Shipping Industry Stares Down New Fuel Restrictions

Tens of thousands of cargo ships, tankers, container ships and cruise liners belch noxious sulfuric gases and fine particles that drift over cities and cover them with smog.

It is not a pretty picture, but it is one that may change in January 2020 if a decision by the United Nations International Maritime Organization to strictly limit the amount of sulfur in maritime fuel is fully carried out.

That is a big if, because shippers have been slow either to make the switch to higher-quality fuels or install expensive equipment known as scrubbers to clean exhaust from what is known in the industry as “bunker fuel.” Oil companies are also watching and waiting, as few have upgraded their refineries to adapt to new regulations.

“It comes down to who is going to blink first,” said Neil Beveridge, an oil analyst at Sanford C. Bernstein, a research firm for investors. “So far, the shipping industry looks like it is sleepwalking into a disaster. Everyone is waiting for everyone else to make the first move.”

Methods of enforcement are also still an open question.

Billions of dollars in investments are potentially at stake, since the global demand for high-sulfur fuel amounts to more than three million barrels a day out of the 100-million-barrel-a-day market, according to industry experts.

Some economists say they believe that prices could be pushed higher when refiners reduce the production of diesel and jet fuel to produce greater quantities of cleaner marine fuel. Other analysts say the market disruption will be modest, in part because initial enforcement of the new rules may be weak.

It has been two years since the United Nations agency firmly established the 2020 deadline to reduce the sulfur content of maritime fuels to 0.5 percent from 3.5 percent, and all major global ports and shipping terminals have committed to using low-sulfur fuels.

The new regulation will not have a significant impact on carbon emissions, but public health experts say a reduction of sulfur gas emissions will reduce smog and avert millions of cases of childhood asthma. One big container ship can emit as much sulfur in a year as millions of vehicles.

Shipownerrs can switch to low-sulfur fuels, installing scrubbers that remove exhaust from high sulfur fuels or switch to cleaner liquefied natural gas. But all three options have disadvantages.

Cleaner maritime fuels can cost $250 a ton more than high-sulfur fuels, which can mean an additional annual expense of roughly $3 million for a large vessel, a significant added cost in the typically low-margin, low-profit shipping business, according to market reports.

A few shipowners, particularly cruise ship companies, are building ships that can run on cleaner liquefied natural gas.

But they represent only a tiny fraction of the industry, because installation is expensive and refueling infrastructure still needs to be built in many parts of the world. That is bound to change over the next two decades, analysts say, and the new regulations could be a catalyst.

“L.N.G. is going to be the future,” said Ram Vis, chief executive of Viswa Group, a company that tests maritime fuels and manufactures scrubbers.

Dr. Vis said in recent months he had noticed a jump in scrubber orders. But he added that it would take years for an estimated 30,000 to 40,000 ships to be outfitted with scrubbers because there are only about 30 manufacturers of the equipment worldwide.

Scrubbers can cost $5 million to $10 million apiece including installation, according to the Energy Intelligence group. Dr. Vis said they could take at least 15 days to install, requiring downtime for ships. So far, a small percentage of the global fleet has converted, industry experts said. Shippers may be reluctant to switch because they are concerned that international emissions regulations may be toughened again and that their investment will be wasted.

That leaves the refiners with challenges. The pitch-black and molasses-thick bunker fuel they produce comes from the dregs of refined products. The refiners are not technically included in the new regulations, but they will need to adjust to a new market.

Refining low-sulfur fuel requires additional processing, requiring expensive plant refitting in many operations.

American refineries, which are generally the most sophisticated, are in a strong position to refine more low-sulfur fuel. Chinese and Korean refiners will also be ready. In the meantime, Russian, European and Middle Eastern refiners may need to scramble and make expensive adjustments.

Refiners will be forced to accommodate the expected new demand for cleaner maritime fuel by transferring oil that otherwise would have gone to producing diesel, jet fuel and heating oil, tightening the market for those fuels and raising prices.

“You are going to have to borrow from Peter to pay Paul,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. He said sophisticated American refiners, including Marathon Petroleum, Valero, Phillips 66 and Exxon Mobil, would profit from the market change. “It’s going to be a magical 2019 and a very profitable 2020,” he predicted.

There still remains the question of how the new regulations will be enforced, since the United Nations agency does not have enforcement powers.

That leaves the policing tasks to flag countries like Panama, which registers vessels but may not be aggressive about monitoring and enforcing rules far from their borders. Shippers may have to be careful about the loss of insurance coverage, reputational damage and stiff fines if they are caught.

Analysts predict that at least 5 percent to 10 percent of shippers will cheat.

“This will have to be a broad-based undertaking for this to be a truly effective global requirement,” said Jose L. Valera, an energy lawyer in the Houston office of Mayer Brown. “If nobody picks up the mantle and makes this a requirement it’s possible it won’t be implemented.”
Source: New York Times

Prospects for the multipurpose shipping sector are improving

Surging growth in renewable energy generation around the world and a construction boom in South East Asia that is expected to run for the next 10 years bode well for the once ailing multipurpose shipping fleet.

In the latest edition of Drewry’s Multipurpose Shipping Forecaster report we declare that we remain cautiously optimistic on the outlook for the sector. There are some caveats to this optimism as global general cargo demand is forecast to grow at a rate of just 2% per year to 2022, while the multipurpose and heavylift fleet is expected to contract at less than 1% per year over the same period. Meanwhile, the threat of a trade war continues to loom over the horizon and the competing sectors are not yet secure enough to move from this sector.

Multipurpose vessels benefit from the growth in demand for both breakbulk and project cargo and, while it is clear that both are effected by modal competition and trade tariffs, the latter has seen some renewal in certain sectors.

In BP’s latest energy outlook, global consumption of fuel in 2017 is compared to 2016 (see Figure 1). Although renewable energy consumption is still a minor part of the global mix, it is growing at a faster rate (almost 17% year-on-year) than any of the other fuel types.

Fig.1: Global consumption of primary energy by fuel type (million tonnes oil equivalent)

Source: Drewry Maritime Research

Wind energy provided more than half of that renewables growth, which is positive news for the multipurpose (MPV) sector. The equipment needed for a wind farm, including the blades and towers, is ideally suited to the MPV fleet. The equipment is large, unwieldy (project) cargo, which needs a vessel that can both lift and stow it correctly. Also the top two manufacturers are based in Europe, whilst the top regions for growing installed capacity are in Asia – a perfect trade route and a growing market for project carrier tonnage.

China reported a 25% increase in power generation from renewables in 2017, compared to 2016, to 106.7 million tonnes oil equivalent (mtoe), which is 22% of the global renewable power. Within that global increase, some regions have a much bigger share than others. Asia Pacific represents some 36% of renewable energy consumption (including China alone amounting to 22%). The EU is worth 33% and North America 23%. Asia Pacific is also the fastest growing region with 2017 consumption up almost 25% on 2016.

The other significant factor in our uplift for demand is a region-wide constriction boom for South East Asia that is expected to last the next ten years. It is largely fueled by China’s One Belt One Road (OBOR) initiative, which will link China to Europe through Central and South-East Asia. The latter is a pivotal element in the initiative and it is expected that China will develop these projects aggressively. India’s annual construction investment is also expected to increase by about a third over the next five years to an average $170 billion per year.

Fig.2 Development of dry cargo demand (million tonnes)

Source: Drewry Maritime Research

The outlook for the competing sectors, although mixed going into the final quarter of the year, remains positive for the medium term. It is true that the impact of US tariffs is more keenly felt by the container shipping lines, but here too there is still growth forecast, albeit at a slightly weaker rate than previously expected.

There may be trouble ahead but the green shoots of recovery appear weather-proofed to withstand the volatility expected to the end of 2018. Longer term, owners are more positive post 2020 when the true picture of the various environmental regulations will have become clearer. Maybe we should upgrade our forecast to reasonably optimistic?
Source: Drewry

Panama Canal Hails Container Shipping Segment’s Success

After speaking on a panel at the INTERMODAL Expo in California last week, Argelis Moreno de Ducreux, the Leader of the Panama Canal’s Liner Services Segment, will be travelling back to the United States for the Council of Supply Chain Management Professionals Edge 2018 conference later this month in Tennessee. Apart from the opportunity to reconnect with industry figures, attending both conferences has enabled the ACP to further highlight the waterway’s strong performance and continued leadership. In between her trips overseas, we spoke with Argelis to hear more about the waterway’s recent successes in container shipping, and what lies ahead.

Can you talk to us about the recent performance of the container segment at the Canal?

The Canal’s various vessel segments have all been growing steadily, but the container segment has seen especially strong performance since the completion of the Expanded Canal in 2016. Since its opening, the average containership size transiting the waterway increased by 28.0 percent increase in only two years of operation. In August, the Canal set a new monthly container milestone, accounting for 14.4 million tons (PC/UMS) after facilitating the transit of 233 container vessels. Over the next few years, we expect container volumes crossing the Canal will continue to rise by about 6% annually, which will only strengthen our role in the global marketplace and allow for the movement of more goods from countries around the world.

How has the Expanded Canal’s impact reached beyond Panama’s borders?

The benefits of the Expanded Canal extend far and wide. Take the United States’ East Coast ports, for example, which have experienced record-setting growth thanks to the improvements at the Canal. Not only have ports been able to import greater quantities of cargo, but they are investing millions in dredging, construction and new equipment purchases to capitalize on the increased flow. The Port of Baltimore, for instance, has reported a 14 percent increase in the growth of its container business since the completion of the Expanded Canal, and the Port of Charleston set a container transit record in August thanks to an influx of ships from Asia through the Canal locks. It doesn’t stop there. The Port of Miami is investing millions of dollars to increase terminal fluidity to accommodate growing business, and the Port of Philadelphia has spent much of 2018 undergoing and planning new construction. In addition to updated ship berths and new warehouses in the works, it recently acquired two harbor cranes that are among the largest in the world.

Beyond the East Coast, have you seen other areas reap the benefits of the Expanded Canal?

Absolutely. Traffic across the Canal impacts much of the U.S. economy, so many areas across the American Midwest, for instance, have felt the positive outcomes of the Expansion. Manufacturers and food suppliers in the region – who deliver corn, soybeans and wheat, among other things – send shipments down the Mississippi and through the Canal to Asia. The bigger ships these suppliers can now use has resulted in lower shipment costs for manufacturers and more competitive products and prices as a result. This is true for shippers everywhere – and it has been demonstrated in economies across the world.

Beyond that, the Expanded Canal has effectively reshaped global trade routes. With the Expanded Canal complete, our locks can accommodate 96 percent of the world’s containerships – which has benefitted and increased options for local ports around the world, who now choose the Panama Canal as the desired passage. So far, we have welcomed 16 new liner services to transit the Expanded Canal, and we expect shipping lines will continue to reroute services and rely on the Canal as they take advantage of the economies of scale offered by the Expansion.
Source: Panama Canal Authority

Container throughput at world’s busiest port surges since 1978

SHANGHAI, Sept. 24 (Xinhua) — The container transport capacity of Shanghai International Port, currently the busiest container port in the world, has surged more than 5,000 times since China began implementing the reform and opening-up policy in 1978.

Last year, the container throughput of the company, which operates all the public container and bulk terminals in the port of Shanghai, stood at 40.23 million standard containers, or twenty-foot equivalent units (TEUs), up from just 7,951 TEUs in 1978, the company said.

The figure represents an annual average growth of more than 24 percent, making the company the world’s largest port in terms of container capacity for eight consecutive years, the data showed.

Chen Xuyuan, the company’s chairman, attributed the rapid rise partly to the country’s fast growth and steady world economic growth over the past 40 years.

China’s GDP rose 33.5 times from 1978 to 2017, with an average annual growth of 9.5 percent, much higher than the world average of about 2.9 percent during the same period.

The company’s half-year report filed with the Shanghai stock exchange showed that its throughput in the first half rose 4.6 percent to 20.50 million TEUs, continuing to be the world’s largest.

China-owned fleet becomes world’s second largest

A remarkable maritime event occurred recently. China became the world’s second-largest shipowning country, overtaking Japan. The top shipowner, Greece, is still much larger but the gap is closing as China’s fleet expansion continues at a rapid rate. Numerous giant ore carriers, tankers and container ships scheduled for delivery to Chinese owners in the months and years ahead are likely to further boost capacity.

Strong and accelerating growth in the China-owned merchant ship fleet has unfolded. In 2017 an increase exceeding 9 percent was seen, and recent signs suggest that this year’s annual rise could be similar. The extensive orderbook for new vessels due to be delivered through the next two or three years will add substantial tonnage, but other less predictable influences also will determine fleet growth.

Many new ships will be employed in long-haul international trades where China is the cargo importer or exporter. For container ships, cargoes both to and from China are likely to provide employment while, for bulk tonnage in the biggest size categories, import trades will be most prominent. Amid vast quantities of manufactured goods and bulk commodities moving, potential for further participation of China-owned ships is clearly visible but, on some trade routes, other nationalities’ ships may be displaced.

Powerful fleet expansion
In the past three years and eight months, the China-owned fleet has expanded by just over one-third, a higher percentage increase than seen in the Greek-owned fleet and much higher than Japan’s minimal growth. According to revised figures compiled by Clarksons Research, the China-owned fleet recorded growth rates of 6.5 percent in 2015, 7.5 percent in 2016 and 9.4 percent in 2017, before adding 7.1 percent in the January-August 2018 period.

China’s fleet comprised 7,744 ships totalling 170 million gross tons at the end of August this year, above Japan’s 167.6m gt. The Greek fleet total was 222m gt. Gross tonnage is used in these statistics as a common ship capacity measure for all vessel types. China’s fleet has expanded by 34 percent since the end of 2014, compared with 23 percent growth for Greece. Japan has seen only a slow 2 percent rise over the same period.

Notable ships delivered
At the end of last year orders at shipbuilding yards for new vessels to be delivered to China-based shipowners comprised a huge volume. The 25.5m gt total, according to Clarksons figures, was equivalent to almost 17 percent of the existing China-owned fleet as calculated then. Within this orderbook a large proportion was scheduled for delivery in 2018, and a striking feature was the numerous orders for the biggest bulk carriers, tankers and container ships. Many of these newbuildings already have been completed and begun operating in the first eight months. The remaining September-December period, continuing into next year and later, is likely to see more ships delivered.

One especially notable feature beginning this year is the start of the second valemax ore carrier programme. Among bulk carriers, these are the largest in existence, with a 400,000 deadweight tonnes capacity, well over twice the capacity of the standard capesize vessel which is often the maximum size participating in most trades. China-based companies ordered 30 valemaxes, of which 18 totalling 7.2 million dwt were due for delivery during 2018, and 10 appear to have been delivered in the first eight months followed by an additional ship this month.

The current year’s scheduled valemax deliveries consist of 7 for China Merchants, 4 for China Ore Shipping and 7 for VLOC Holding Company. China Ore Shipping is a subsidiary of Cosco, while VLOC Holding is a subsidiary of ICBC (Industrial & Commercial Bank of China) Financial Leasing.

Mammoth container ships are another prominent feature in the orderbook, with many scheduled for delivery in 2018. It appears that 11 ultra-large vessels with the greatest capacity currently existing are due to be delivered this year, in the 19-21,000 teu (twenty-foot equivalent unit) range, all ordered by Cosco Shipping. In the tanker sector orders for vlccs (very large crude carriers) are at the forefront. The scheduled 2018 deliveries comprised 9 ships of 310,000 dwt for China VLCC, a China Merchants subsidiary, and 2 of 308,000 dwt for CSG Tanker Dalian.

Large newbuilding orderbook
The orderbook for new ships stretches out through the next two years and later. According to the Clarksons data, September-December 2018 deliveries scheduled, of all types and sizes of ship, total 4.8m gt, followed by 9.9m gt in 2019 and a further 6.1m gt in 2020 and beyond. The entire orderbook for China-owned vessels, at end August 2018, amounts to 20.8m gt which is equivalent to 12 percent of the country’s existing fleet capacity.

Compared with the other two largest owner nationalities, China has a more extensive orderbook than Greece which has a 16.9m gt total, equivalent to under 8 percent of the current fleet. Japan has the number one orderbook totalling 25.1m gt, amounting to 15 percent of its current fleet.

Looking ahead to next year’s and later deliveries, numerous mega vessels in the bulk carrier, tanker and container ship categories are set to augment the China-owned fleet. In 2019, the valemax 400,000 dwt ore carrier fleet will be expanded by the scheduled addition of 10 ships for owners based in China, followed by 2 in 2020. A further 4 vlcc tankers in the 308-310,000 dwt size range are listed for 2019, with a similar number in 2020-21. There are 6 ultra-larger boxships on order for 2019 delivery, reportedly postponed from this year.

Among other big vessel categories, two owners in China will take delivery of 6 guaibamax 325,000 dwt ore carriers starting next year when two will be completed. Another bulk carrier category is newcastlemax 208,000 dwt vessels, 3 of which are due for delivery to owners in China in 2019, followed by a further 7 in 2020-21. In the tanker sector, 3 suezmax 158,000 dwt vessels are scheduled for 2020-21 delivery. Also, three 172,410 cubic metre liquefied natural gas (lng) carriers are scheduled over the next two years.

Promising employment
One significant aspect in a global shipping market context is the employment patterns of the new China-owned vessels. Many new ships, especially those in the largest size categories, are likely to be employed in trades where China is at one end of the route, either as the cargo importer or exporter. However, while this activity may form the majority of employment, some ships may be occasionally utilised in trades where China is not involved as a voyage destination or origin. These are the traditional international ‘cross-trades’.

A full analysis of newbuilding vessels’ employment is not feasible, owing to limited information about intentions or contract details. Also, evolving global freight market conditions can be expected to have an impact on employment arrangements, resulting in changing perceptions over extended time periods about trades in which to participate. Nevertheless, in some cases such as the mega-size container ships, the most likely deployment and trading patterns are fairly obvious from a review of the market for this tonnage.

For the new giant valemax ore carriers, there is clarity about their intended usage both in the period immediately ahead and in the longer term future. In all cases, lifespan charters for the thirty newbuildings of this size now being delivered were agreed when the orders were placed in early 2016. The charterer is Brazilian mining company Vale and employment of these vessels starting 2018 or later, after delivery from the shipbuilders, is on a contract of affreightment (coa) basis over a period of 27 years. It seems clear that the principal trade route will be Brazil to China carrying iron ore, although other destinations are likely.

During recent months, one new valemax was on a route identifiable as loading in Brazil followed by discharging at ports in Japan. Another new ship of this type evidently discharged ore at the distribution facility at Teluk Rubiah in Malaysia. A further recent example of diverse trading patterns is a newly-delivered vlcc tanker arriving in Rotterdam, after being recorded at an oil loading port in the Arabian Gulf. This anecdotal information shows significant involvement of new China-owned shipping capacity, as well as the existing fleet, in broader global trading.

An aspect relevant to the introduction of the new vessels is growth in cargo volumes and ship demand within the trades where employment is assumed to be concentrated. For example, arrival of the new valemaxes this year has coincided with signs pointing to a slowing upwards trend in China’s iron ore imports. Seaborne iron ore trade is dominated by China’s more than two-thirds share of global imports. If this slackening trend persists, even if the proportion supplied to China by Brazil – the route on which valemaxes are employed – increases, the new ships may displace other nationalities’ vessels currently participating.

Upwards trend foreseeable
Newly constructed capacity is the most visible and transparent growth element in the China-owned fleet. Other influences determining the outcome are secondhand vessel purchases on the international market, sales of vessels to that market and existing tonnage sold to shipbreakers in China or other countries within the global ship recycling market. These transactions are usually more difficult to track and monitor comprehensively, and therefore overall estimates rely to some extent on guesswork.

Consequently forecasts of the China-owned fleet’s future growth are just a broad indication of the likely magnitude of changes. The longer ahead predictions stretch, the greater the uncertainty surrounding calculations. Evolving freight market trends and expectations could have significant effects on secondhand sales and purchases volumes, while scrapping decisions also could be affected by freight rate levels and market activity, especially when vessels are employed in international cross-trades where China is neither importer nor exporter of the cargo carried.

Nevertheless, despite these imponderables, it seems arguable that a foreseeable trend in the China-owned fleet is further substantial expansion over the next few years. China’s position as the world’s second-largest shipowning country probably will be consolidated.

The Panama Canal is a wonder of the modern world – here’s how it plans to reduce shipping emissions

Roughly 80 kilometers long, the Panama Canal connects the Atlantic and Pacific oceans. A wonder of modern engineering and design, 13,000 to 14,000 vessels pass through the canal each year.

By reducing the distance ships need to travel to reach their destination, the canal helps to reduce fuel consumption and, in turn, greenhouse gas emissions. During its lifetime, it has helped prevent the emission of around more than 700 million tons of carbon dioxide (CO2).

The shipping industry has an impact on the environment. In 2012, international shipping was responsible for an estimated 796 million tons of CO2 emissions — around 2.2 percent of total global CO2 emissions that year, according to the International Maritime Organization.

“The original Panama Canal was built between 1904 and 1914, a 10-year effort,” Jorge L. Quijano, CEO of the Panama Canal Authority, told CNBC’s “Sustainable Energy.”

“We are basically a short cut between the Atlantic and Pacific and to do this we use locks — so you go up 85 to 87 feet in elevation. Then you cross the continental divide on the lake (Gatun Lake) and you come down to zero-level elevation, which is… the Atlantic Ocean.”

The impact of the canal on the shipping industry has been significant — so much so that a specific type of cargo ship, the Panamax, has been designed to fit its dimensions. “It’s basically a vessel that’s 106 foot wide and… 965 foot long,” Quijano said.

Between 2009 and 2016, an extensive construction project saw the canal undergo a significant expansion when a third lane was built. This allows a larger type of vessel, the Neopanamax, to pass through. At the end of July, the 4,000th Neopanamax vessel transited through the expanded canal.

“We’re now looking at a vessel size that can carry as much as three times the numbers of containers that you could carry on the old Panamax locks,” Quijano said.
Source: CNBC

The Global Container Shipping Industry since the Hanjin Collapse

In August 2016, Hanjin Shipping Co., at the time the world’s seventh largest container carrier, sought bankruptcy protection. It was the largest bankruptcy in shipping industry history. On February 2, 2017, the Seoul Bankruptcy Court declared that Hanjin Shipping would be liquidated, as restructuring its debts would be “prohibitively expensive.” But just how big was this debt load?

Hanjin Shipping had originally admitted to the equivalent of $5 billion in debts. Once the bankruptcy court got to work, there were nearly weekly announcements that more debt had been found, tucked away in nooks and crannies of the once glistening edifice. In the end, it was determined that Hanjin, when it entered receivership, actually had $10.5 billion in debts.

Hanjin had been tripped up by, among other factors, a problem that plagues the container shipping industry: overcapacity. And despite Hanjin’s liquidation, that overcapacity is getting a whole lot worse.

As of June 2018, all of the top 13 container carriers bar one had added capacity compared to a year earlier. The lone contrarian was Hyundai Merchant Marine (HMM), which is presently exiting the Transatlantic market altogether and as such is eliminating capacity. But the other 12 big container carriers more than made up for it. Here are some standouts:

Zimm Integrated Shipping Services (Israel) increased its capacity by 24.5%.

Orient Overseas Container Line (Hong Kong) added 18.4%.

CMA-CGM (France) added 16.3%. It also ordered from two state-owned Chinese shipyards nine 22,000-TEU (Twenty-foot Equivalent Unit) container carriers that will be the world’s largest when deliveries start next year. Here is a current record holder at 18,000-TEU. Note the tiny 40-foot containers stacked on top (image via CMA-CGM):

COSCO, a state-owned product of China’s “command economy,” added 12.4%.

Maersk Line, the largest carrier by capacity, ahead of COSCO, added 10.8% in capacity.

ONE (Ocean Network Express), a brand-new company formed from the container divisions of Japan’s top three shipping companies (Mitsui-O.S.K., Nippon Yusen Kaisha and K-Line) added 7.9%, despite many promises to the contrary.

Including HMM, the average capacity increase for these 13 already huge shipping companies was 8.5%. Including all companies, big and small, container carrying capacity worldwide increased by a 9.3% year on year.

As a result, despite surging transportation inflation worldwide, the China Containerized Freight Index (CCFI), which tracks contractual and spot-market rates for shipping containers from major ports in China to 14 regions around the world, at 821 on Friday, has not fully recovered from its brutal collapse that bottomed out at 636 in April 2016. Before the collapse, it had ranged consistently above 1,000 and periodically above 1,100:

Note that just like the Baltic Dry Index, the CCFI is not a measure of trade volume, but a measure of how expensive (or cheap) it is to ship goods by sea around the world.

Only part of the collapse of the containerized freight rates in 2015 and 2016 was due to overcapacity. Another major factor was the plunge of the price of oil, and therefore of bunker, the fuel for these giant container ships.

With the CCFI well below 1,000 since 2015, while bunker prices have been rising since 2016 along with the costs of emission compliance, profits are being eroded, and momentous changes are sweeping through the industry.

Above mentioned ONE can be considered one of the poster children for this “brave new world”: it started operations on April 1, 2018 (the beginning of the fiscal year in Japan), and during its first quarter of existence has already managed to lose $120 million.

Japanese shipping companies have a time-honored tradition of ignoring losses until they become too large to be ignored, and then there’s always a big scandal followed by an emergency bailout, merger or takeover. So a measly $120 million in losses in a single quarter is of no concern to them.

AP Moller-Maersk, the parent company of Maersk Line, bought Hamburg Süd from Dr Oetker KG of Germany for €4.3 billion. In 2013 Hamburg Süd had attempted a merger with Germany’s other shipping giant, Hapag-Lloyd, but Dr Oetker KG pulled out when a satisfactory financial package could not be agreed upon.

Hapag-Lloyd then merged with perpetually troubled Gulf carrier United Arab Shipping Company (UASC), resulting in a curious ownership situation. Due to previous mergers and share swaps, the largest shareholder of the “new” Hapag-Lloyd is Chile’s Grupo Luksic (20.7%), followed by three that each own 14%: Kuehne + Nagel AG (Germany, run through a shell company in Switzerland); the City of Hamburg; and Qatar’s national wealth fund, QIA. Saudi Arabia’s Public Investment Fund owns 10%. The rest is free float.

This group of shareholders has recently started looking for a further merger, but recent negotiations with CMA-CGM broke off due to anti-trust concerns.

Everyone has been keeping an eye on COSCO. It announced last year to great fanfare the purchase of Orient Overseas (International) Limited (OOIL) of Hong Kong for the equivalent of US $6.3 billion.

OOIL has long been one of the most profitable shipping companies worldwide. The fact that it is majority-owned by the Tung family, one of Hong Kong’s most powerful and richest clans, surely doesn’t hurt.

OOIL’s container division, Orient Overseas Container Line (OOCL), ranked as the seventh largest container carrier by capacity when COSCO put forward its offer. Stock markets uncorked the champagne and the financial media went into the usual hyperbole to sell yet another “deal of the century.” As the purchase process made its way through anti-trust agencies around the world, it seemed like a done deal until April 2018, when it run into two snags.

The first snag is the Trump Administration. In 2011, OOCL struck a deal with the Port of Long Beach to finance a large-scale modernization and expansion of the Long Beach Container Terminal (LBCT) in return for majority ownership. At the time, OOCL was owned by a wealthy Hong Kong family, so nobody raised any objections.

Now things have changed: The Trump Administration has tasked the Committee on Foreign Investments (CFIUS), a panel of experts from 17 government agencies, with deciding if the LBCT constitutes a “strategic asset” and, if so, if it can be owned by a company directly controlled by a foreign government locked in a trade war with the US.

COSCO has already extended an olive branch, offering to sell the LBCT after the merger “at cost” if a buyer can be found. But until the CFIUS issues a ruling, the situation has stalled.

The second snag is the Chinese government itself. Despite being a state-owned enterprise, COSCO had to seek approval for the OOIL purchase from the Anti-Monopoly Bureau in Beijing. Initially it seemed little more than a formality, but deadline after deadline has passed without the Bureau issuing a ruling.

Neither COSCO nor the Chinese government have provided any explanation even after the last deadline, June 30, 2018, came and went. We’re left in the dark as to the motives, but China’s highly complicated power structure and the even more complicated relationships between Hong Kong and Macau “godfathers” and the Mainland government most likely have a hand in it.
Source: Wolf Street

Suez Canal Grinds to a Halt after Multi-Ship Groundings, Collisions

Suez canal
illustration; Image Courtesy: Wikimedia under CC BY-SA 3.0/AashayBaindur

The Suez Canal, Egypt’s busiest waterway, has been experiencing traffic mayhem over the past two days as multiple groundings and collisions brought the canal to a standstill.

The drama started with the grounding of a containership on July 15, which has been identified as Aeneas.

The 63,059 dwt containership grounded during its transit at about 1830 hours local time, GAC Egypt reported.

It was the 20th in the Southbound convoy of 27 vessels. Initial reports indicate that the ship suffered an engine failure that led to the grounding.

Suez Canal tugs towed the stricken boxship to Suez outer anchorage at 01.36 hours on July 16 and the canal was cleared, GAC reported citing Suez Canal Authority.

“Some of Southbound ships that had been behind the grounded vessel cleared the canal. Only four were detained and resumed their transit at 0300 hours today (July 17),” GAC said.

The incident was followed by the grounding bulk carrier of 39,929 dwt on July 16, identified as Panamax Alexander.

The 39,000 dwt bulker was behind the the stricken containership in the Southbound convoy and run aground having collided with another bulker right behind it.

Two bulkers, Sakizaya Kalon and Osios David, are also anchored in the canal area, today’s data from Marine Traffic shows.

Based on the latest information from the Suez Canal Authority, the grounded bulker was refloated on Monday afternoon and has arrived at the Great Better Lakes.

As of today, the Suez Canal is ready for convoys to resume transiting, the authority said, however, dozens of ships have been delayed.

The transit arrangement for delayed convoys from Monday and Tuesday have not yet been announced, GAC said.

The 18 ships whose transit was interrupted on July 16 resumed their voyage Southbound early this morning and are expected to start exiting the canal later today.

As for the Northbound convoy, only 6 ships entered the canal and they are waiting at Great Better Lakes. Around 12 ships remain waiting at Suez anchorages.

There are 25 vessels that were scheduled to start their Northbound transit today and they are still waiting at Suez anchorages for SCA transit arrangements, GAC informed.

With regard to the Southbound voyage for today, only 11 ships from total 29 ships entered the canal and the rest of this convoy is still waiting at Port Said anchorage for further instructions.

World Maritime News Staff; Image Courtesy: Wikimedia/AashayBaindur under CC BY-SA 3.0 license

Fuelling the ships of the future

By 2020, the global shipping fleet will be required to reduce greenhouse gas emissions by 50% and switch to low-sulphur fuels, a move that is expected to radically improve air quality. The recent decision pushed through by the International Maritime Organisation, the United Nation’s leading shipping agency, is one of the biggest revolutions in maritime history. Its effects will be felt the world over, by refineries and ship owners as well as trading hubs and ordinary consumers at the gas pump.

This is good news for the environment. According to a recent report by the National Resources Defense Council, with ships allowed to burn fuel with sulphur levels that are up to 3,500 times higher than permitted in on-road diesel, one container ship cruising along the coast of China emits as much diesel pollution as half a million new Chinese trucks in a single day. The major overhaul shows that the industry is finally making the transition from thick, sulphur-rich bunker fuel to cleaner, more environmentally friendly maritime fuel.

But in order to make sure that these changes have a lasting impact that goes beyond the shipping industry we will need to embrace the full potential of marine fuels and liquefied natural gas (LNG) and create a new culture of transparency, although within the International Maritime Organisation (IMO) itself.

The IMO ruling to push the sulphur cap for bunker fuel down to 0.5% will affect 70,000 ships and will be a game changer for marine fuel. More broadly, the wider commodities industry, from coal to oil to sugar, is likely to face a price hike. No sector will be immune to these changes as the shipping industry carries almost 90 per cent of world trade. Airlines and travellers worldwide are also likely to be affected due to a knock-on effect creating higher fuel prices.

So where do we go from here? There is no silver bullet to the post-2020 scenario. Alternatives include using sulphur-rich fuel oils alongside so-called scrubber systems, exhaust gas cleaning systems, a technology which also has many drawbacks. The cost of investing in scrubbers can exceed US$10 million per ship. The low margins of the sector mean that ship owners are understandably reluctant to make these investments.

That is why the shipping sector must create a general consensus for post-2020 bunkering, one that will help cut costs and improve energy supply and security. Low sulphur fuel oil and liquefied natural gas are the way forward. They are credible solutions for energy stakeholders seeking an economic and environmentally sustainable option. LNG bunkering contains almost no sulphur, produces low greenhouse gas emissions and has a proven technological track-record.

Looking to the future, it is important that the shipping sector takes steps to harness the full potential of LNG as well as offset the potential consequences of the new regulations pushed through by the IMO. To do this, we first need to address the likely challenge of millions of barrels of high sulphur bunker fuel being displaced as a result of the new limits. This is because the marine market has traditionally been a major outlet for the refining industry.

Second, we will need to do the maths and work out the logistics of sourcing high volumes of LNG for bunkering in line with domestic and industrial needs. This will involve addressing the question of supply, mindful of the fact that in the short-term low-sulphur fuels will dominate until large scale consumption of LNG takes hold across the bunker sector.

Finally, a new culture of transparency has to take root in the shipping industry, encompassing all major players – including the IMO. A report published this month by Transparency International, the global corruption watchdog, highlighted several accountability shortcomings that are weighing down the Organisaton. These must be addressed if the IMO is to deliver on its ambitious and honourable goals.

The IMO’s ground-breaking changes are essentially a force for good. And they are no doubt the first of many steps aimed at making the shipping sector less of a menace to the environment. This is a unique opportunity for energy stakeholders, big and small, to stay ahead of the curve and rethink how we do business.
Source: New Europe

World’s largest container vessels under construction in Shanghai

Construction of two container ships with the carrying capacity of 22,000 TEUs, which would make them the largest container vessels in the world, began on Thursday, the reported.

The two are among nine 22,000 TEU vessels deal signed by French container shipping operator CMA CGM and China State Shipbuilding Corporation (CSSC) in September last year.

Built by Shanghai-based Jiangnan Shipyard and Hudong-Zhonghua Shipbuilding, the two container vessels measure 400 meters in length, 61.3 meters in breadth and 33.5 meters in depth. The deadweight of the box ship is 220,000 DWT, which can contain 1,000,000,000 iPhoneX (with standard packing box). Moreover, it can still hold 2,200 4-foot refrigerated containers, accounting 20 percent of the whole TEU.

Besides, they are also the world’s first giant container ships propelling with engines burning liquefied natural gas, a technology breakthrough for environmental protection. They have distinctive advantages compared to the current ships using heavy fuel oil: Up to 25 percent less CO2, 99 percent less sulphur emissions, 99 percent less fine particles and 85 percent nitrogen oxides emissions.

The two vessels are expected to be delivered in 2019.
Source: ChinaDaily