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HANSA 08-2018

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Schifffahrt | Shipping

Schifffahrt | Shipping Photo: IMO Tariffs and technical regulation… …and not least time-consuming ratification – the »political« side of the maritime industry has huge implications for the day-to-day business. Today, there are several processes, which need to be considered, writes Barry Parker Historically, the great international maritime businesses have been populated by rugged individuals, operating far from land, who strive to control their own destinies. These days, with what can be described as an »onslaught« or »barrage« of regulatory initiatives, each with a monetary cost attached. »Corporate Social Responsibility« (CSR) has been slow to come to the international side of the maritime business; environmental regulations have come from outside the industry, which has then been forced to react to greater societal forces. The challenge for all maritime business is how to measure the »benefits«, and price them into financial calculations. In looking at regulation, one need only look at the post 2000 era to get a sense of its costs on the maritime industry, but also to gain insights into how changes in societal views have slowly been infused into the shipping industry. Notably, offensive and pro-active moves have come from the cargo owning side, which is necessarily far more responsive to broader social currents. Consider Right-Ship, a ship vetting organization formed in 2001, now equally owned by BHP Billiton, Rio Tinto and Cargill. Best known for its ratings, it evaluates shipowners on their quality, safety, and now, greenhouse gas emissions performance. Privately owned and once very media shy Cargill has now taken the spotlight, taking to the press and conference circuit to tout its blend of good business with environmental sustainability. Benefit side of calculation In 2018, the main question raised has concerned the impacts of the widely discussed and well known new IMO rules on sulfur content of marine fuels set for 2020, less than a year and a half away. In June, Star Bulk Carriers, a listed owner of more than 100 drybulk vessels, indicated that scrubbers are already aboard two vessels, with 22 more on order. Research by Deutsche Bank (DB) provides some guidance. In a late 2017 report, DB’s Transport Analyst, Amit Mehrotra, said: »We estimate total cost of scrubber installations to be about 2 mill. $ for the large-size vessel.« As a result of incurring these costs, there will be a benefit side of the calculation (for Star Bulk, and for others). The price »spread« between more expensive low and ultra-low sulfur fuels, on Jan. 1, 2020 and beyond, is anybody’s guess – analysts peg it at 225 $/t, with a likely rise by early 2020. The payback to shipowners ordering scrubbers will come in the form of cheaper fuel. If the spread were to rise to 300 $/t (as demand increases for low sulfur fuels), on a ship consuming 30 t/d of heavy fuel, the return on investment would be 9,000 $/d; a larger vessel burning 40 t/d would see a ROI of 12,000 $/d. In theory, anyway, payback could come quickly, for vessels with high utilization. Greenhouse gasses, notably CO2, have now been a focal point for the maritime industry, excluded from broad international agreements at Kyoto (1997) and Paris (2015). Through the IMO – which first tackled the problem in the late 1990s –, its Energy Efficiency Design Index (adopted in 2011) parameters have seen steadily decreasing CO2 emissions from vessels built since 2015. Its »Phase 3«, ap­ 28 HANSA International Maritime Journal – 155. Jahrgang – 2018 – Nr. 8

Schifffahrt | Shipping plying to vessels that will be delivered in 2025 and beyond, will bring reductions in CO2 of 30% compared to ships delivered during a 1999–2008 timeframe. In April, the IMO went on the offensive, setting a goal for the overall maritime CO2 emissions to be reduced by 50% in 2050 (compared to a 2008 baseline). A leading expert, who has overseen analytical work for the IMO and others, Tristan Smith of University College London, said, »It is likely this target will tighten further, but even with the lowest level of ambition, the shipping industry will require rapid technological changes to produce zero-emission ships, moving from fossil fuels, to a combination of electricity (batteries), renewable fuels derived from hydrogen, and potentially bioenergy.« The massive payoffs from these rules, benefitting the broader societal spectrum, will emerge over decades as reduced CO2 emissions slows the tide of rising temperatures. One set of regulations with a long history full of unproven technologies, regulatory mis-steps and with explicit costs attached, concerns Ballast Water Treatment (BWT). Following the IMO’s adaption of the Ballast Water Management Convention in 2014, it was finally ratified in late 2016. Its initial date of entry into force, Sept 2017, was quickly pushed back to Sept 2019, for vessel that had delivered prior to Sept. 8, 2017. Early adopters faced challenges, bedeviled by differences in testing and verification methodologies between the U.S. Coast Guard (USCG) and other flag states (adopting the IMO wordings). As of late June, nine BWT systems had received approvals from the USCG’s Marine Safety Center, eight of which used filtration technologies. Already on the books are rules that address noise aboard vessels, which were addressed in 2014 IMO amendments to the Safety of Life and Sea (SOLAS) convention. Environmentally sensitive regions are now beginning to address noise below the vessels. Trump, trade wars and trash talk Tariffs and duties, and quotas comprise a different form of regulation. In cases where these restrictions are discrete, aimed at a particular cargo (or group) from a specific country, it’s possible that flows can shift. In late spring, however, fears were mounting that a larger trade war – which would impact overall volumes across multiple cargo types – not just small pockets, was in the offing, as the United States initiated tariffs on steel and aluminum imports which began in April and ratcheted upward in June. Volleys then ensued between the United States and China; by late June, new restrictions were imposed, with threats that numbers could mushroom into cargoes valued at circa 250 bn $. At an industry conference in New York, analyst Adam Kent from Marine Strategies International (MSI) said that impacts from tariffs would be most likely to impact the container and car carrying sectors, rather than drybulk. Chris Weyers, Managing Director at Stifel Financial Corp, said: »Energy has to move … dry cargo has to move …« and he suggested that tanker and drybulk trade flows might shift from one place to another. He added that: »If there really were sustained tariffs, the area that could be affected is the container space.« Concentrating on the trade between the U.S. and China (and disregarding the shifts alluded to by Weyers), London-based analyst firm VesselsValue (VV) has attempted to quantify possible impacts on tanker and drybulk commodities. On the tanker side, VV analyst Court Smith said: »Most of the crude oil exports to China have been on VLCCs, which add substantially to ton mile demand given the length of the voyages. With China dialing back purchases, we expect to see the discount for US oil to widen, penalizing US producers and sending more exports to European and other Atlantic Basin refiners, which will be good for Aframaxes, and bad for VLCCs.« The American Petroleum Institute (API), representing »Big Oil«, has come out against tariffs, for different reasons than VesselsValue. They say: »The troubling news is that the Trump administration’s tariff policies jeopardize U.S. natural gas and oil production – and the broader economy. Like countless other essential industries, the U.S. natural gas and oil industry cannot operate without steel. We use it to manufacture drilling components that produce energy, build pipelines that transport it and operate refineries that convert it to a host of valuable products.« The bottom line: in spite of worries about reductions in trade flowing, nobody knows precisely what the impacts might be. n The trade controversies between U.S. president Trump and China will most probably have an effect on shipping HANSA International Maritime Journal – 155. Jahrgang – 2018 – Nr. 8 29

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