Precious Shipping: IMO 2020 was absolutely pain-free for us

The IMO 2020 sulphur cap, mandating the switch for all ships to use fuels with a maximum 0.5% sulphur content as of January 1, 2020, except for those equipped with scrubbers, has been the driving force for change in the shipping industry over the past couple of years.

The implementation of the regulation dominated the discourse in 2019, with major concerns being raised around the quality of bunkers and their availability across global bunkering ports.

Over half-a-year into the implementation of the regulation, the industry seems to have had a relatively smooth transition, with sporadic incidents being reported.

In a recent Captal Link webinar, Nikolas P. Tsakos, founder and Chief Executive Officer (CEO) of the Greek tanker owner and operator Tsakos Energy Navigation (TEN) revealed that four of the company’s ships were facing mechanical issues due to the poor quality of the new bunker blends.

Thai dry bulk owner and operator Precious Shipping Public Company Limited, which has completed the transition for its entire fleet to use compliant low sulphur fuel, has a different experience.

“The transition to IMO 2020 has been absolutely pain-free for us and we have not experienced any issues with the quality of low sulphur fuel oil (LSFO) on any of our ships. In fact, we have had a couple of bad experiences with high sulphur fuel oil (HSFO) in the years prior to IMO 2020 taking effect, but thankfully, none since the changeover to LSFO after IMO 2020 came into effect,” Khalid Hashim, Managing Director of Precious Shipping, shared in an interview with Offshore Energy-Green Marine.

The company refrained from investing in scrubbers, describing them both “technically and financially challenging” in its 2019 Sustainability Report, questioning the suitableness of the technology, being “designed to remove sulphur pollution from the atmosphere and transfer the same as a pollutant to the seas.”

Nevertheless, with the outbreak of the coronavirus pandemic, the sector had to deal with a bigger problem, which has had a ripple effect across the global economy impacting all industries in one way or another.

The uncertainties caused by the impact of the coronavirus pandemic coupled with regulatory uncertainties pushing for the decarbonization of shipping have created a perfect storm for shipping, making it ever more complex for the industry to manage risks.

“Decarbonization is certainly something that is on the minds of most, if not all, shipowners. We believe that this process is only in the conceptual phase at the moment with a few outliers like the Japanese project to have a ship running on ammonia by 2025, and the Norwegians who have a couple of small ferries running on electrical power with the use of batteries.

“Once more ‘outliers’ get working with different energy sources and the cost of these outlier ships becomes commercially viable is when you will see the majority of owners shifting from the current LSFO IMO 2020 regimen to the new decarbonized future with those new energy sources that lend themselves to commercialization.“

Being a member of the Getting to Zero Coalition, the company supports the mission of placing zero-emission vessels in operations by 2030. There is a range of power sources with zero emissions to consider. Precious Shipping believes hydrogen and ammonia have good potential which needed to be explored, while solutions like LNG as fuel and wind power seem to be less attractive.

To cut its CO2 footprint, Precious Shipping has been using weather routing, voyage planning, slow steaming, and anti-fouling strategies, reducing its CO2 emissions by 60% from 2008 to 2019.

As explained, the reduction is calculated on a simple comparison of total cargoes carried versus total CO2 emitted by its ships in 2008 versus 2019.

“As it so happens, we almost carried the same amount of cargoes in each of these two years, so the comparison was easy to make. We have done a much more sophisticated calculation of the grams of CO2 emitted per tonne-mile of cargo carried in 2014 and compared that with 2019 and have found that we have gone down from 26 grams to 16 grams!” Hashim said.

The fleet renewal efforts, driven by the addition of eight super eco Ultras to the company’s fleet during 2014-2016, have also helped the company reduce its CO2 footprint.

As disclosed, in 2019 the Ultras were operating at between 7 and 8 grams per tonne-mile of cargo carried.

“Our current fleet is just 8.25 years old with an average DWT of 44K. The ships in our fleet in 2008 had an average age of almost 21 years with an average DWT of 25K,” he noted.

With the increasing number of regulations, Offshore Energy-Green Marine wanted to know whether it was becoming more challenging for companies to keep up and be compliant and whether ever-stricter rules were making it more difficult for companies to secure financing.

“Regulations have always been there and more will surely be enacted in the future. Owners may crib about the usefulness of this or that piece of legislature but at the end of the day, they all comply. Regulations will not stop owners from being able to secure financing, but it is the attitude of bankers, in general, that is an issue to secure financing,” Hashim said.

“Bankers will offer you multiple umbrellas when the sun is shining, but let there be even the hint of rain or a thunderstorm, they will take their umbrellas and run to the safety of their ‘green’, temperature-controlled, offices.”

Commenting on the current shipping finance market and availability of capital for shipowners, Hashim said that debt and equity capital markets were frozen and had been since the start of 2019.

“Owners are simply unable to access debt from mortgage-backed traditional ship lending banks as these banks have their own problems with massive non-performing loans (NPLs) from the offshore sector where they have made large unprofitable loans. As a result, they are unable to lend to regular shipowners. The bond markets are similarly shut with no issues being transacted at commercially viable rates,” he added.

When asked about the impact of initiatives like Poseidon Principles and sustainability-linked pricing mechanism being included in loans on the decarbonization of shipping, Mr. Hashim explained:

“All such initiatives are to be lauded provided they achieve their objective of reducing the CO2 footprint of shipowners. Now, despite our very attractive CO2 footprint, I can confirm that none of our bankers, especially ones that have been with us for over 30 years, are able to lend funds at commercially attractive rates for vanilla mortgaged back structures. So though there is a lot of talk on sustainable lending, the walk is to simply say that they are unable to lend!”

The dry bulk owner, like many other shipowners, has been faced with the inability to carry out crew changes due to COVID-19 related travel restrictions.

The industry has been urging for governments to exempt seafarers from the restrictions and designate them as key workers enabling the overworked, fatigued, and concerned workers to finally go home.

Data from the International Transport Workers’ Federation (ITF) estimates that there are now approximately 300,000 seafarers trapped working aboard ships due to the crew change crisis, and an equal number of unemployed seafarers waiting to join them who are ashore.

Hence, shipowners have often been left to their own devices and ingenuity to help their crews sign-off and return home.

“Owners have been clamouring for attention to this dire situation forced onto seafarers by the irrational fear that ordinary citizens and governments of all countries seem to have of seafarers importing COVID-19 into their countries,” Hashim said.

“Science says that people who have been isolated on their ships for months together are incapable of having COVID-19 onboard, unless some shore-based COVID-19 carrier comes onboard such ships and spreads the disease to our unsuspecting seafarers.”

In order to get its seafarers home, who were predominantly from Thailand and India, the company resorted to diverting its ships to Thai or Indian ports to sign off crew that overstayed their contracts onboard and sign on a fresh relieving crew to take their place.

However, this could only take place on those ships that are passing close enough to Thai or Indian waters to make this a commercial reality.

“For those ships that are trading say in the Atlantic Ocean area, there is no way that we could get this done. As a last resort, we have accepted cargoes that are not attractive enough commercially just to get such ships in the Atlantic Ocean back towards Asia and close enough to Thailand or India so that we could relieve those seafarers who have overstayed their contracts onboard these ships,” he added.

COVID-19 has had a major impact on the dry bulk shipping market in which the company operates, as the nation-wide lockdowns cut demand. The appaling start of the year saw all sectors at loss-making levels.

Different nations have opted for different types of approaches to handle the pandemic, however, the impact on the economies has been roughly the same with GDP numbers dropping sharply.

“Where leaders have based their decisions on science, have acted courageously, built consensus, been truthful and transparent, their economies have come back very quickly unlike those leaders who have based their decisions on mythological/other beliefs and not on science, have been untruthful and non-transparent, have acted for their own selfish interest and against the interest of the nation, then COVID-19 has flourished under their rule,” Hashim said.

This is evident in the recovering demand from China for iron ore and other raw materials amid infrastructural investments. Whether this will be enough it is yet to be seen as the supply of product from countries like Brazil, also impacted by the pandemic, remains an issue.

BIMCO estimates that even with large government investments in infrastructure, the global recession will doubtless lead to lower demand and low freight rates.

“As dry bulk shipping is dependent on positive GDP growth, we have suffered from demand-destroying lockdowns in place in every country in the world during this crisis for short or long periods of time. As a result, the first half of the year as evidenced by the poor time charter rates of the index ships (Capes, Panamaxes, Supras/Ultras, and Handies), has been a great challenge for all owners,” Hashim pointed out.

“As COVID-19 has not been eradicated nor do we have a vaccine or a cure, the second half of 2020 promises to be like what has happened in the first half of the year.”