Paying up for cleaner air

On 1 January, all ships sailing in certain parts of the world must use much cleaner, more expensive fuel. The new rule will have a significant positive impact on the environment and a proportional impact on business, if properly enforced.

SF Maersk Line
New regulations will reduce the allowable sulphur content in fuel by 90% for vessels traveling within 200 miles of North America’s coasts, in the English Channel and Baltic and North Seas.

400

Estimated number of ships out of the entire Maersk fleet of vessels that will be required to use the new 0.1% sulphur fuel.

Imagine going to the gas station to fill your car and finding out that the price of fuel had increased 50%. Okay, you either pay or you don’t.

Now imagine a different scenario: The gas pump has a sign saying a new law requires you to use this more expensive fuel but ONLY when you drive in designated areas. However, in some of these areas the police are numerous, well-equipped and known for handing out stiff fines; in the other areas, they are almost non-existent.

Would you be tempted to buy the new expensive required fuel only when your travel took you to the heavily policed regions?

Weak enforcement a concern

The situation described above is what the shipping industry faces when new sulphur fuel regulations go into effect 1 January 2015. From that day forward, all ocean-going vessels traveling within 200 miles of North America, in the English Channel, the North Sea and the Baltic Sea must use fuel with less than 0.1% sulphur, compared to the current maximum level of 1.0%.

The “heavily policed” region represents North America, where authorities are numerous and fines are large for rule breakers. In the European and Baltic regions, the situation is very different.

“Maersk will comply with the new rule, period,” says Niels Bjorn Mortensen, Head of Regulatory Affairs for Maersk Maritime Technology and Maersk’s representative.

“What we want to ensure is that regulatory enforcement is consistent and strong enough to safeguard the environmental benefits and ensure a level playing field for all ship operators facing these rules.”

Niels Bjorn
Niels Bjorn Mortensen, Head of Regulatory Affairs for Maersk Maritime Technology and Peter Normark Sorensen, Head of Bunker Operation for Maersk’s fuel buying arm, Maersk Oil Trading.

There is a significant amount of preparation that needs to be done in Maersk Line to meet the new low-sulphur fuel requirements in the ECA regions, and that’s what we are focusing on. In Maersk Liner Business we support regulation and we want to be in full compliance from day one on this. We all have to be ready and pull in the same direction.

soren

SOREN TOFT, CHIEF OPERATING OFFICER, MAERSK LINE

Big Costs, Big Benefits

The heavily populated coastal areas included in the ECA zones will have much cleaner air as a result of the switch, cutting sulphur pollution from vessels traveling in these areas by 90% compared to today.

Approximately 40% of the entire Maersk fleet of vessels, nearly 400 ships, will be required to use the new 0.1% sulphur fuel. The cost for this will be an additional USD 250-300 million per year, based on current fuel prices.

“We have been preparing for this day for years within Maersk,” says Peter Normark Sorensen, Head of Bunker Operation for Maersk’s fuel buying arm, Maersk Oil Trading.

“As we get closer to the 1 January 2015 deadline we need to be sure we’re ready to meet the requirement. It affects almost half the Group’s fleet, so it’s crunch time,” he says.

Maersk Oil Trading will be responsible for ensuring a steady supply of the 0,1% sulphur fuel while Maersk Line and Maersk Tankers personnel will be responsible for among other things, preparing vessel tanks and pipes for the switch-over to prevent contamination and ensure compliance, according to Sorensen.

The obstacles to accomplishing this are real, especially in Europe. According to research released in March from shipping analysts, SeaIntel, most countries in the European ECA zones don’t have the fines to match the added costs ships will face with the new fuel or conversely, the potential “savings” from ignoring the rule.

Additionally, the SeaIntel analysis found that only 1% of vessels in the European and Baltic zones had their tanks tested for compliance in 2013 and only three countries – Norway, Sweden and Finland – planned to increase the number of inspections when the new rules take effect 1 January. In 2012, Maersk Line – which has one of the largest vessel fleets in the world – faced only 1 inspection.

Mortensen and others in Maersk have been active in the trade and general media to call attention to these issues. Maersk Line has also been active in the formation of the Trident Alliance, a group of 17 ship operators that has pledged to comply with the rules but also continues to put pressure on European Union member states to pursue better enforcement.