Habben Jansen also said that his company will not write “all-in contracts” in which the carrier takes the risk for changing fuel prices, saying “the risk is too high.”
Both men made remarks at TPM19, a Journal of Commerce conference that focuses on issues surrounding the trade between Asia and North America.
Transpacific contracts typically run from May 1 to April 30, and the industry expects to see much higher fuel costs as a result of the IMO requirement that ships use fuel with no higher a sulfur content of 0.5 percent after Jan. 1, unless their ships are equipped it with “scrubbers” to remove sulfur from engine exhaust. Currently most ships use a residual fuel with a high sulfur content of 3.5 percent.
The IMO mandate is expected to cause demand for low-sulfur distillate fuel called marine gas oil (MGO) and blends of residual high-sulfur fuel and MGO to spike, not only after Jan. 1 of next year but in the fourth quarter of this year as carriers will need to clean fuel tanks, make adjustments and fill up with the clean fuel before the actual start of the new regulation.
Skou said the move to the cleaner fuel was a good thing because of the role that sulfur particles play in causing respiratory disease and environmental problems such as acid rain.
The cost is so high that if carriers do not charge for the higher fuel prices they could be driven into bankruptcy, Skou said.
Skou said that he expects the big price differential between high-sulfur residual fuel and low-sulfur distillate products will come down, saying it does not cost $200 to $300 more per ton to make low-sulfur fuel and that the initial price differential will reflect a difference in supply and demand. He believes oil refiners will invest in new equipment and eventually the price will normalize.
Habben Jansen believes that low-sulfur bunker fuel will be available in major bunkering ports so that container carriers with ships traveling on regular routes should not have trouble obtaining fuel. He allowed it may be more difficult for trampers that may have to find fuel in smaller, remote locations.
Hapag-Lloyd is installing scubbers on 10 ships. The first of those ships will be delivered by the end of this month. As a result of its purchase of United Arab Shipping Co. in 2017, Hapag-Lloyd acquired 17 large containerships that are LNG ready. The company plans to convert one of those ships to run on liquefied natural gas next year.
Skou said Maersk decided to shed assets in other industries such as oil and gas to focus on container shipping, port and logistics, believing that is where profitable growth will come from. While Maersk and many other container liner companies have made forays in the logistics business, with mixed results, Skou believes now is the time to do so because Maersk now has the scale — a market share of 17 percent to 18 percent — to become an integrator of container shipping.
It has accomplished that growth both through secular growth as well as major acquisitions such as the 1999 purchases of SeaLand Service and Safmarine, the 2005 purchase of P&O Nedlloyd and the 2017 purchase of Hamburg Süd. Skou said he believes there will be further consolidation in the container shipping industry.
He noted that over the past 30 to 40 years, Maersk has been a leader in reducing the cost of shipping to a point where container freight rates are lower today than they were in the 1980s, even after inflation.
Much of that reduction in cost has been driven by the building of ultra-large container ships, which Maersk pioneered. But Skou said Tuesday that he does not see his company building ships that are larger than 18,000 or 20,000 TEUs.
Now Maersk is focused on making shipping simpler and easier, he said, focusing on digitization and offering end-to-end solutions for shippers.
Digitization is a major focus, for example, with systems that allow self service by customers. He said 90 percent of price quotes are obtained this way by Maersk customers. He also said 99 percent of cargo booking is accomplished online, about half through the company’s website and half with electronic data interchange. Instantaneous booking confirmation is becoming “table stakes” for shipping companies, he said.
In five years, he said, customers will have much more visibility of not only their physical freight but documentation related to shipping.
Habben Jansen said that Hapag-Lloyd also is heavily investing in IT, doubling investment last year and again in 2019. He says those initiatives include both investment in customer-facing systems like the company’s Quick Quotes system and back-office functions.
Habben Jansen expects 2019 to be a good year for carriers in the transpacific trade as long as there is growth of about 3 percent to 4 percent in cargo volumes. He said that deliveries of new ships in 2019 and 2020 are modest enough that he does not expect a lot of cascading of larger ships from Asia-Europe routes into the transpacific.