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China to introduce tough emissions controls for ships

By Moshood Aliyu with agency report
16 December 2015   |   2:07 am
CHINA will introduce tough controls on ship emissions at three key port areas from January 2016 to reduce sulfur dioxide which results in acid rain, causing respiratory difficulties and sometimes premature death, said the Ministry of Transport.

Oil TankerCHINA will introduce tough controls on ship emissions at three key port areas from January 2016 to reduce sulfur dioxide which results in acid rain, causing respiratory difficulties and sometimes premature death, said the Ministry of Transport.

According to Reuters, if strictly implemented the move would force oil suppliers to increase the supply of cleaner marine fuel, industry experts said. The ministry gave no details on how the new emissions rules would be enforced or penalties for non-compliance.

The new rules will apply to merchant ships navigating or anchoring in the waters of Pearl River Delta, Yangtze River Delta and the Bohai Bay rim, with a goal to cut sulfur dioxide by 65 percent by 2020 from the 2015 level, according to a document issued by the Ministry of Transport.

Similar emissions control areas exist in the North Sea and the North American coast.
Ships berthed at ports within the three Chinese emissions control zones will start using bunker fuel with a maximum sulfur dioxide (SO2) content of 0.5 percent from January 2016, the ministry said.

Hong Kong made it mandatory in July for merchant ships to switch to fuel with a SO2 content of 0.5 percent from high sulfur fuel. Neighboring Shenzhen port launched a voluntary fuel switching scheme in July this year that is expected to cost 200 million yuan ($31.07 million) in subsidies over three years.
Enforcement of the new emission measures will initially be up to individual ports, but the controls will be toughened in 2017 to cover all key ports in the three control areas.

They will be tightened further from the start of 2019, when ships entering control zones, not just berthed or anchored, will have to use 0.5 percent SO2 bunker fuel or below. Fishing, sports and military vessels will be exempt, said the ministry.

Oil consultancy ICIS estimated that majority of fuel use in China’s shipping sector is currently using fuel with 1-2 percent SO2 content.
The International Maritime Organization (IMO), a U.N. body which regulates merchant shipping, plans to introduce a global cap on ship emissions in either 2020 or 2025.

The IMO will carry out a review in 2018 that will include an assessment of the availability of low-sulfur fuel that will be used to decide the actual implementation date.
Meanwhile, the   long-awaited merger plan between Cosco and China Shipping, China’s two largest shipping conglomerates, has finally received the go-ahead from China’s State Council. A preliminary scheme will likely be disclosed by the listed units of the pair on Friday.

The new entity, named China Cosco Shipping Group, will be based in Shanghai, local media Caixin reported, quoting a source close to Cosco.
Lloyd’s List earlier reported the two giants are likely to receive Beijing’s approval for their draft merger plan at the end of this year, according to a person familiar with the matter.
The person also said the two state-owned conglomerates might start merging their different segments, including bulker, tanker, boxship and ports all at the same time.

The fusion of the pair en bloc would create a behemoth with total assets around Yuan542bn ($84.2bn) and revenue of Yuan245bn, according to the companies’ 2013 data.
In container shipping, the new group CCSG will become the world’s fourth largest operator, with a market share of 7.8%, according to statistics from Industrial Securities.

In the bulker sector, according to lloydslis, the consolidation would create the largest bulk carrier fleet in the world of 319 ships, or a combined capacity of 30.8m dwt, leading the Japanese Big Three: NYK, K-Line and MOL.
CCSG is also expected to replace Teekay Corp’s lead in tanker fleet size. It will have 108 vessels carrying wet cargoes with a capacity of 14.6m dwt.

It has been more than four months since the listed units of Cosco and CSG, including China Cosco Holdings and China Shipping Development, collectively entered into trading halt of their shares. The move followed shortly after news that the pair had jointly set up a working group to iron out a draft merger plan.

Maersk Line and Dutch technology company Philips recently signed a five-year Carbon Pact agreement to cut carbon dioxide (CO2) emissions for every Philips container moved by Maersk’s boxships by 20 per cent.

The agreement integrates both companies’ ongoing commitments to reduce CO2 emissions within their value chain by 2020. The CO2 reductions are to be achieved over a 5-year time frame between 2016 and 2020, and will focus closely on reducing emissions through fuel efficiency, Maersk Line said in a release.

The companies have also made a commitment to create transparency on the environmental impact of ocean transportation and to work towards integrating CO2 and other sustainability indicators into the commercial supplier relationship.

Head of Forwarding & Distribution at Philips, Frank Dingen: “Over the past years we’ve seen Maersk Line outperform the industry average when it comes to CO2 emissions. For 2015 results are looking promising as well. We want to lock in similar achievements for the years to come. Via the Carbon Pact we expect Maersk Line to deliver tangible carbon savings and we look forward to working together on further increasing transport efficiency and transparency of environmental impactaid”.

Meanwhile, Maersk Line, the world’s biggest container-ship operator is altering course, slashing jobs and canceling or delaying orders for new vessels after years weathering a sharp downturn in the container-shipping market.
Danish conglomerate A.P. Møller-Maersk A/S said its Maersk Line container-shipping unit would cut 4,000 jobs from its land-based staff of 23,000.

The company is also canceling options to buy six Triple-E vessels, the world’s largest container ships, to cope with the deepest market slump in the industry since the 2009 global financial crisis. Maersk said it would also push back plans to purchase eight slightly smaller vessels.

The decision to halt its fleet expansion, according to, represents a significant U-turn for the company, which had been investing heavily amid the downturn. Counting on its market-share dominance and deep pockets, it aimed to expand as smaller competitors retrenched. But after issuing a surprise profit warning last month, Maersk signaled it, too, was no longer immune to a combination of slowing global growth and massive container ship overcapacity on many routes.

The conglomerate said it would cut its annual administration costs by $250 million over the next two years and would cancel 35 scheduled voyages in the fourth quarter. That is on top of four regularly scheduled sailings it canceled earlier in the year.

Maersk has already ordered 27 vessels this year, including 11 Triple-E behemoths, which can carry in excess of 19,000 containers.
“Given weaker-than-expected demand, this will be enough for us to grow in line with our ambitions over the next three years or so,” said Maersk Line Chief Executive Søren Skou.

The Triple-E orders were placed at South Korean yard Daewoo Shipbuilding & Marine Engineering Company and included a nonbinding option to order six more ships. Maersk officials said that under the terms of the deal, the Danish company isn’t subject to any damages for canceling the option.
Maersk Line is the world’s biggest container operator in terms of capacity. The end of 2017 will complete the job reductions announced.

The cost cutting comes after the full-year profit warning in October, the latest in a series of dire forecasts from the global container-shipping industry. Maersk Line’s full-year underlying earnings are expected to come in at $1.6 billion, compared with an earlier forecast of more than $2.2 billion.
The last time Maersk Line cut its staff was in 2008, at the height of the global economic crisis, when it shed about 5,000 people.

Over the past three years, the world’s top 20 container operators have moved to either consolidate or form alliances, in an effort to cut costs amid the downturn.

But Maersk and its biggest competitors have also spent billions of dollars to buy giant ships, like the Triple-E vessels. Cheaper to steam and more efficient when full, these new ships have swollen the world’s fleet.
Analysts estimate the industry suffers from as much as 30 per cent overcapacity on some of the busiest ocean trade routes. Container ships move more than 95 per cent of the world’s manufactured goods.

New ship deliveries will boost capacity by 1.7 million containers, or 8.2 per cent, while demand growth should top out at two per cent this year, the lowest since 2009, estimates Jonathan Roach, a container analyst at London-based Braemar ACM Shipbroking.
“It’s one of the worst periods in container shipping, and prospects for the near-term don’t look good,” he said.
Amid the industry rout, German container shipping line Hapag-Lloyd AG and Chile’s Compania Sud Americana De Vapores merged last year to form the world’s fourth-largest operator by capacity.

Chinese state-controlled shipping giants China Ocean Shipping Company or Cosco Group, and China Shipping Group Company  are in merger talks, focused on combining the groups’ container-shipping units.

Such full-blown mergers have been rare in recent years. Instead, the biggest lines have embraced alliances with competitors, sharing space on each other’s ships, as well as infrastructure like port operations and service vessels.

Maersk pushed hard for a mega-alliance between itself and Geneva-based Mediterranean Shipping Company and French giant CMA CGM SA, the industry’s No. 2 and No. 3 players, respectively. Chinese regulators scotched that deal, which drove Maersk into a smaller alliance with MSC Mediterranean Shipping Company.

In July Maersk signed a $1.1 billion new building contract with HHI for nine vessels with a capacity of 14,000 TEU each. The agreement includes an option for up to eight additional vessels.
Maersk Line’s senior press officer, Michael Christian Storgaard said: “What I can say is that we have not – at this stage – decided as to whether or not we want the vessels. Should we decide that we want the vessels they will be Tier II compliant,”

The reports on the exercise of the option come in the wake of Maersk’s cutting of expectations for Maersk Line’s business results for 2015 amid depressed market and plummeting freight rates.
According to the Chief Executive Officer of Maersk Group, Nils Andersen, the container shipping industry needs better freight rates so as to be able to recover.

He said: “In terms of the contract base, of course this is unfortunate, because the low rates coincide with the renegotiation of contracts. I would, however, like to say that this is not the first time we have experienced that, so I wouldn’t overemphasize its importance. It is an irritant, but we will have to overcome it. Of course, the industry needs better rates for 2016,” said Andersen, commenting on the impact of the freight rates on the company’s business results.