Hoisted By Their Own Petards?

From “Shipbuilding … June 4, 2013 – ICS Chairman spells out cost of green legislation”

“Impending new legislation to protect the environment potentially presents shipping with an additional industry-wide cost of more than half a trillion US dollars between 2015 and 2025. This is around 50 billion dollars of additional capital and operating cost in every single year for a 10 year period and beyond. That was the message that Masamichi Morooka, Chairman of the International Chamber of Shipping (ICS), delivered at today’s opening of the Nor-Shipping event in Oslo.

“‘As many companies struggle to survive during the difficult years ahead, we must persuade governments to avoid placing yet more straws that risk breaking the shipowner’s back – and the straws to which I refer are the impending costs of environmental legislation,’ said Mr. Morooka.

“Much of these costs will result from the switch to low sulfur distillate, assuming that a 0.5 percent global sulfur cap comes into effect in 2020, in addition to the 0.1 percent sulfur requirements that are expected to be enforced in Emission Control Areas in North West Europe and North America from 2015. However, the costs of installing new ballast water treatment equipment will also be significant, as will the potential contribution that shipping might have to make to the UNFCC Green Climate Fund.

“‘The imminent switch to vastly more expensive, low sulfur distillate fuel is a very serious concern which is compounded by worries about the adequacy of supply and the dangers of modal shift,’ said Mr. Morooka.

“He explained that the key message that ICS has for regulators is the need for greater focus to be given to the economic sustainability of shipping, backed up by evidence of years of continuous improvement of shipping’s environmental performance.

“‘Many of the expensive environmental regulations that are about to enter into force were conceived in a different world, at a time when shipping markets were booming and finance for retrofitting had not dried up,’ he told Nor-Shipping delegates.

“ICS stresses that the protection of the environment must always remain a priority for the industry, but the prevailing economic situation requires that a degree of pragmatism is applied to enforcement as a plethora of new environmental regulations is implemented.

“‘Unless this is understood, there is a danger of creating real barriers to investment in our industry as we hopefully move closer to recovery,’ said Mr. Morooka.

“Looking ahead for the next two to five years, Mr. Morooka said he remained positive and optimistic: ‘We are shipowners after all!’ But he predicted it was probably unlikely that, for most sectors and trades, much will have fundamentally changed before 2015 or 2016.

“‘However, the decisions taken now, both by shipowners and regulators, will determine whether we are at the end of the beginning of our difficulties, or whether, as I hope, we are at the beginning of the end.’

“Unless something very unexpected happens, the ICS Chairman felt it was unlikely that a lasting recovery in freight rates would begin in earnest in the immediate future. However, he believed that market forces would find a solution, which would almost certainly involve large numbers of ships going to the recycling yards much earlier than their owners had originally planned.

“To avoid prolonging the downturn, he said it was important that shipowners take sensible and considered decisions about ordering new tonnage. Noting that shipyards have similar over capacity problems and are offering cut price ships, he remarked: ‘What might be in the rational interest of an individual shipowner might not always be good for the collective health of the industry as a whole.'”-

Those were the words of the Chairman of the ICS on June 4th.

Sounds pretty much like what we heard from Carl-Johann Hagman, the Stena AB CEO, on May 28th at the ICS Liepzig forum, and from John Denholm, BIMCO’s new president, on May 30th in his inauguration speech in Paris. But these aren’t the first words of warning that sensible leaders have been issuing to carrier officials so obsessed with larger and more complex container ships. In our April 19th, 2006 commentary (Vol. VII, Art. 8) we included the following admonitions:

– “Much of the movement toward larger ships involves ego and the corporate fanning of feathers.”- Commander Jon S. Helmick (1997)

– “There comes a point when large vessels create problems.” – Don Cameron (1997)

– “Megaships strain the capacity of inland infrastructure, terminal operators and rail and truck carriers.” – Nolan Gimpel (2003)

– “The bigger the ship, the more transshipment you need, and that costs money.”- NeilDavidson (2004)

– And didn’t Tommy Stramer (RIP) predict that these behemoths would soon be considered “white elephants”?

Even though these admonitions were issued by well-known and highly respected maritime authorities, they are still being ignored by those officials whose primary concerns are “ego and the corporate fanning of feathers.” These same officials have yet to see the light and continue to spend billions in order to possess huge, ever more complex and costly vessels, even while being forced to form alliances with competitors – an obvious indication that there’s not enough business for each of their giants to go solo – and that bigger isn’t better after all. It just costs more. Now these shortsighted liner officials have to contend with phony – and greedy – global warming and “green” promoters who are taking advantage of them and upping the ante big time.