Tag Archives: shipping industry

Ports for Sale– China Buys

 

Piraeus Container Terminal (PCT) built by China in Greece 2009

The old port of Colombo, Sri Lanka took centuries to reach its present capacity. China will have almost doubled it in under 30 months. Operated at full capacity, it would make Colombo one of the world’s 20 biggest container ports.  In the eyes of some Indians, Colombo is part of a “string of pearls”—an American-coined phrase that suggests the deliberate construction of a network of Chinese built, owned or influenced ports that could threaten India. These include a facility in Gwadar and a port in Karachi (both in Pakistan); a container facility in Chittagong (Bangladesh); and ports in Myanmar.

Is this string theory convincing? Even if the policy exists, it might not work. Were China able to somehow turn ports into naval bases, it might struggle to keep control of a series of Gibraltars so far from home. And host countries have mood swings. Since Myanmar opened up in 2012, China’s influence there has decreased. China love-bombed the Seychelles and Mauritius with presidential visits in 2007 and 2009 respectively. But since then India has successfully buttered up these island states and reasserted its role in the Maldives. Besides, China’s main motive may be commerce. C. Raja Mohan, the author of “Samudra Manthan”, a book on Sino-Indian rivalry in the Indian and Pacific Oceans, argues that China’s port bases partly reflect a desire to get easier sea access for trade to and from west China.

State-owned firms are in charge of most of China’s maritime activity, and their motives are at least partly commercial…China’s maritime interests already reflect its status as the world’s largest exporter and second-largest importer. Many of the world’s biggest container ports are in China. It controls a fifth of the world’s container fleet mainly through giant state-owned lines. By weight, 41% of ships built in 2012 were made in China.

The next step is to own and run ports. Hutchison Whampoa, a buccaneering, privately owned Hong Kong conglomerate, has long had a global network of ports. The pioneer among mainland firms was Cosco Pacific, an affiliate of state-owned Cosco, China’s biggest shipping line. In 2003-07 it took minority stakes in terminals in Antwerp, Suez and Singapore. In 2009 it took charge of half of Piraeus Port in Greece. It has invested about $1 billion abroad. China Merchants Holdings International, a newcomer, has spent double that. It invested in Nigeria, as well as Colombo, in 2010. Last year it took stakes in ports in Togo and Djibouti. In January it bought 49% of Terminal Link, a global portfolio of terminals run by CMA CGM, an indebted French container line.

The pace is quickening. In March another firm, China Shipping Terminal, bought a stake in a terminal in Zeebrugge in Belgium. On May 30th China Merchants struck a multi-billion deal to create a port in Tanzania. Even the more cautious Cosco Pacific is thinking about deals in South-East Asia and investing more in Greece.

China Shipping Terminal has small stakes in facilities in Seattle and Los Angeles, according to Drewry, a consultancy. But the experience of Dubai’s DP World suggests that America would not roll out a red carpet. In 2006 DP abandoned plans to buy American ports after a political backlash. Some Americans worry that China wants to take over the Panama canal.

Chinese firms may also subscribe to a supersized vision of the industry in which an elite group of ports caters to a new generation of mega-vessels. These will be more fuel-efficient and link Asia and Europe (they can just squeeze through the Suez Canal). After a decade of hype these behemoths are now afloat. In May CMA CGM received the Jules Verne, the world’s largest container ship. It can handle 16,000 containers and has a 16-metre (52-feet) draft. In July Maersk, a Danish line, will launch an 18,000-container monster. It has ordered 20 from Daewoo, in Korea. China Shipping Container Lines, the country’s second biggest firm, has just ordered five 18,400-container vessels from Hyundai.  Some ports may struggle to cater to these ships. Some of China’s new terminals may try to exploit that. Cosco Pacific is building a dock at Piraeus that can handle mega-ships. Colombo is deep enough for ships with an 18-metre draft. Its cranes can cope with ships 24 containers wide. Nothing in India compares with that…

After political tensions in the South China Sea, China Merchants has withdrawn from a port project in Vietnam. But Cosco’s Piraeus investment, once controversial, is a success, with profits rising and the firm winning plaudits for investing and creating jobs for Greeks.

China’s port strategy is mainly motivated by commercial impulses. It is natural that a country of its clout has a global shipping and ports industry. But it could become a flashpoint for diplomatic tensions. That is the pessimistic view. The optimistic one is that the more it invests, the more incentive China has to rub along better with its trading partners. This, not deliberate expansionism, is what the locals are betting on in Colombo.

China’s foreign ports: The new masters and commanders, Economist,  June 8, 2013

Greening the Shipping Industry

ballast water

The shipping industry faces the cost of complying with a deluge of new rules(issued by the International Maritime Organisation (IMO)). To make matters worse, it is in the middle of a slump caused by too many ships chasing too little trade.  As the deadlines for all these rules approach, shipping bosses are firing off distress flares. Masamichi Morooka, chairman of the International Chamber of Shipping (ICS), a lobby group, lamented on March 19th that the cost could run into “hundreds of billions” of dollars. He begged regulators to take into account the dire state of shipping

One of the first big expenses will be for cleaner fuel. Ships used to burn the cheap, unrefined crud, laden with sulphur and other nasties, that is left over when oil is refined. The fine soot that such fuel gives off can cause premature deaths from asthma and heart attacks. So in 2005 the IMO started to limit the sulphur content of maritime fuel, especially in “emission-control areas” along heavily populated coasts in North America and Europe. These limits are set to be tightened drastically,  Such fuels currently cost about 50% more than unrefined “residual” grades…

Shipping firms are also under pressure to cut their emissions of carbon dioxide and other greenhouse gases. The IMO reckons that ships cause about 2.7% of total man-made emissions, a bit more than planes but a lot less than cars and trucks. Under a convention it has brought into force this year, ships will have to introduce fuel-economy measures with the aim of reducing their emissions by 20% by 2020 and 50% by 2050….

The IMO is also pressing on with planned new rules on cleaning up ships’ ballast water. These may come into effect this year, once enough national governments have signed up for them. A study last year in the Journal of Marine Engineering and Technology* reckoned that around 60,000 ships worldwide would need refitting with one or more cleansing units, costing up to $1.7m each. In that case, shipping firms could be whacked with a bill of the order of $50 billion…

New proposals to make shipping greener, and push it further into the red, keep popping up. This week the European Parliament’s environment committee backed proposals for recycling levies on vessels calling at EU ports. This would pay for safer scrapping of old ships, which can contain asbestos and other toxic materials….

At a conference in Athens recently John Platsidakis, a Greek shipping boss who chairs an association of bulk-cargo operators, grumbled: “We carry 90% of world trade and we emit only 2.7% of the CO2 but still we are treated as if we are acting with indifference to the environment.”…[A]irlines, for example, have lobbied more shrewdly than shipping firms. But then again, the shipping industry is bigger and more fragmented than aviation, making it harder for it to present a united front. Many small, family-owned shipping firms have publicity-shy bosses and lack the sophisticated public-relations machines that giant firms deploy….[T]he ICS seeks to represent the entire global merchant-shipping fleet with just 20 people. The industry’s sluggish lobbying has meant that rules get passed before it has a chance to object to them. And once they are passed, it is much harder to get them changed.

The shipping industry: Sinking under a big green wave, Economist, Mar. 30, 2013, at 69

Oil Industry Resistant to Change

Global efforts to drastically reduce toxic sulfur emissions in the shipping industry will likely be delayed for years due to the reluctance of refiners to invest billions of dollars to produce cleaner burning fuel.  The U.N. shipping agency, International Maritime Organization (IMO), has set a 2020 deadline for the maritime community to slash the amount of sulfur burned by the global fleet, blamed for thousands of deaths every year.  The IMO estimates the industry needs to invest nearly $150 billion in secondary refining capacity to ensure enough supplies are available.

IMO’s cap can only be realistically met through the use of cleaner burning fuels, known as middle distillates, already in short supply due to high demand from automobiles, airplanes and power stations. As a result of the changes, demand for such fuels could rise by up to 50 percent, or an additional 600 million tones, from current levels by 2030, according to estimates by oil major ExxonMobil. “This represents a major increase in distillate demand, a product that has experienced high growth even without the marine fuel growth,” said Vincent Chong, global head of ExxonMobil’s marine fuel division.

Gas oil, a key middle distillate product, accounted for 42 per cent of global oil products growth in the third quarter of 2010, expanding twice as quickly as the same period in 2009, according to the International Energy Agency’s December oil market report.  Cheaper high-sulfur residual fuel oil (HSFO) — the sludgy, bottom of the barrel residue left behind from refining more profitable fuels — is most commonly used by ships now.  If the cap is imposed, refiners will have to scramble for waytonessing up millions of tones of the fuel. Global residual fuel production in 2010 is estimated at around 570 million tones with residual bunker consumption at around 190-200 million tones, according to a study by energy consultants Poten & Partners.

The shipping industry, which transports about 90 percent of the world’s traded goods by volume, does not believe enough low sulfur marine fuel will be produced in time for its more than 50,000 merchant vessels.  “We will monitor the 2020 deadline very carefully because we believe the bunker fuel supplies to meet the limits may not be available,” said Torben Skaanild, chief executive of BIMCO, the world’s largest ship owners’ association.

Although seaborne trade contributes less than 10 percent of global sulfur emissions, the burning of bunker fuel by ships is blamed for 60,000 cancer-related deaths worldwide each year, according to a published 2007 study.  To help prevent this, the IMO has passed regulations to cut sulfur emissions by more than 80 percent by reducing the air pollutant’s presence in marine fuel to 0.5 percent by 2020 from the current global average of 2.7 percent.

Some refiners have earmarked funds to make the necessary upgrades to meet the expected rise in demand. South Korea’s No.2 oil refiner GS Caltex will invest almost $1 billion to raise its capacity to convert heavy oil into cleaner fuel by a quarter from 2013, as it races to bethe country’s top producer of high-value distillates.  Around 20 percent of a refiner’s output comprises residual fuel oil, according to ballpark estimates from industry officials.  Analysts, however, do not expect enough refiners would agree to the needed investment within the relatively tight timeframe.  “Show refiners the money and they’ll likely show you the barrels,” said Poten & Partners.  “But these barrels of marine distillate might not be readily available everywhere and they might come with a sticker price that might shock some people.”  But even if a refiner decides to upgrade its facility, it can take a decade or more to fully execute the changes, making the 2020 deadline unrealistic, analysts said.

Another alternative was for refiners to “desulfurize” HSFO into a lower-sulfur version, an option that provides little economic benefit for the industry.  “Considering the gap between low sulfur fuel oil and HSFO prices, it does not seem to be attractive for any new refiners to invest in new processes or change their oil basket to raise LSFO output,” said Eduardo Bertonha de Campos, a market analyst with Petrobras.

Despite the complexity of the marine fuel conundrum, a potential cure-all exists in the form of exhaust abatement technology, also known as scrubbers.  In theory, this onboard system removes sulfur emissions from marine fuel, effectively allowing heavy sulfur fuel to be used while satisfying the upcoming curbs.  “The 2020 date is sufficiently far away enough in the future,” said Eivind Vagslid, head of the IMO’s chemical and air pollution prevention section. “We hope there will be a combination of new refinery capacity and the use of scrubbers.”

But the industry was divided over whether the technology would be ready for mass adoption since it was still being tested and manufactured by only a handful of companies worldwide.  “Scrubbers won’t be the silver bullet. A sizeable portion of the fleet will still need to rely on low sulfur fuel being available,” said Kurt Barrow, vice president of Purvin and Gertz.

Others options are the use of alternative fuels like liquefied natural gas (LNG) and biofuels, but critics again doubted their suitability for widespread use.  LNG would make up only 5 percent of bunker use by 2025 due to the cost of retrofitting vessels to use the new fuel, said Robin Meech, managing director of UK-based Marine and Energy Consulting.  Given the issues at hand, many affected parties were pushing for the IMO deadline to be extended. An IMO committee was expected to review the supply issue by 2018, and could push the deadline back to 2025.  “I don’t think there is a single solution that can surmount the challenges that lie ahead,” said Exxon’s Chong.

By Francis Kan and Randy Fabi, Analysis: Refiners threaten anti-pollution efforts in shipping, Reuters, Jan. 17, 2010