing containers.

Overnight into Thursday, the MSC Zoe docked at Bremerhaven. Several containers were spotted in German waters and a further 11 were seen by the Dutch coastguard floating between the islands of Ameland and Schiermonnikoog.

How bad is the pollution?

By Thursday five Dutch islands in the Wadden Sea had seen debris from the MSC Zoe wash up on its beaches.

On Texel, Vlieland, Terschelling, Ameland and Schiermonnikoog volunteers were helping on Thursday to clear up the mess spilt the previous day. Around 100 soldiers were being sent to the islands part of the clean-up operation.

Among the rubbish found on Terschelling’s long, sandy beaches were shoes, bags, cushions, chairs, TVs and plastic cups.

Broken TVs lay on the beach on Terschelling hours after the containers fell into the sea
Image captionBroken TVs lay on the beach on Terschelling hours after the containers fell into the sea

Children found pink toys among the rubbish.

Volunteers had to scoop polystyrene packaging from the dunes.

On Ameland, local officials said 130,000kg of debris had been cleared up along an 8km (five-mile) stretch of beach.

When the MSC Napoli ran aground off the south-west coast of England in 2007, 80 containers washed ashore. Police had to shut a local beach as people scoured the debris for motorbikes and other merchandise.

Police had to use old laws on scavenging that require people to return goods from the stricken ship.

Although some flat screen TVs were found in the debris on Wednesday, most concerns on the Dutch islands focused on the environmental damage to the area.

Wednesday Suez Canal traffic reaches 2nd highest recorded

in Port News 03/01/2019

Traffic passing through the Suez Canal on Wednesday reached the second highest daily traffic recorded in the history of the canal, Suez Canal Authority Chairman Mohab Mamish announced, adding that 72 vessels with a total tonnage of 5.1 million tons crossed the canal in both directions on Wednesday.

Thirty-three ships passed through the canal coming from the north with a total load of 2 million tons, while 39 ships coming from the south crossed with a total load of 3.1 million tons, Mamish added.

Twelve giant vessels with cargo that exceeded 150,000 tons per ship crossed the canal on Wednesday, which was the first precedent of its kind, according to the chairman.

Seven large ships carrying cargo that ranged between 100,000 to 150,000 tons per ship also crossed the canal on Wednesday.

The largest ship that crossed the canal on Wednesday coming from the north was the Panamanian container ship MSC SVEVA, which carried a cargo of 196,000 tons, Mamish said, adding that it came from Morocco and was heading to Oman.

On the other hand, the Danish container ship MILAN MAERSK topped the convoys from the south with a load of 221,000 tons. It came from Malaysia and was heading to the Netherlands.

Suez Canal rates recorded at the beginning of the new year are promising and will positively reflect on the canal’s revenues, Mamish said, stressing the economic feasibility of the New Suez Canal project and its importance to the global trade movement.

The Suez Canal Authority has been able, thanks to the continuous development of the navigational course and the flexible marketing policies, to deal with all the variables of the maritime transport industry, through increasing the capacity of the Suez Canal to receive current and future generations of global fleets and benefiting from the recovery of global trade and growth indicators of the world’s major economies, Mamish said.

Fifty years at sea come to an end for New Plymouth marine pilot

Captain Mike Birch, on the bridge of the Finnanger last Friday, has retired after 16 years as a marine pilot and a further 34 years at sea.
Captain Mike Birch, on the bridge of the Finnanger last Friday, has retired after 16 years as a marine pilot and a further 34 years at sea.

After five decades at sea, it’s fair winds and following seas for Captain Mike Birch.

“I’m coming up 65 and I’ve had a good career,” the newly retired British-born sailor said. “It’s been in the family. My grandfather had a shipping company in Liverpool.”

Piloting the cruise ship Masdaam into Port Taranaki was going to be his last hurrah, but he came back to cover another pilot and his final job was piloting the oil and chemical tanker Finnanger last Friday.

“I had mixed feelings really – the ship is the same but just feeling that I won’t be doing this again and enjoying every moment of it.”

Birch went to merchant navy training school, the ‘HMS Conway’, when he was 14 and first shipped out at age 18 to join British and Commonwealth, an amalgamation of several companies. 

He went on to crew on passenger and cargo ships and the tanker Hector Heron, visiting ports in South Africa, east Africa and India. 

“You learn the base skills of ship handling while bouncing off the top of storm waves. In those days we didn’t have modern-day electronics so good seamanship and safety were reliant on the expertise of the shipmaster knowing how to handle a ship.”

He got his second mate’s ticket and went on to join Maersk, getting his Master’s ticket and his first command after five years. He went on to become a pilot at Portsmouth and then harbour master at Portland before moving to New Zealand.

“There’s been huge changes in shipping, becoming more modernised. Electronics have come in; there’s less maritime experience expected nowadays and more computer-type learning.

“You went to sea, you went to a port and you might be there for two weeks, but now it’s all rush, rush, rush.

“Pilotage is specific to a port – so each time I changed ports I had to retrain.”

He said Port Taranaki has storm conditions with large swells for much of the year.  

It takes about three hours to bring a ship into port, including preparing the paperwork, doing all the manoeuvring and then securing the ship on the dock, and then about an hour and a half to two hours to take it out again.

“It’s a short but intense pilotage ranging from open sea to limited space in a matter of minutes. Climbing up the rope ladder from the pilot launch to board the ship, and then taking control to manoeuvre, is not for the faint-hearted.”

Birch was also the pilot who reported SG Pegasus shipmaster Saurabh Kumar Singh for being drunk earlier this month.

“I’ve never experienced that before but from my point of view it was a case of passing on my concerns to the authorities.

“I left the ship and the Maritime NZ and the police dealt with the issue.”

He said it would be a change, no longer constantly checking the weather conditions, but he is looking forward to taking his motorhome around the country with wife Karen. 

“It’s been a good career.”

Stuff

How Cargo Ships Can Go Green

Shipping is the lifeblood of global commerce — more than 80 percent of world trade goes by water. But the industry is also an environmental menace, producing as much carbon dioxide annually as Germany.

The International Maritime Organization has helpfully called for ships to produce about 85 percent less sulfur by the end of next year, and to halve their total greenhouse-gas emissions by 2050.

The shipping industry is properly responding with various obvious strategies: emissions-scrubber systems, slower operating speeds, and the use of cleaner-burning fuels, including liquefied natural gas. These are essential steps — yet not adequate. To meet the 2050 target, shippers will need to try alternative sources of energy.

To begin they’ll need to invest in developing complimentary sail and solar power. Energy storage is needed, too, to take advantage of these intermittent power sources. Other technologies needing further experimentation include zero-emission hydrogen fuel cells and biofuels, which can be made of everything from leftover cooking oil to algae.

Not all improvements need to be highly technological or hugely expensive. One practical idea is to remove the barnacles that attach themselves to ships’ hulls. The drag this creates can increase a vessel’s fuel consumption by as much as 20 to 40 percent. Several new technologies can do the job: chemicals that repel the mollusks; polymers and Teflon-like coatings that make it harder for them to attach themselves; and underwater drones that scrub them away without needing to put the ship in drydock.

Another easy improvement known as cold ironing stems from the days of coal-powered fleets: When ships are being unloaded at a port, they use electricity supplied from the shore rather than their own power systems. California already has cold-ironing requirements at its commercial ports. Other states and nations should follow its example.

And then there is, literally, the nuclear option. The idea of fitting commercial craft with nuclear reactors isn’t actually new: in the late 1950s, the U.S. government funded the building of the Savannah, which served as both a cargo carrier and passenger liner for a decade; Russia’s nuclear-powered container ship Sevmorput, launched in the 1980s, is still in service.

It’s still possible that the advantages of nuclear — no emissions and tremendous speed — can eventually overcome the additional costs involved with developing the technology and protecting against catastrophic accidents or terrorist theft.

None of these strategies can work alone, and some may turn out not to work at all. But the shipping companies, shipbuilders and nations whose economies depend on them are going to need to get more inventive — 2050 is coming faster than they think.
Source: Bloomberg