Δευτέρα, 12-Νοε-2018 15:16
Shipowners' "civil war" threatens economies and households
By Harris Floudopoulos
A peculiar "civil war" has erupted among ship-owners worldwide. A clash of interests, in which Greek shipping, as the leading one in the world, has also been entangled. This is a case involving literally existential dimensions for the traditional small and medium-sized Greek ship-owner who usually has few and not always new ships. The catalyst is the forthcoming application of the new 0.5% sulfur content cap on marine fuels from January 1, 2020, less than 14 months from today. This "war” is raging between big, or better, companies having easy and competitively priced access to capital markets, and small ones, that is, the ones with no easy, if any, financing. Especially for investments that have no profitability.
But let's take things from the beginning. Compliance with the Regulation for the use of reduced sulfur fuels can currently only be achieved in two ways: either using reduced-sulphur content fuels or using fuel desulphurization equipment. These are the so-called scrubbers, the purchase and installation of which, however, translate to significant costs. How significant? From $2 to $4 million for each ship. A ship that may not be worth more than a few million dollars and therefore it is totally unprofitable to equip it with a scrubber. And the alternative, the use of the most expensive low-sulfur fuels, is not always possible since there are not enough quantities of such fuel internationally produced. Other solutions, such as blending even cleaner fuels with traditional marine fuel to achieve lower sulfur content, are highly controversial as it has not been proven that these are stable and will not cause damage to machines and ships or even more will not lead to accidents.
So many of those who have the ability to find the funds, mainly large listed groups that turn for these amounts to the capital market or their existing creditors, opt for the solution of the scrubber. With scrubbers they can burn the old high sulfur and cheaper fuels and collect the sulfur with these systems. Or not; The answer comes from experts and environmentalists and is negative. The use of scrubbers, most of which use open loop to filter out exhaust gases, simply carries the sulfur load into the sea. A series of studies recently published in the international media, such as the Wall Street Journal, the Guardian and the Financial Times. note that the use of the scrubber is at least controversial. A study by the German environmental organization, UBA, states that "the use of scrubber causes environmental degradation through short and spatially localized ph lowering, increase in temperature and water turbidity, and the emission of pollutants of sometimes resistant materials." In his report, the UBA is clear that using cleaner fuel was preferable to processing high sulfur fuel with a scrubber.
Why is this a cause of "civil war" among the ship-owners? Because the smaller ones cannot find the money to install these controversial scrubbers or withstand the much higher costs of "cleaner” fuels. And since the backbone of Greek shipping is not the thirty or forty major, listed or not , shipping companies but the six hundred to seven hundred small ones with one to five ships, they are threatened with extinction. So the "big" will push out the "small" in one scoop and not only in Greece but among all ship owning nations . But this means a massive distortion of competition.
It is noted that currently more than 20% of the world-wide fleet of 95,000 ships is over 15 years of age and is not suitable for additional upgrading investments according to Wood Mackenzie but only needs replacement. In any case, the cost of adjusting shipping to new environmental regulations is estimated at tens of billions of dollars a year. Only the cost of using new sulfur-reduced marine fuels from 2020 is likely to cost $ 24 billion in total shipping, while it cannot be ruled out to reach $ 60 billion, according to a study by the energy specialist Wood Mackenzie.
Of course, the extra costs that this entails for transport and world trade, 90% of which is seaborne, will be borne by consumers around the globe, starting with higher fuel prices at gas stations. If anyone has any doubt, it is enough to read the recent statements of the chief executive of the world's fourth largest liner company, French CMA CGM, Rodolphe Saade, who confirmed the industry's intention to transfer the extra cost to the newer more expensive fuels to charterers starting a domino of revaluations that will reach the household budget.
This issue has not escaped the attention of the White House, which has realized that the whole development could lead to higher gasoline prices in US outlets in a pre-election year. So the US administration is reportedly promoting the adoption of a transitional period. But this is only a half-meter in a case that is lacking clean solutions, such as the horizontal obligation of all to use cleaner fuels and refineries to produce them at competitive tariffs. And here lies the third party of the "war of interests” that has broken out: The international refinery industry sees a massive turnaround in products with higher profit margins such as reduced sulfur fuels, but it is not clear if it is ready to produce them without pushing higher prices of other products such as unleaded or diesel fuel. This is because the large quantities demanded by shipping mean that existing production capacity should shift to new marine fuel at the expense of other products and thus altering demand supply fundamentals towards higher prices.
It is easy to see that the International Maritime Organization (IMO) decision to use fuels with a sulfur content of up to 0.5% from 2020 onwards has been a hasty decision that neither its effects have been properly calculated nor solved any problems without creating other. In this respect, perhaps the revelations of The Economist magazine are relevant:
Turning to lighter sulfur fuel on ships could increase the price of diesel for trucks by 50% and for aircraft fuel by 30-40% in 2020. The resulting rise in global transport costs, The Economist says, would hit world trade and would cut 3% of America's GDP and 1.5% from the rest of the world by 2020.
Some studies find, according to The Economist, that with the burning of heavy fuels (high sulfur) the industry slows global warming as the cooling effects of sulphur emissions outweigh the rise in temperature caused by carbon dioxide emissions. Scientists at the Center for International Climate and Environmental Research in Oslo estimate that clean shipping has reduced the anthropogenic global warming by 7% in 2000. The new IMO rules will cancel out much of this. Some estimate that the use of lower sulfur fuels after 2020 will reduce shipping cooling by about 80%.
The warmest of the shipping agents underline that the industry is not against the reduction of sulfur in fuels but on equal terms for all and without ambiguous solutions of ambiguity as scrubbers. Something that may very well be done by gradually over the years implementing the measure on fuels with sulfur content of no more than 0.5% or 1%, from 3.5% today.
It is also a matter of time until major environmental organizations such as Greenpeace and WWF or even plain activists deal with the issue and oppose the use of scrubbers.