On both sides of the Atlantic, anxiety is rising in the boardrooms of shipping lines transporting containers, bulk and breakbulk to and from North America or between North European ports. They face compliance with tough, costly fuel regulations that will not immediately apply to any other trade lanes.
The Spleithoff Fortunagracht docked at the Port of Antwerp, Belgium
Citing extra costs in the hundreds of millions of dollars, leading players such as Maersk and Hapag-Lloyd have already warned that they will have to pass on the high additional costs to their customers. As of January 1, 2015, ships sailing on US, Canadian and European routes will be compelled to burn much cleaner and more expensive fuel under new environmental regulations adopted by the International Maritime Organization (IMO). They are not scheduled to apply to other global shipping routes, including Asia, until 2020 at the earliest.
North America and northern Europe fall within so-called Emission Controlled Areas [ECAs] where ships will be required to burn fuels with a maximum sulphur content of 0.1 percent. This compares to 1 percent at present and an average three percent worldwide.
The ECAs encompass the Baltic Sea, the North Sea, the English Channel, and areas within 200 nautical miles of the US and Canadian shores.
Derik Andreoli, senior analyst for Mercator International, estimates that carriers will pay up to 70 percent extra for low-sulphur fuel in the ECA areas compared with heavy fuel used in the open oceans. Presently at about $900 per tonne, low-sulphur fuel is about 50% more expensive than heavy fuel oil.
Drewry Maritime Research in the United Kingdom suggests that switching from heavy bunker fuel to marine gas oil would offer the most practical solution to meeting the new sulphur limits in the short to medium term. Otherwise, installing exhaust “scrubbers” is prohibitively expensive while using liquefied natural gas will require very large fuel tanks that will reduce cargo space.
In North America, the fuel issue proved to be the catalyst for the creation of a broad coalition of shippers in major industrial sectors – the Maritime Industrial Transportation Alliance (MITA), based in Beverley, MA.
According to MITA, the North American ECA “not only hurts our fragile economy, it’s also bad for the environment. That’s because, unlike the global fleet of very large transoceanic vessels, smaller horsepower vessels and short-sea shipping operate relatively close to shore within the ECA and often compete with trucking and rail, which aren’t as efficient, safe nor environmentally friendly.
“So in 2015, extremely high fuel prices will not only make those specialized, smaller shipping services less competitive, it may actually hurt the environment as well as our over-burdened roads and other land-based infrastructure.”
In the eyes of some carriers, the regulations threaten to shift cargo to less ‘green” modes.
A recent MITA study supports a narrower ECA zone for lower-horsepower ships, determining that onshore air quality impacts diminished as the smaller vessels sailed farther away from shore, and that they were virtually insignificant at 50 nautical miles offshore.
Thus, MITA wants the 2015 ECA requirements to be revised so ships with no more than 20,000 HP will use fuel with 0.1 sulphur content within 50 miles of the coast but can operate with 1.0 percent sulphur content fuel out to 200 miles.
For its part, the UK Chamber of Shipping has estimated that the new rules will cost its members the equivalent of over half a billion dollars a year. And it points out that new technology that could save them from switching to expensive low-sulphur fuel is barely ready and “could take two years to fit to all our ships.”
As a result, the Chamber has urged for flexibility in the European Union’s enforcement of the rules during a transition period.
Cost Impact Assessed by Fednav
Certainly, the matter is high up on the radar screen at the Montreal headquarters of Canada’s biggest international dry bulk shipping enterprise that transports about 25 million tons of bulk and breakbulk annually.
Paul Gourdeau, executive vice-president of Fednav International Ltd., said in an interview: “The ECA requirement will have a significant cost impact, especially for the St. Lawrence and Great Lakes ports competitiveness since the length of the voyages within the ECA to reach these ports is significantly greater than competing East Coast ports.
“Since most ships will not be fitted with scrubbers or other SOX reduction technologies, they will be required to burn low sulphur gas oil instead of intermediate fuel oil when proceeding in the ECA.”
Gourdeau calculates that the extra cost per ton of fuel will likely be in the US$300 to US$400 range. “This will result in a significant fuel cost increase on those trade lanes.”
“Furthermore,” Gourdeau continued, “many ships have very limited diesel or gas oil storage capacity onboard and may often have to make intermediate port calls for the purpose of resupplying – which will also add cost and time to voyages.”
Maersk & Hapag-Lloyd Responses
Hapag-Lloyd estimates its transatlantic fuel bill will climb by $120 million to US$200 million a year based on current fuel prices and its service network.
Hapag-Lloyd has stated bluntly that shippers will foot the bill.
“For all freight rates with validity in 2015, customers will have to amend their bunker formulas to cover the increasing costs for low sulphur fuel oil,” Hapag-Lloyd said in a recent statement. “Otherwise, Hapag-Lloyd reserves the right to charge an increased LSF [low sulphur fuel] surcharge separately once all cost components are confirmed.”
Early in July, Maersk Line informed its customers to be prepared for a low-sulphur surcharge of up to $150 per 40ft container on North American and North European routes affected by the new regulations. It said its annual fuel bill will increase by $250 million to comply with the IMO regulations.
The Danish carrier expects it will need to purchase 650,000 metric tons of low-sulphur fuel annually as of 2015 – equal to 7% of the total fuel burned by its fleet.
Maersk plans to incorporate the higher average fuel costs into the existing standard bunker surcharge. “We expect that the additional cost to customers in affected trades will be between $50 and $150 per 40-ft container to and from main ports, depending on the transit time inside ECA areas and whether touching ECA areas at both origin and destination.”
