Liner shipping –it’s all about the sulphur

The Asian Logistics and Maritime Conference 2018 (Hong Kong Convention and Exhibition Centre 20-21 November) will again offer an expert focus on liner shipping during Maritime Forum 2.

Among the urgent topics to be explored at the Forum are rising oil prices and surging debt levels, a new wave of mega vessel ordering, and the continuing trend towards consolidation through alliances or M&A. Together Steve Saxon, a partner with McKinsey & Company, Parash Jain, head of Transport Research, Asia Pacific HSBC, and Nissim Yochai, vice president Trans Pacific Trade, Zim Integrated Shipping Services will analyse the topics and attempt to present solutions or offer advice on how beat to adapt to the current environment.

Looking briefly at the “new wave of mega vessel ordering”. In fact this could be more adequately described as a tsunami. Vessel deliveries of so called mega vessels, or Post-Panamax Containerships with capacity of 15,000 teu and above, have already reached record levels. By July 2018, 22 such vessels had joined the global fleet, raising the total to 115 ships. By the end of 2018 a further eight vessels will join their predecessors, according to Clarkson Research Services’ World Shipyard Monitor Database.

In 2019 a further 24 mega vessels, equivalent to 475,028 teu, will be delivered. In 2020 another 20 mega vessels, equivalent to 420,102 teu, will follow into service. On their own these figures are alarming. Trade demand has been surprisingly healthy at 4.4% but despite that, shipping analyst Alphaliner revealed in August that the idle containership fleet had reached 341,000 teu and could reach 750,000 teu by the end of the year. A further threat to the business is the on-going trade spat between the US and China. Thus far the piling on of punitive tariffs has done little to dampen demand but as both sides continue to up the ante trans-Pacific and intra-Asia trade must suffer.

Mergers within the liner industry continued to feature in 2018 with the successful completion of Cosco Shipping’s acquisition of Orient Overseas Container Line. In addition to this was the coming together of Japan’s three top container Lines, K Line, NYK, and Mitsui OSK Line under the Ocean Network Express banner.

The combined fleet capacity of the top five players almost doubled from 2000 to 2017, rising from 35% to 67%. While the top players have identified no new targets, clearly further consolidation of the sector must be an option for the industry to claw back sufficient freight rates. A dire alternative would be a continuing growth in capacity until such time as the less healthy liner companies simply go out of business.

As the title to this article suggests IMO’s Global Sulphur Cap 2020 is the topic most likely to set the ALMC Marine Forum alight. Ever since the IMO insisted on a 2020 deadline for the global adoption of 0.5% emissions from ships the industry has been talking of little else. With just 16 months to the deadline much remains uncertain as shipowners mull the options of marine scrubbers, various low sulphur oil options or LNG. Whatever the option it will be expensive. Maersk, the worlds largest liner firm has suggested the adoption of low sulphur fuels will add up to US$2bn to its fuel costs

What is certain, particularly in the liner sector is that somebody will have to pay the bill. In the past couple of weeks the biggest players – Maersk, CMA CGM and MSC – have made it clear that they will be passing the burden on to charterers and or shippers.

Maersk was the first to unveil a Bunker Adjustment Factor surcharge, which it will impose from 1 January 2019. Contained within the BAF is the fuel price is calculated as the average fuel price in key bunkering ports around the world, and a trade, which factor reflects the average fuel consumption on a given trade as a result of variables like transit time, fuel efficiency and trade imbalance.

CMA CGM swiftly followed Maersk’s lead with the announcement that for it to comply US$160 would have to be added to the cost of each 20ft box. MSC has been less open about its plan of action, merely stating that the charge will reflect a combination of fuel prices and specific line costs.

Needless to say shippers are up in arms. Sunny Ho executive director of the Hong Kong Shippers Council told shipping website Splash247, “Shippers are not being involved in the process, and being able to negotiate with carriers, on both the adjustment mechanism and charge level.”

The Global Shippers Forum, secretary general also reacted angrily: “GSF will be taking this piece of financial engineering apart piece by piece as we suspect this has more to do with rate restoration than environmental conservation.

“Some of Maersk’s biggest competitors are taking this different approach, and customers will be looking at the options and voting with their wallets,” Mr Hookham was quoted in an American Shipper report.

Meanwhile, Robert Keen of the British International Freight Association complained: Robert Keen, BIFA Director General said: “By any measure, these are very major increases, and they will be received negatively by BIFA members’ customers.

“While the shipping operators may say that the new BAFs are needed to cover the cost of switching to low sulphur fuels or fitting exhaust ‘scrubbers’, rises of this magnitude are unjustified and could be construed as blatant profiteering by shipping lines determined to exploit the situation.”

With shippers and lines heading for a confrontation the Maritime Forum is set to be a highlight of ALMC 2018.

To ensure you do not miss this game changing debate book your place at ALMC 2018 by following this link: www.almc.hk

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