Maersk Line Pressures Hong Kong on Low-Sulfur Fuel

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January 6, 2013

Jasmine Wang, Kyunghee Park and Natasha Khan

Maersk Line, the world’s biggest container-shipping company, threatened to stop using cleaner fuel at Hong Kong port from next year if the government doesn’t mandate higher quality oil for carriers berthing in the city.

Without rules, shipping lines that burn polluting fuel benefit from cheaper costs compared with Maersk, which uses a cleaner fuel that is also expensive, said Tim Smith, its North Asia head. The company and 17 other operators have voluntarily used low-sulfur oil for the past two years to help curb Hong Kong’s pollution, the worst among global financial centers.

Government incentives for switching to cleaner fuels for shipping lines calling on the world’s third-busiest container port, a key contributor to the island’s pollution, don’t cover additional costs and the payments are often delayed because of processes, Smith said. Reverting to dirtier oil will be a blow to Hong Kong Chief Executive Leung Chun-ying’s plans to clean up Asia’s World City even as residents choke on smog that causes more than 3,000 deaths a year.

“The longer the regulations wait, the longer we will continue to see these premature deaths,” said Veronica Booth, a senior project manager at Hong Kong-based Civic Exchange, a group that has lobbied for more than a decade for cleaning up the city’s air. “Certain shipping lines are reluctant to spend money on these sorts of initiatives, particularly when there’s no end in sight to a voluntary scheme.”

Sulfur Content

Maersk Line, the carrier of Copenhagen-based A.P. Moeller- Maersk A/S, steams its ships that visit Hong Kong with fuel that contains 0.5 percent sulfur or less, Smith said in an interview Jan. 2. Hong Kong permits ships calling on its ports to use fuel that contains up to 3.5 percent sulfur.

In comparison, vessels calling at North Sea and Baltic ports must use fuel containing no more than 1 percent sulfur. Maersk will continue to use the cleaner fuel until the end of the year while it awaits legislation, Smith said.

“Some carriers turn up here, they don’t switch to low- sulfur fuel, and they get a cost advantage,” Smith said. “We don’t think that’s right. What we want is the government to regulate.”

In September, the Hong Kong government introduced a three- year incentive to promote the use of cleaner fuel. According to the plan, ocean-going vessels that switch to fuel containing no more than 0.5 percent sulfur get a 50 percent cut in port fees.

The use of cleaner fuel costs Maersk as much as $2 million a year, Smith said. The discount in port charges covers only as much as 40 percent of the cost of burning the costlier oil, he said. Maersk made 850 calls to Hong Kong port annually, the company said in 2010 when it began to switch fuels.

Voluntary Use

Some major shipping lines have committed to voluntarily using cleaner fuel this year, Roberto Giannetta, secretary of the Hong Kong Liner Shipping Association, said in an e-mail without naming companies. Carriers will also push the government for a legislation that makes it mandatory for all ships to use the same standard of fuel, Giannetta said.

Orient Overseas International Ltd., the biggest container line based in the city, will support the initiative and work with the government toward creating an emission policy, Stanley Shen, its spokesman, said in an e-mailed statement.

The Hong Kong government, along with mainland authorities, is exploring options that will make it mandatory for ocean-going ships to switch to cleaner fuel while at berth in the Pearl River Delta waters, YF Chau, a spokesman for the city’s environmental protection department, said in an e-mailed response to questions. He didn’t give a timeframe for the plan.

About 200,000 vessels called at Hong Kong port in 2011, of which about 30,000 are ocean-going vessels, marine department statistics show. Sulfur dioxide emissions from ships would drop by 80 percent if all shipping lines calling at the port switch to the cleanest fuel available, according to Civic Exchange.

Hong Kong has never met its air quality targets since they were adopted in 1987, according to a November government audit report. In 2011, there were 175 days of very high pollution, more than twice the figure in 2007, the report said.

Singapore, home to the world’s second-busiest container port, is also working to reduce ship emissions. In April 2011, the island-nation announced a program that called for the use of fuel-efficient ships. The Maritime Authority of Singapore would spend about S$100 million ($81 million) over the next five years for the program, it said then.

Maersk and Neptune Orient Lines Ltd. were among the 12 companies to initially pledge their commitment to promote clean and green shipping in Singapore. That number rose to 40 in October.

Legislation will “ensure a level playing field, that’s what we want,” Maersk’s Smith said. “We wanted to take some action pro-actively as we want to be seen as part of the solution, not part of the problem.”

Copyright 2013 Bloomberg.
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