Uncertainty around the International Maritime Organization (IMO)'s pending greenhouse gas (GHG) regulation may be keeping some shipowners on the sidelines when it comes to ordering new vessels.
The IMO is expected to adopt a GHG strategy for vessels in 2023. Until then its initial preliminary strategy calls for reducing GHG emissions by at least 40pc by 2030 and 70pc by 2050, compared with 2008 GHG emission levels. Cutting GHG emissions can be achieved by developing more fuel-efficient engines and vessels, as well as through the use of alternative fuels such as LNG, LPG, hydrogen cells, methanol, batteries and ammonia.
"Shipowners are terrified about buying a ship today, which probably will be obsolete in 5-10 years," Hamish Norton, president of Star Bulk Carriers told the audience at the TradeWinds Shipowners Forum in New York yesterday. The restraint on orders will continue until the industry has clear guidance on the GHG emissions regulations.
Norton said he considers the lack of newbuilding investments a good thing because it reduces competition. As one of the bigger bulk carrier companies Star Bulk can afford to weather IMO regulations better than smaller competitors, whose margins may be squeezed.
Even though IMO's GHG regulation is not finalized, banks lending to shipowners are using its initial plans for guidance. Jeffrey Pribor, chief financial officer of International Seaways said his company has completed a financing deal with bank signatories of the Poseidon Principles — an agreement among banks to disclose how their lending contributes to climate change. For the green financing go through, International Seaways had to disclose its emissions to the banks through an independent classification society. The banks in turn set GHG emissions trajectories based on IMO's pending GHG targets.
International Seaways will continue to report its emissions to the banks every year. If it is ahead on the yearly GHG reduction trajectories set by the banks, it will pay less interest on its loan. But if it is behind on the plan it will pay more interest. Pribor did not disclose the discount and premium levels.
The shipowner panel members at the forum were optimistic that their investments in scrubbers to meet the IMO regulation that lowered the cap on marine fuel sulphur emission effective 1 January would pay off this year and next. Star Bulk managers' bonuses in 2020 and 2021 are tied to drybulk shipping market indices. "If we manage to beat the indices will be only be because of the scrubbers", Norton said.
Star Bulk has 95 bulk carriers outfitted with scrubbers, and 20 bulk carriers awaiting scrubbers or already outfitted but waiting for scrubber licensing.
Staffing shortages at Chinese shipyards has created uncertainty around scrubber installations completion dates, according to Norton and other vessel owners on the panel.
Robert Bugbee, president of Scorpio Bulkers, said the company has 60-70 vessels already outfitted with scrubbers and should reach 100 vessels sometime in the second quarter. International Seaways has commissioned ten VLCC scrubber retrofittings, half of which are completed and the other half are expected by the end of the second quarter. International Seaways owns 13 VLCCs.
