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Guardians of the Seas? (Macro Macchiato 21/10/19)

It was clear from the great majority of delegates to Cyprus Maritime 2019 that the shipping industry is serious about cleaning up its act. On my own panel at the event, Dr Sadan Kaptanoglu, President of BIMCO, reiterated her conviction that delivering solutions to meet the world’s environmental expectations is her priority, which makes it BIMCO’s priority too. I’m sure that most other shipping organisations are in line with the move toward environmental sustainability, while recognising that decarbonisation and sanitation of the physical movement of goods and commodities by sea remains extremely difficult from technical, commercial and financial perspectives.

We are for example only 71 days from the implementation of the IMO 2020 regulations. Still there is uncertainty about how (or whether) rising costs will be passed on to cargo owners, what to do with scrubber waste-water, how the rules will be enforced by jurisdictions with no prior experience of emissions control … and so on. Ship owners have had to adopt a piecemeal approach. Some, like the liner companies, have announced ‘green’ bunker adjustment factors to pass on the cost of using compliant 0.5% Sulphur fuel oil. Let’s see how long it takes for one liner company to cut that in order to fill a ship, given the disappointment of this year’s peak season. Competitors may be forced to follow suit or lose market share. If the choice is between losing money or losing market share, there are bound to be corporate casualties.

Other ship owners, like Euronav (just to pick an example from memory) have acquired cargoes of 0.5% Sulphur fuel oil and are bearing the cost of inventory in order to make certain their ability to keep trading within the letter and the spirit of the new law. In the context of the recent red-hot freight market, tanker owners may be best-placed to cope with potential higher costs for the new fuel.

There is some good news about 0.5% Sulphur fuel oil availability. Fujairah and Singapore report increased storage and availability of the new fuel. The International Bunker Industry Association (IBIA) reports that, in Europe, 0.5% Sulphur fuel oil is now available at Amsterdam-Rotterdam-Antwerp (ARA), at Skaw in Denmark, at Gothenburg in Sweden, at Hamburg in Germany, in the Baltic Sea and at English Channel ports, in Las Palmas, Algeciras and Barcelona in Spain, Gibraltar and Malta, some Italian ports, Istanbul and Novorossiysk.

IBIA expects other large European ports such as Piraeus and Kali Limenes in Greece and Genoa, Italy to follow suit later this month and in November. IBIA reports that most other regions have 0.5% Sulphur fuel oil on offer in at least some ports and that supply of 0.5% Sulphur fuel oil is now outstripping demand in many locations. Meanwhile oil markets agency Argus reports that HSFO stocks are running low, with several large bunkering ports reporting limited availability in the past two months, including in ARA and in Singapore.

According to pricing agencies, 0.5% Sulphur fuel oil appears to be pricing at an average of around USD 150 per tonne more than 3.5% Sulphur fuel oil in Singapore and around USD 180 per tonne in Rotterdam, though the differential has been rising as demand for the new fuel increases. There are now forward curves that buyers can use to manage fuel oil price risk.

No doubt uncertainties will fold into probabilities and probabilities will collapse into certainties as time goes on. Once we are into the meat of 2020, ship owners will be able to take more informed decisions about their individual ships and their fleet profiles. Perhaps there will be a move to order new tonnage with the IMO and other new regulations in mind. Funding that tonnage may well be a continuing challenge, even as shipping presents its environmental credentials to investors. Last week for instance, Teekay Shuttle Tankers launched a “green bond” to finance four new fuel-efficient tankers. The issue raised USD 125 Mn, but brokers put the upper limit of Teekay’s aim closer to USD 200 Mn, suggesting that investors remain cool on shipping as a guarantor of returns. The green bond market outside shipping has numbered around 150 transactions this year with an average transaction size of around USD 375 Mn.


My former colleague Richard Fulford-Smith said recently that oil companies need to support independent ship owners’ efforts to go green with long-term charters. I would take that thought further: if we really are to go green, shipping has to engage in more joined-up thinking. Furthermore, the industries that shipping supports need to consider shipping’s role in their value chains as well as their supply chains. Anyone who has seen one of my presentations in the last eighteen months will know that I leave my audiences with three pieces of advice: to really understand who their top customers are, to understand the journey those customers will go on over the coming decades, and to decide whether they want to join their customers on that journey.

Recently I have come to realise that this isn’t enough. Consider the piecemeal introduction of new regulations and the regional discrepancy in their implementation. Or consider the disaggregated path to decarbonisation represented by for instance the Poseidon Principles for ship finance or the green bond market. There are many positive initiatives taking place, but no agreed common goal (a long-term regret, no doubt). But in agreeing a common goal, shipping as a whole can offer environmental leadership. It’s time for our industry to take the lead in setting the highest environmental standards and in bringing our customers along with us. Instead of being a polluter of the seas to be shamed and criminalised, the shipping industry needs to set itself up as the guardian of the seas, as the staunchest champion of the highest environmental standards, with an unwavering insistence that those who employ ships adhere to – and pay for – the privilege.

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