(Alternatively, they can meet the mandate by investing in
new ships powered exclusively by liquefied natural gas.) It’s
a sweeping mandate that affects all ship line operators and
the approximately 60,000 vessels that ply the world’s oceans
moving some 90% of global trade.
The greening of ocean shipping is expected to have significant health and environmental benefits. Oceangoing
vessels burn an estimated 3. 9 million barrels of fuel per
day, generating about 90% of sulfur emissions worldwide,
according to an estimate by investment firm Goldman
Sachs. The IMO projects that the changeover to low-sulfur
fuels and scrubbers will reduce sulfur oxide emissions from
ships globally by 77% from 2020 to 2025, reducing acid rain
and avoiding some 570,000 premature deaths worldwide
from conditions like strokes, asthma, cardiovascular disease, lung cancer, and pulmonary diseases.
But those benefits will come at a price. Two of the
world’s biggest containership operators, A.P. Møller–
Maersk (Maersk) and Mediterranean Shipping Co. (MSC),
have stated that their costs for compliance and changes to
their fuel supplies due to IMO 2020 will likely exceed $2
billion annually—costs that will inevitably be passed on
to customers. A number of ship lines have already put in
place fuel-surcharge mechanisms for both short contracts
(or spot rates) and long-term contracts to help recover the
majority of the extra expense. As the added costs of compli-
ance ripple through global supply chains, Goldman Sachs
estimates the impact in higher shipping costs could be as
much as $40 billion.
SWITCHOVER UNDERWAY
Ship lines have spent most of the last year getting ready for
IMO 2020. Søren Skou is chief executive officer of Maersk,
the world’s largest container shipping company, operating
725 vessels worldwide that serve 343 ports in 121 countries.
In the company’s recent quarterly earnings call, Skou noted
that Maersk is well prepared for IMO 2020. It started the
fuel switchover in December, has lined up agreements with
low-sulfur fuel suppliers globally, and will “mainly comply
by using low-sulfur fuel in our vessels and scrubbers [on] a
little more than 10% of our fleet,” he said.
All this will cost Maersk a pretty penny. Although the
total cost of its emissions-reduction efforts is unknown at
this point, the company says the additional expenses likely
will run into the billions of dollars. “We cannot pay this
[increased cost] ourselves,” Skou said, adding that Maersk
has focused on structuring contracts and spot rates “so our
customers will help us pay for this.” He noted that the price
adjustments had met with “good understanding” from cus-
tomers and that the company continues to “work on getting
our overall fuel consumption as low as possible, which is
beneficial both for our costs, our customers, and not the
least, the environment.”
Similarly, Hamburg, Germany-based Hapag-Lloyd,
which operates some 230 vessels worldwide, is putting the
majority of its eggs in the low-sulfur fuel basket to achieve
compliance, according to Pyers Tucker, the ship line’s
senior director of corporate development. “We expect that
by the end of 2020, around 15% of our fleet capacity will be
equipped with scrubbers,” he says.
Hapag-Lloyd has instituted a “marine fuel recovery”
mechanism to recoup the additional fuel cost. “While of
course nobody is happy with increased prices, all understand and accept that this is a good thing for our planet,”
Tucker says.
He notes as well that Hapag-Lloyd this year is converting
a 15,000-TEU (20-foot equivalent unit) vessel to liquefied
natural gas (LNG) propulsion. If successful, that could pave
the way for conversion of an additional 16 “LNG-ready”
vessels in its fleet.
