HMM: Low-sulfur fuel rule to be as transformative as mega-ships

HMM: Low-sulfur fuel rule to be as transformative as mega-ships

Leaders of the container shipping industry from the Netherlands to South Korea are growing increasingly vocal about the looming International Maritime Organization regulation.

SHENZHEN — The low-sulfur fuel rule taking effect in 2020 is likely to usher in “a paradigm change” driven by new maritime technologies, with an industry impact akin to the introduction of mega-ships, according to the president and CEO of Hyundai Merchant Marine.

C.K. Yoo also said a collective response is required to effectively address the critical challenge of meeting the new emissions reduction regulation that bunker fuel contain only 0.5 percent sulfur. A recent survey of the maritime industry by ExxonMobil found that 70 percent of respondents felt the industry was unprepared.

Yoo used his keynote speech at the industry’s TPM Asia Conference in Shenzhen to highlight the scale of the challenge to the meet the regulation, including the potential magnitude of costs involved, which some have said could be upwards of $60 billion.

“Maritime technologies have in the past been significant enough to change the nature of the industry from cyclical in the past to technology driven today, and a new paradigm change is likely with the environmental regulation, which will impact it in a very unprecedented manner.”

He said a doubling of efforts was required on the part of the industry to effectively address the challenge given the short time frame involved. An IHS Markit report on the issue from August found that the shipping and refining industries have taken a “wait-and-see approach” that “means that the 2020 implementation date will result in a scramble.”

Although the industry was committed to the principle of the new regulation, which is “for the sake of the common good,” Yoo said there are significant concerns over the operational and commercial challenges, as well as numerous uncertainties in terms of how to comply with the the new regulation.

Many operators fear that compliance will be lax, rewarding those who have not taken the appropriate measures. Maersk Line COO Soren Toft on Wednesday morning tweeted out support for a ban on noncompliant fuel and urged “robust” enforcement of the rule.

In the TPM Asia speech, Yoo noted that the introduction of mega-ships in 2010 as a result of the low oil price, combined with lower levels of demand, had resulted in a lengthy period of capacity oversupply and low profitability for carriers.

“In the past, the industry was cyclical and supply and demand would return to equilibrium. But the traditional business cycle has disappeared, and we are now experiencing an ‘L-shaped’ market condition.”

Yoo, who took over at the helm of HMM for the second time in September of last year, highlighted uncertainties and the potential magnitude of the cost burden of the options currently available to ensure compliance. He noted the cost of low-sulfur fuel was currently around 50 percent higher than heavy marine oil and that it was difficult to forecast with accuracy availability of supply and its cost in 2020. IHS Markit forecasts the new low-sulfur fuel will cost between $500 and $650 per metric ton by 2020.

The cost of installing scrubbers that remove sulfur from emissions was between $5 million and $10 million, he added, and the installation process put ships out of action for close to a year, as well as consumed space that would normally go to fee paying cargo volumes. Carriers also have the option of investing in liquefied natural gas-fueled ships.

“A sizable cost is inevitable no matter what option is chosen.

“Given the short time frame before the regulation comes into force, we need to double our efforts to address uncertainties by continuously seeking solutions with support from relevant authorities and maritime technology institutions in order to reduce the cost burden and avoid wasted investments.”

Yoo noted that although previous technical changes that had a major impact on the industry were commercially motivated, the new regulation was for environmental protection and the search for and funding of solutions should be undertaken on a collective basis by all of the stakeholders in the container shipping value chain.

Contact Turloch Mooney at turloch.mooney@ihsmarkit.com and follow him on Twitter: @TurlochMooney.