Unknowns of 2020 - BIMCO Bulletin

Unknowns of 2020

TECHNOLOGY AND EFFICIENCY February 2019 The industry may long for the unknowns of 2020. Here’s why. By Lars Robert Pedersen, Deputy Secretary General at BIMCO. For decades, the cost of fuel has been a level playing field. All ships buy and burn the same type of heavy fuel oil, so the price has been similar for all competitors. The ups and downs in the crude price affected everyone equally. Now, for the first time in nearly a century, this is about to change. And the road to full decarbonisation will likely make the difference even more pronounced in the coming decades. The 0.50% sulphur limit is set to introduce a range of competitive differences among otherwise similar operators. By 1 January 2020, every market player will have chosen its preferred method to pursue in order to be compliant. There are several options, and each means different operating costs for companies running similar ships and trading on similar routes. Whichever method and fuel is chosen, the price of each choice will undoubtedly vary – perhaps significantly, perhaps dramatically. That is the scary part. Lars Robert Pedersen It is impossible to predict today how the fuel-price spread between compliant fuel and high-sulphur residual fuel will develop. Shipowners – understandably – worry about whether they are making the right decision about how best to comply. Should they be investing in abatement technology (such as scrubbers) and continue buying cheaper high-sulphur fuel or, instead, absorb the additional cost of the more expensive low-sulphur fuel? History will show which decision proved the most cost-effective and therefore the smartest one to make. Currently, there is no simple answer, as some will have hedged their bets. Others will stake their money on both “horses”. Added to this is the element of ship efficiency. New and far more efficient ships may well help to outweigh some of the negative impacts of the expected spike in fuel costs. New fuels detached from the oil price The shipping industry may well be anxious now, but we should be aware that this is just the first step in what will likely become the norm; the world fleet may increasingly be using different types of fuel, and the level playing field of fuel expenses the industry has enjoyed until now, will disappear. The reason is the decarbonisation agenda. Over the coming decades, this agenda will drive shipping towards the use of low- and zero-carbon fuels, such as ammonia or hydrogen. Prices for these alternative fuels will develop in their own distinct way; often, the new fuels will not be pegged to the oil price, but instead to other underlying commodities. This has already happened with natural gas. The current situation is a major concern: the level playing field is gradually disappearing in terms of fuel costs, and the competitive differences are as yet unknown. But once it takes stock, the industry will surely recognise that it was far easier to face the unknown of the spread between high-sulphur fuel and compliant fuel when both were pegged to the oil price than deciding between a multitude of new fuels with separate pricing fundamentals. Down the line, we will likely look back and long for the good old days when we had at least that certainty; a peg to the price of oil. Lars Robert Pedersen has over 30 years’ experience in the shipping industry, which combined with his insight into IMO makes him a respected authority on technical and regulatory issues. Robert was appointed Deputy Secretary General of BIMCO in early 2010 and leads a team of experts responsible for BIMCO’s technical, security and operational activities. This includes direct membership services and active involvement in regulatory developments related to ship operation at international and regional levels. Before joining BIMCO, he had a career at A.P. Moller-Maersk handling regulatory affairs and technical management of the Maersk fleet of container ships after having spent 7 years as a seagoing officer. Robert holds an unlimited Chief Engineer’s licence.