A costly piece of regulation: SOx

The topic which poses the greatest challenge to Maersk, in particular Maersk Line and Maersk Tankers, and of course to our industry peers,  is the upcoming SOx rules, which took effect in Emission Control Areas from 1 January 2015, and later globally from 2020 or 2025.

sox_cut_reduced

The SOx rules, as laid down in MARPOL Annex VI, are by far the most costly piece of regulation which has ever come out of the International Maritime Organisation. The global cap in 2020 (or 2025) may cost the shipping industry as much as  50+ billion USD – per year, based on the presently very low oil pricesBy 2020 or 2025 that figure may be much larger.

The 2015 ECA requirements for 0.10 % sulphur fuel are less costly, but could easily distort competition if not properly enforced. ML has estimated that SOx requirements will add USD 200 mill annually to their fuel cost. There are several ways to lower the amount of SOx emitted by a vessel: shifting to low sulphur fuel, using a scrubber or sailing on Liquefied Natural Gas (LNG).

How to bring down SOx

Since low-sulphur fuel is roughly 50% more expensive than heavy fuel oil, Maersk Maritime Technology is, in cooperation with Maersk Line and Maersk Tankers, looking into viable alternatives. MMT is for instance currently involved in testing a scrubber on Maersk Tukang (read more here): Moreover, MMT has been investigating the possibilities of the use of LNG. So far, it has been decided to comply with the rules by switching to compliant fuel with a max. sulphur content of 0.10%, basically Marine Gas Oil. 

International shipping cannot operate on a skewed playing field where deliberate non-compliance puts some players at a competitive advantage, while others might be put out of business
niels-bjorn-mortensen-cut-for-quote
Niels Bjørn Mortensen, head of Regulatory Affairs at Maersk Maritime Technology

Compliance with the 2015 ECA rules is expected to be met by most ships by shifting fuel from heavy fuel oil to low-sulphur fuel upon entering the ECA. There is no direct or inherent carriage requirement, i.e. it is not mandatory to install a piece of equipment onboard in order to achieve compliance. Instead, compliance will, in the first place at least, have to be evidenced by paper work. However this gives rise to some concern: “Previous cases have shown that this kind of documentation, such as Bunker Delivery Notes or the Oil Record Books, are not tamper-free”, says Niels Bjørn Mortensen, head of Regulatory Affairs at Maersk Maritime Technology.

Enforcement that encourages non-compliance?

In a paper from the European Commission it is stated that only one in a thousand ships visiting European ports is examined for fuel compliance. That statement, combined with the enormous amounts of money which potentially can be saved by deliberate non-compliance, give rise to concerns that certain ships/owners may be tempted into resorting to non-compliance. This risk to shipping in general posed by potential non-compliance by some shipowners is being discussed in various international fora such as the World Shipping Council, Bimco, the International Chamber of Shipping and the European Commission Shipping Association. The European Commission is also wary of this risk, as well as the risk of the air pollution regulations not delivering the expected results in benefits to human health and the environment. Therefore they established the European Sustainable Shipping Forum (ESSF) which is working on means to ensure compliance.

An outcome of this forum is that the inspection rate in Northern Europe will be stricter than what used to be stated by the EU Commission. However, recent statements from some EU member States that they may not be able to issue sanctions for non-compliance committed outside their jurisdiction gave rise to concerns. In reality, this could mean that a ship which has been non-compliant for 1500 miles will only be sanctioned for the last 12 miles.

When it comes to ECA enforcement in North America, there are not the same grounds for concern though. The US in particular has a much stricter enforcement regime where fines can run into millions of USD, crew members can be imprisoned for years and, in case of repeated offences, a company may be completely banned from trading.

sox-map
Maersk Line has estimated that SOx requirements will add USD 200 mill annually to their fuel cost.
It will be interesting to see if the member states will lift the obligation to ensure fair competition.
niels-bjorn-mortensen-cut-for-quote
NIELS BJØRN MORTENSEN, HEAD OF REGULATORY AFFAIRS AT MAERSK MARITIME TECHNOLOGY

Being concerned with enforcement even in the EU, what about the global cap? Will it be possible to ensure a proper enforcement in other parts of the world? How can we prevent that compliance some places will be met by handing over a brown envelope? Will it be necessary with more monitoring and electronic logging to ensure a level playing field?

At the end of the day it is all about creating and maintaining a level playing field for the shipping industry to operate within. “International shipping cannot operate on a skewed playing field where deliberate non-compliance puts some players at a competitive advantage, while others might be put out of business”, explains Mortensen.

The formation of international shipping associations, many established more than 100 years ago, was based on the need to ensure fair competition. The instigation of IMO was based on a similar need and IMO has always lived up to that expectation. “It will be interesting to see if the member states will lift that obligation”, Mortensen adds.