Shipowners: The sulfur cap will inevitably push up freight rates
2018-09-21 09:00
The new global sulfur emission cap, implemented on January 1, 2020, may be the best opportunity for the shipping market to drive up freight rates.
Although there is still discussion about whether shipowners are really considering using scrubbers and the advantages of doing so, major shipowners and operators seem to believe that these will drive up freight rates.
David Palmer, CEO of Hua Guang Shipping, said that operators may face the prospect of a sharp decline in earnings, and may even suffer losses from being forced to use expensive low-sulfur fuel. He said: "I think the answer is that the cost of the fuel surcharges we are going to buy will ultimately be passed on to the end user. This is not just the extra cost of buying and maintaining scrubbers, but also many uncertain results."
Based on past experience operating multipurpose vessels and feeder container vessels, Martin Cresswell, fleet director of Swire Shipping and current technical director of the Hong Kong Shipowners Association, said, "The answer for multipurpose vessels and feeder container vessels is in the well-known fuel surcharge adjustment factor." However, Martin Cresswell pointed out that these factors do not exist for bulk carriers and tankers, and the problem is more serious. "They will have to pay for the extra cost to customers through freight rates, which will probably take some time."
Martin Cresswell warned, "I think this is a very serious problem, they have to pay extra freight, you can bankrupt many companies, if they can't afford the fuel costs, you may see many companies in a very difficult situation."
Bjorn Hojgaard, CEO of Anglo-Eastern, emphasized that 98% of the world's ships need to burn more expensive low-sulfur fuel, "If the cost becomes expensive enough, then what we have seen before will happen, including ships starting to use slow steaming and freight rate increases, because the supply market is needed, freight rates will increase."
Bjorn Hojgaard added that refineries and bunkering ports may need to conduct mobile bunkering and provide lubricating oil, and the seaborne demand for these products may increase, which will also drive up freight rates.
Although Bjorn Hojgaard acknowledged that the container shipping industry has some fluctuations, and the routes and their customers feel better about the market, Roberto Giannetta, secretary general of the Hong Kong Liner Shipping Association, pointed out that with recent company mergers, shipping companies will be in a stronger position than three or five years ago.
Mats Berglund, CEO of Pacific Shipping, pointed out the harsh reality of the market, emphasizing that in the dry bulk and tanker markets, fuel costs are essentially a pass-through cost. He said: "As long as most of the fleet uses low-sulfur fuel, the market will adjust."
Berglund stressed: "This is a great opportunity to tighten the market." He pointed out that since shipowners and operators adjust according to fuel prices, there may be significant differences depending on fuel prices. This will reduce the average speed of the fleet and significantly tighten the supply and demand balance.
Berglund admitted that these are not significant for Pacific Shipping's small vessels, but Berglund insisted: "We don't want it to happen, we don't think it will happen to small handysize vessels, but it may happen to very large vessels." Berglund concluded, "We have to do our thing, create the best performance for our shareholders, but we obviously won't take the lead in using scrubbers."
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