With new global International Maritime Organization (IMO) regulations kicking in from 1 January, Steve Felder, managing director - South Asia, Maersk, one of the world’s largest container shipping company, tells Mint about the impact of the norms, and the company's plans for India. According to the new regulations, sulphur content in the shipping fuel would need to be significantly reduced across international waters. It requires all shipping lines and vessels to adopt fuels with not more than 0.5% sulphur compared to the previous cap of 3.50%. This is the largest reduction taken in single time. Edited excerpts from an interview:
What will be the impact of the new IMO 2020 regulation?
The new regulations will have significant environmental impact, reduce acid rain, improve respiratory system of people through the act. But the other side of it is that it can be highly disruptive to pricing and availability of compliant fuels. From a pricing perspective, cost of ocean freight will increase as marine sector switches to more costly fuels from January 1, 2020 when vessels start procuring and taking on board more expensive compliant fuel. To pass on the price, we have also introduced two transparent price mechanism. (Maersk switched to compliant fuels and introduced Environmental Fuel Fee (EFF) for short-term customers on December 1 2019; and the Bunker Adjustment Factor (BAF) for long term customers would come into effect on 01st Jan 2020). And therefore, it is the intention, to pass it on to the market.
The global merchant fleet will comply with the new regulations through the use of compliant fuel, and that will be the case for our fleet as well. So we've been in closed dialogue for quite a long time now with fuel suppliers in order to ensure that we have the compliant fuel available. The longer game is that we have announced our intention to contribute to creating a carbon neutral industry by 2050. We've announced our attention to introduce the first carbon neutral vessels by 2030. So there's quite a lot of research going on with that.
What opportunities do you see in India and what are the kind of tie ups that you are eyeing at the moment?
Our approach in India is the same as it is globally. There two kinds of tie ups. We have tied up with Vopak and PBF Logistics in Rotterdam and New Jersey logistics in order to make sure that we have the adequate 0.5% compliant fuel availability for storage locations which is new to our network. We've tied up with BMW, H&M, Levis Strauss and Marks and Spencer ... We have joined forces to develop sustainable shipping fuel that is more related to the longer term approach that we have to create a carbon neutral industry by 2050.
What kind of opportunities, do you see when it comes to government projects such as Sagarmala?
I think a lot has already been done. The biggest issue in India was infrastructure or lack of port infrastructure, which led to congestion and vessels were waiting outside for seven days or more. Today, we don't see that and see largely a lot of port capacity has been added in India, both through the Sagarmala project and generally. We don’t face congestion issue in India most of the ports. Where we see opportunities for digitalization of trade. I think it's hugely important in order to improve velocity, in order to reduce the level of documents and to collaborate in terms of data sharing for the benefit of all stakeholders in global trade within India.
What are the policy challenges as far as India is concerned?
From our point of view in the transportation industry, I think we're on the right track from the point of view that we've got major investment programmed under Sagarmala and Bharatmala. We've got digitalization initiative starting to take off, the dedicated freight corridor code to take shape starting to take shape. I think we're certainly on the right track. We would like to see digitalization happening much quicker and much more comprehensively. We'd like to see the infrastructure projects moving quicker than what they are today. We'd like to see policies. You know, for example, we've got the multi-modal transport of goods being revised now, and certainly that should also take into account some important policy changes also around the regulation of intermediaries along the supply chain. Broadly speaking, we're on the right track, we just got to move quicker.
How is the global trade war affecting the shipping industry?
The global shipping containerized trade has slowed down a little this year. The growth has only been in the region of 2%. In India, containerized trade typically grows at around 8% a year and this year it grew at 1%. We have certainly seen a slowdown in growth in containerize trade in India. India is not immune to, let's say dynamics within the global environment as well. I think certainly, what we would like to see is we'd like to see India benefit more from the dynamics, for example, we see of course, tariffs being implemented in the US or Chinese goods, we'd like to see India able to leverage that, let's say ... we would like to see US importer starting to source more in India. We are seeing it to a small extent, but of course, we'd like to see a lot more. The likes of the reforms on corporate manufacturing tax announced recently and that we're hoping we will start stimulating manufacturing more in India.