As OOCL London entered the English Channel in early February, the 323-meter vessel owned by Hong Kong’s biggest container line was forced to switch from burning the black sludge known as bunker oil to less polluting fuel. That wasn’t the case in the ship’s home harbor last week.
Vessels calling at North Sea and Baltic ports must use fuel containing no more than 1 per cent sulfur to cut emissions estimated to cause at least 60,000 deaths a year worldwide. Ships steaming into Hong Kong are free to burn less costly 3.5 per cent sulfur oil, which means they account for a growing share of the city’s air pollution and threaten the health of more than 25 million people in China’s Pearl River Delta.
Emissions from Orient Overseas International Ltd. (316), A.P. Moeller-Maersk A/S (MAERSKB) and their rivals are under rising scrutiny as Hong Kong seeks to fix a mounting smog problem at home and meet the demands of leaders in Beijing to deliver cleaner air. Tightening marine fuel standards in the delta will add to costs for shipping lines, already squeezed by record energy prices and too many vessels competing for cargos.
“The central government has realized the export processing of shower flip-flops is not necessarily the way to conquer the world, but it is a good way to trash your environment,” said Mike Kilburn, head of environmental strategy at Civic Exchange, a Hong Kong-based research body advising on policy. China “wants to move away from a purely economic-driven model to recognize quality of life as well.”
More ‘livable’
The government in Beijing in 2008 set a target to create more “livable” cities in the Pearl River Delta, a region encompassing Hong Kong, Shenzhen and Guangzhou. Those three cities together processed the equivalent of about 60 million standard 20-foot cargo boxes in 2010, double the volume of Shanghai, the world’s biggest container port, according to a November report by CLSA Asia-Pacific Markets. Asia has the highest concentration of people at risk from ship pollution because of the combination of big ports, trade-centered economies and urban concentration, it said.
So-called Emission Control Areas are either in place or will be for almost the entire US coast by August, as well as ports in the English Channel, North and Baltic Seas. Ships entering those zones must use 1 per cent sulfur fuel now and will have to switch to 0.1 per cent by 2015. Under International Maritime Organization rules, all ocean-going vessels will have to burn 0.5 sulfur at sea by 2020.
One-time switch
Hong Kong is “fully determined” to tighten standards “as soon as possible,” said Pearl Ng, a spokeswoman for the Environmental Protection Department. Bringing all of the Pearl River Delta under an ECA is a longer term aim that requires a submission to the IMO by the central government, she said.
The government is now working out how to mitigate costs from fuel switching, she said. Moving to a mandatory 0.1 per cent cap for vessels at berth as well as all local craft would maximize the benefits for clean air while creating a big enough market for the cleaner fuel that costs would be reduced.
The total operating loss of 22 container liners surveyed by Alphaliner, a shipping data provider, reached $5.6 billion last year, from operating earnings of $12.1 billion in 2010.
“This year’s performance depends on bunker prices,” Li Shaode, chairman of China Shipping Container Lines Co. (2866), the country’s second-biggest cargo-box carrier, said last week when announcing a 2.7 billion yuan ($429 million) loss for last year.
Bunker fuel in Singapore, the largest refueling port, has averaged $732.88 a metric tonne since Jan. 1, its highest start for a year since Bloomberg began tracking prices in 2002. The price of 0.5 per cent gas oil in Singapore averaged $863.72 a tonne this year, also a record. A 10-year-old, 5,000-unit container ship sailing at 22 knots consumes 24 tonnes of fuel a day, according to Morgan Stanley.
Blending costs
Blending higher quality fuels with bunker to meet the current 3.5 per cent IMO sulfur limit adds about $4 to $5 a tonne, Basheer Ahmed Sayeed, chief executive officer of fuel trader Chemoil Adani (Singapore) Pte., said in an interview last month. Bunker fuel prices will continue to rise as sulfur specifications tighten in coming years, he said.
With a cargo capacity of 99,636 deadweight tonnes and about the length of three football fields, OOCL London holds as many as 8,063 cargo boxes, data compiled by Bloomberg show. There were 63 container ships able to carry more than 5,000 units, in Pearl River waters on April 3, the data show.
At those kinds of concentrations, the ships’ engines consume energy at rates similar to the biggest power stations, said Simon Ng, a researcher into marine pollution at Hong Kong University of Science and Technology. Unlike power stations, their emissions aren’t regulated beyond the IMO’s sulfur-content cap of 3.5 per cent — 3,500 times higher than the auto diesel sold in Hong Kong.
Mark Wong, a Hong Kong-based spokesman for Orient Overseas, declined to comment for this article.
Still polluting
When docked, vessels need to keep their power systems running. Under a voluntary charter that expires at the end of this year, shipping lines representing more than 80 per cent of container trade in Hong Kong agreed to burn fuel with a 0.5 per cent sulfur content or less when their ships were at berth or anchored. That’s still 500 times higher than auto diesel.
Hong Kong has set aside $33 million over three years to give ships burning 0.5 per cent fuel a 50 per cent discount on port charges.
Even at lower levels of sulfur, vessels moored at the Kwai Chung container port or Tsim Sha Tsui cruise operators’ terminal are belching pollution in congested residential and tourist areas, as well as at Morgan Stanley (MS) and Credit Suisse Group AG (CSGN) bankers working in the 118-story International Commerce Centre in Kowloon.
Partial approach
While such voluntary efforts help cut emissions at berth, they don’t address pollution caused by ships on their approach or departure from Hong Kong. As regulation of power stations and vehicle emissions takes effect, ships’ contribution to the total is growing along with global trade volumes, according to Civic Exchange.
Soot from burning marine fuel accounted for 31 per cent of respirable particles in Hong Kong’s air in 2008, according to the city’s government. The World Health Organization estimates 9 per cent of lung cancers worldwide are linked to the tiny particles that can penetrate deep into the airways.
Ship pollution in Hong Kong made up 23 per cent of sulfur dioxide and 27 per cent of nitrogen oxides, gases whose health impact is greater than earlier thought, based on new data, said Hak-kan Lai, assistant professor in the school of public health at Hong Kong University.
‘Delay, denial’
Worldwide, premature deaths linked to marine emissions may have risen from 60,000 five years ago to about 84,000 today, according to a 2007 study led by James Corbett, a professor at the School of Marine Science and Policy in Delaware University.
Policy changes have been hindered by a “lack of political will” together with “delay tactics and denial,” Lai said.
The only question for shipping companies now is when tighter fuel standards are introduced.
“Everyone wants to be cleaner, but they want regulation,” said Veronica Booth, who has been leading Civic Exchange’s harbor policy work since 2008. “The second there’s regulation, they can pass on the cost to their customers.”
