SHIPPING giants Maersk and Hapag-Lloyd appear to be in agreement about how to navigate through the challenges presented by the mandate by the International Maritime Organization that ships start using low-sulphur fuel beginning on January 1, 2020, despite having set very different courses for their companies over the next several years.
Speaking at the recent TPM19, a Journal of Commerce conference that focuses on issues surrounding the trade between Asia and North America, Soren Skou, CEO of Maersk, and Rolf Habben Jansen, CEO of Hapag-Lloyd, both said that their companies will insist on floating bunker clauses as they negotiate contracts with shippers in the transpacific for the 2019-20 contract year.
Mr Skou said about half of Maersk's business is done through contracts. "I would be surprised if any of our competitors would be willing to sign long-term deals without a mechanism to adjust for fuel prices."
Hapag-Lloyd's CEO Mr Habben Jansen also said that his company will not write "all-in contracts" in which the carrier takes the risk for changing fuel prices, saying "the risk is too high".
He added that the vast majority of customers have accepted his company's new fuel formula or proposed formulas of their own that are close enough to Hapag-Lloyd's to be acceptable.
Transpacific contracts typically run from May 1 to April 30, and the industry expects to see much higher fuel costs as a result of the IMO requirement that ships use fuel with no higher a sulphur content of 0.5 per cent after January 1, unless their ships are equipped with "scrubbers" to remove sulphur from engine exhaust. Currently most ships use a residual fuel with a high sulphur content of 3.5 per cent.
Mr Skou said the move to the cleaner fuel was a good thing because of the role that sulphur particles play in causing respiratory disease and environmental problems such as acid rain, American Shipper reported.
But he noted it will come at a considerable cost to Maersk - an estimated US$2 billion to $2.5 billion increase for Maersk alone and $10 billion to $15 billion for the container shipping industry.
The cost is so high that if carriers do not charge for the higher fuel prices they could be driven into bankruptcy, Mr Skou said.
Mr Habben Jansen believes that low-sulphur bunker fuel will be available in major bunkering ports so that container carriers with ships travelling on regular routes should not have trouble obtaining fuel. He allowed it might be more difficult for trampers that may have to find fuel in smaller, remote locations.
Hapag-Lloyd is installing scubbers on 10 ships. The first of those ships will be delivered by the end of this month. As a result of its purchase of United Arab Shipping Co in 2017, Hapag-Lloyd acquired 17 large containerships that are LNG ready. The company plans to convert one of those ships to run on liquefied natural gas next year.