Grappling with the high cost of greening marine transportation

New International Maritime Organization low-sulphur fuel rules are the first step in cleaning up transpacific and other major shipping arteries

A Maersk container ship in transit. The Danish company, which is the world’s largest container cargo ship operator, aims to be carbon neutral by 2050 | submitted

For Waterfront Shipping Co. (WFS) the answer is methanol. For fellow Vancouver-based companies Seaspan Corp. (NYSE:SSW) and Teekay Shipping Ltd. (NYSE:TK) the answer initially will be low-sulphur bunker fuel. 

For consumers at the end of the global shipping chain, the question will be how much the shift to greener ocean carrier fuels will add to their shopping bills, because it is going to significantly increase the operating costs of container ships, tankers and other ocean carriers. 

Maersk (CPH:MAERSK-B), the world’s largest container ship operator, figures it will initially add US$2 billion to its annual fuel bill.

Overall, it could add an estimated US$15 billion to costs in a container shipping industry that is already struggling with a slowing global economy, flat
lining container freight rates and cutthroat competition.

Energy research consultancy Wood Mackenzie estimates that annual global bunker fuel costs could increase by up to US$60 billion as new low-sulphur fuel rules take effect.

So more than the owners of the 5,200 container ships servicing major world trade loops will be covering the costs of higher fuel bills as the International Maritime Organization’s (IMO) new low-sulphur fuel regulations come into force this month.

The IMO 2020 rules cut the allowable sulphur content of marine vessel fuel to 0.5% from the current 3.5%. 

Costs aside, however, leaders in the global container shipping industry are navigating more than sulphur emissions reductions. Most want to minimize their industry’s overall environmental footprint.

For example, Maersk’s director of environment and sustainability for North America says it’s committed to being a carbon-neutral shipping company by 2050.

For a company with a fleet of 750 container ships, that is a major logistic undertaking.

It will also be expensive.

But Lee Kindberg said that, above all else, Maersk sees it as “the right thing to do.… Our customers are very concerned about decarbonization, as are we, because of climate [change].” 

The world’s marine shipping fleet, which moves roughly 80% of international trade, is considered the most carbon-efficient mode of goods transportation.

But it is still a major polluter. It generates an estimated 15% of the world’s nitrogen oxides (NOx), 8% of global sulphur gas and 2.6% of global carbon dioxide emissions.

The low-sulphur rules are the first step in reducing the sector’s contribution to global air pollution. The IMO is also aiming to cut international shipping’s overall greenhouse gas emissions 50% by 2050 compared with 2008 totals. Tighter regulations governing water ballast discharges are also on IMO’s menu. They too will add multimillions of dollars to marine cargo movement costs. 

So finding ways to reduce sulphur emissions is Job 1 in 2020; eliminating other air pollutants will be the next step and will require more radical and expensive infrastructure and operational changes.

C.H. Robinson, a multi-modal transportation and supply-chain management company, estimates that up to 85% of the global container shipping fleet will tackle Job 1 by switching to low-sulphur bunker fuel. 

Another 15% to 20% will opt to install scrubbers (exhaust gas cleaning systems), and, at this point, only around 5% to 10% will make the significant investment to switch to liquefied natural gas (LNG), ammonia, biomethane, hydrogen or other bunker fuel alternatives.

The latter option would deliver the biggest cut in emissions, but it also carries the highest price tag and requires worldwide development of alternative fuelling infrastructure.

Seaspan, the world’s largest independent charter owner and manager of container ships, is refitting 10 of its ships with scrubbers and continuing discussions with its liner customers over options to bring its 112-ship fleet into line with IMO 2020 regulations.

CEO Bing Chen has said the company is also looking at LNG power for new Seaspan ships.

But while Teekay is the world’s third-largest independent owner and operator of LNG carriers, its IMO 2020 plan does not involve converting ships to LNG propulsion.

Christian Waldegrave, Teekay Tankers’ director of research and commercial performance, said the company will focus on switching to low-sulphur marine fuel because Teekay already has a lot of experience using it.

“We have taken a lot of measures over the past couple of years to get ready for [IMO 2020]. We have pretested a lot of the new 0.5 sulphur blends that are being marketed and are happy with the performance, so we feel we are in good shape … as we switch over to the new fuels. We think [switching to cleaner-burning fuel] is the right way to go … rather than looking at stopgap measures.”

He added that retooling any significant percentage of the global shipping fleet to cleaner fuels such as ammonia, LNG, biomethane and hydrogen will be much further down the road.

“Even if you look at LNG, it has been talked about for quite a few years now and it is slow to develop because you have to build the whole infrastructure behind it. You are not going to order a ship that burns LNG, methane or ammonia unless you know that you can secure the bunkers; so there is a whole bunch of infrastructure that you have to get in place to allow that to happen.”

But Waldegrave added that marine shipping’s move to cleaner fuels is inevitable.

“It takes time to replace the existing fleet. You have 10,000 tankers and across the whole shipping fleet you have got 80,000 ships, and they have a lifespan of 20 years or more, so it is going to take a long time to phase those out and bring in LNG carriers. But it is already starting to happen now that people are looking at new [orders to build ships], even on conventional tankers [they] are looking at LNG propulsion. So I think it’s starting now but will take time to replace the existing fleet with ships that have new technology.”

Maersk is looking beyond LNG, which Kindberg said the company sees as a bridge fuel to a carbon-neutral future.

It instead sees alcohol, biomethane and ammonia as the most viable near-term fuel propulsion options to get Maersk to net zero-carbon shipping by 2050.

That deadline, Kindberg said, is far closer for ship owners than most people realize.

“The lifetime of a vessel is 20 to 25 years. So to have the whole fleet net zero by 2050 means that you have to be launching your first commercial vessels by 2030, which means you have to order them by 2028, which means you have to design them by 2027, which means you have to be identifying technologies and starting to build infrastructure to be able to provide those at scale even sooner than that.” 

Back in B.C., innovation in large ship propulsion could be ahead of the global game.

WFS operates the world’s largest methanol tanker fleet. It started with seven methanol-powered ships in 2016. Today 11 of the company’s 30 ships can be powered by methanol.

The Vancouver company has won international shipping awards for its fleet’s fuel efficiency and environmental performance.

It helps that WFS’s parent company is Methanex Corp. (TSX:MX), the world’s largest producer and supplier of methanol. But its technology proves that ocean-going ships can run on cleaner-burning fuels such as methanol, which has the lowest carbon content of any liquid fuel.

It is also readily available around the world.

According to a report commissioned by the Methanol Institute, methanol is available in or close to 88 of the world’s top 100 port locations.

WFS president Paul Hexter told BIV in an email that methanol is economically viable and cost competitive with conventional low-sulphur marine fuel.

He added that it does not “require expensive exhaust after treatment to reach Tier 3 NOx standards, and, as a liquid fuel, minimal adjustments to existing bunkering infrastructure are required in order for it to handle methanol, reducing supply costs.”

B.C. has also contributed alternative ship propulsion innovation in other sectors.

BC Ferries, working with FortisBC, developed on-board LNG refuelling technology that has eliminated the need for B.C.’s publicly owned marine transportation company to invest millions in separate LNG fuelling infrastructure for its growing LNG ferry fleet. (See “LNG to Power BC Ferries to a Lower-Carbon Future.”)

Regulations requiring cleaner fuels are only one factor in the environmental cleanup bill facing large ocean shipping companies.

Kindberg noted that the multi-year phase-in of cleaner ballast water discharge will also add billions of dollars to shipping company operating costs.

The cost of installing ballast treatment systems on large freighters is akin to the cost of installing fuel scrubbers – over US$1 million per vessel.

Installation and use of on-shore electric power for freighters while they are in port is also expensive. 

“So there are a lot of other things going on that are costly and technically intensive that the crews on the ships and the technical organizations on the shore are also going to have to be dealing with,” Kindberg said, “and some of them take some extra energy so there is an increased greenhouse gas impact.” 

The added cost to other major links in marine transportation corridors and, ultimately, the consumer at the tail end of that logistics chain has yet to be determined.

Fortunately, the efficiency of container shipping and the fierce competition keeping container shipping rates low mean that shipping costs add relatively little to the overall price of mainstream consumer products.

According to Maersk’s Working Towards Carbon-Neutral Shipping presentation, container shipping freight costs add roughly US$2 to the price of a computer, US$0.04 to the price of a T-shirt and US$0.11 to the price of a pair of sneakers.

“When you go down to buy a $100 pair of Nikes, something like $0.10 of that is the cost of the ocean freight,” said Lars Jensen, CEO of Copenhagen-based SeaIntelligence Consulting. 

trenshaw@biv.com

@timothyrenshaw