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Hapag-Lloyd establishes Marine Fuel Recovery mechanism

Hapag-Lloyd has established its Marine Fuel Recovery (MFR) mechanism, which will be implemented from 1 January 2019, to prepare for the International Maritime Organization (IMO) sulphur cap regulation.

The IMO regulation will cut compliant fuel oil from 3.5% to 0.5% in order to reduce sulphur oxide (SOx) emissions from ships as of January 2020.

Hapag-Lloyd has said that the key to remain compliant is to switch to low-sulphur fuel oil (LSFO), which is what the majority of all vessels are expected to be operated with by then.

However, utilisation of LSFO will lead to an increase in fuel costs and experts have estimated that it will initially amount to up to US$60bn annually for the entire shipping industry.

Hapag-Lloyd has estimated that its additional costs will be around US$1bn in the first few years, based on the assumption that the spread between high-sulphur fuel oil (HSFO) and LSFO will be US$250 per tonne by 2020.

The new MFR mechanism will replace all existing fuel-related charges and is based on a formula that combines consumption with market price for fuel oils.

It takes into account various parameters, such as the vessel consumption per day, fuel type and price (specific for HSFO, LSFO 0.5% and LSFO O.1%), sea and port days and carried teu.

These parameters derive from a typical representative service in the market on a specific trade.

The MFR aims to deliver a transparent calculation of costs as it also takes price fluctuations into account and comes along with coverage of upward and downward developments of market price changes for oil.

Hapag-Lloyd is also analysing other technological options for the reduction of emissions which might be able to cover a small share of a fleet.

The company will conduct trials in 2019 with a LNG conversion of one ship and Exhaust Gas Cleaning Systems (EGCS) on two others.

Rolf Habben Jansen, chief executive officer of Hapag-Lloyd said: “We embrace the level playing field and environmental improvements resulting from a stricter regulation, but it is obvious that this is not for free and will create additional costs.

“This will be mainly reflected in the fuel bills for low-sulphur fuel oil, as there is no realistic alternative for the industry remaining compliant by 2020.”