The following article entitled ‘Views and concerns of a Greek and an Asian shipowner as 2020 approaches’ first appeared in the June edition of the BIMCO Bulletin here.

It interviews Panos Zachariadis, the Technical Director of Atlantic Bulk Carriers Management, Greece and Jeremy Nixon, CEO of Ocean Network Express (ONE), Singapore; the article below has been shared with Manifold Times:

Are the challenges and possibilities the same for a Greek bulk carrier and an Asian container shipping company when it comes to the sulphur cap? The Bulletin has spoken to both and they have different views and concerns ahead of 1 January:

Which strategy have you chosen to comply with the new sulphur regulation?

Zachariadis:
“The decision was taken quite early. In the beginning, we contemplated whether we should install scrubbers or not, but, finally, we decided not to. We will comply with the new regulation by using whatever compliant low-sulphur fuel is available.”

Nixon:
“We are going for the low-sulphur compliant fuel for the vast majority of our fleet, and are not focused on LNG or scrubbers, although we have the option to fit scrubbers to some of our core fleet vessels in 2020 if absolutely necessary.”

Why this strategy?

Zachariadis:
“Our fleet consists of small to medium-sized bulk carriers, mostly Supramax and a few Panamax. That means we have a rather small fuel consumption per day, so the pay-off period of a scrubber becomes quite long – plus, it is a big upfront investment. Another reason is the big uncertainty of whether heavy fuel oil will be available, especially in the very strange ports in which we sometimes find ourselves, such as in Africa and South America. Even in the US Gulf, we have our doubts that heavy fuel oil will be easily obtainable. One more thing that goes against scrubbers are the concerns over the environment and open-loop scrubbers.”

Nixon:
“As a container shipping company, we have a reasonably clear understanding of our long-term schedule. We know which vessels will be in which ports on which dates, as we start the countdown during November and December. So, choosing the compliant fuel strategy means our team can work out what the last available bunker port is for each vessel, and they can work out a long-term schedule to try to ensure the availability of the right bunkers in those particular locations. It also means the team can work out an option B, C or D where there are indications that there may be some initial shortfall.”

What are your concerns when it comes to compliant fuel?

Zachariadis:
“I worry a lot about the safety of the fuels I am going to get. I do not worry so much about the availability. I believe there will be compliant fuel – my question is, what kind is it going to be and will it be safe? A lot of suppliers will start doing blends and a lot of these might be unstable. If I get the fuel from reputable majors, I am sure it will be OK, but thousands of traders will do their own mixing and their own blends, and – as long as it is below 0.50% – they will consider it safe. That might end up in my ships. We are missing some guidelines about whether fuel with a high percentage of distillate will be stable and safe. The ones that are out there now have proven to be not so stable. In addition, because of the nature of our tramp business, many of our ships do not have fixed voyages and fixed routes. One of the biggest problems is knowing what voyages I have ahead, in order to plan.”

Nixon:
“We tend to run our services on specific geographical loops – vessels operating on exactly the same loop rotation. Every four to eight weeks, for example, they come past the same bunker port. So, while we get assurances from the refining industry that there will be enough compliant fuel, our concern would be if there is an initial shortfall. Also, we will be trying to avoid mixing different types of low-sulphur fuel. Another potential concern is whether the regulators and governments in every country will make it very clear that fuel compliance is mandatory and that checks will be taking place. We do not want to see a situation where there is some flexibility around non-compliant fuel, because then we no longer have a level playing field.”

How much of the extra fuel cost will you be able to pass on to customers?

Zachariadis:
“That will depend on the market. If the world economy is doing well, you can pass more of your expenses on to consumers. It depends if freight rates are high or not. If the freight rates are low, sometimes we cannot even pass the actual cost of today’s fuel oil price to the consumers.”

Nixon:
“We all need to comply, and that means a potentially significant increase in costs. We bunker around 4.3 million tonnes of fuel per year. We are not in a situation where we can absorb the expected increase in fuel cost. We have no other option but to pass it on 100% to our customers. That is, passing on whatever the premium differential will be between the 3.5% and 0.50% compliant fuel – and that is our intention. The whole industry will have to do that.”

When it comes to 1 January 2020, what could go wrong?

Zachariadis:
“Issues with unstable blends. I think we will see an increase in ship troubles, engine stops and so on. To what extent, I do not know, but I believe some of it will be because of the fuel and some will have to do with crew training. I think the increase in incidents will be caused by unstable blends and wrong moves by the crew in switching the fuel type.”

Nixon:
“I think, quite simply, that the availability of compliant fuel is not as available as the oil companies and refiners have indicated it will be.”

Having come this far in your own planning, what is your advice to shipowners preparing for 2020?

Zachariadis:
“Do not leave it till the last minute. I consider at least two months for each ship to clean the tanks and get rid of the non-compliant fuel. Two months, if everything goes right, but preferably three.”

Nixon:
“To accelerate their planning to give themselves as much time as possible, and not to be hoping this regulation will suddenly be lifted at the last minute. In our view, this will go ahead. It will happen and we all just have to get on with it.”

Published: 25 July, 2019