Sulphur cap will squeeze reefership capacity

More specialised reefer vessels may be destined for scrap as the 2020 sulphur cap nears. Credit: Dietmar Hasenpusch
More specialised reefer vessels may be destined for scrap as the 2020 sulphur cap nears. Credit: Dietmar Hasenpusch

Fuel cost increases in conjunction with the marine fuel regulation coming into force on 1 January 2020 are expected to quicken the demise of conventional reefer shipping and send perishables cargo volumes aboard container vessels soaring.

Fuel experts at the Cool Logistics Global conference in Antwerp, Belgium, agreed that the necessary switch to 0.5% low-sulphur fuel oil, in accordance with the upcoming International Maritime Organization regulation, will significantly impair the competitiveness of specialised reefer vessels versus larger, more fuel-efficient container ships with a higher reefer intake.

Leading global container carrier Maersk Line, which operates the highest number of reefer container vessels, anticipates that global growth in full reefer container loads could more than double by the start of the next decade.

Its forecast, presented by Anne-Sophie Zerlang Karlsen, global head of reefer management, estimated an expected market increase in reefer container liftings of 12% in 2020, which goes up to 15% in both 2021 and 2022. This compares with just 5% growth in 2016 and 2017 and an estimated 6% growth this year and next year.

The forecast is based on “new enquiries that we are getting for the conversion of reefer breakbulk to containers”, Zerlang Karlsen explained.

However, some container lines might be pushed to their limits to accommodate volume growth of 10–15% in the reefer sector. “If this holds true, [reefer] equipment investments would have to triple. But the question is, will carriers have the money to invest?” she pointed out.

This year is expected to be another loss-making year for container shipping as slot overcapacity and escalating bunker prices have undermined freight rates. If spending on new reefer containers was frozen at current levels, there could be a severe capacity shortage looming in 2020 if demand for containerisation from fruit, vegetable, and meat exporters goes up as forecast.

UK-based shipping consultant Drewry predicts that the market share of reefer containers versus conventional reefer shipping in global seaborne perishables trade will jump from 79% in 2016 to 85% in 2021.

“Conventional reefer vessels have a steeper bunker curve, so obviously they become less competitive when costs go up,” Zerlang Karlsen said. The latest-generation 1,700 teu container vessels with a total capacity of 23,600 dwt burn about 45 tonnes of fuel per day at a speed of 18.5 kt, while large, 2011-built specialised reefer ships with only 15,600 dwt capacity are marketed among charterers with 55.5 tonnes of bunker consumption at a speed of 21.5 kt.

Today, specialised carriers still earn a premium for their services because they are faster than container services and go direct from loading port to discharging port, whereas reefer boxes are often transloaded between services. The problem, though, is that low-sulphur fuel costs could push the necessary premium beyond levels that even quality-minded reefer shippers are prepared to accept.

Driven by market-share losses to container carriers, the specialised reefer fleet has been shrinking dramatically. According to Clarksons Research, there is only 4.6 million dwt of fleet capacity left, compared with 7.6 million dwt a decade ago.

Ole Schack-Petersen, chief strategy officer of perishables logistics group LCL and its parent group, Broom, warned that the expected cost explosion resulting from the 0.5% sulphur cap could be the straw that breaks the camel’s back for the conventional reefer sector.

“The reality is that container lines are going to be the only mode of transportation in the future. The ships are disappearing. There is going to be a brutal demolition [of specialised reefers] over the next 24 months. A lot of ships won’t make it to 2020,” he warned.

Walter Wildöer, general manager of leading specialised reefer carrier Seatrade, conceded that the specialised reefer industry “seems to be trapped in a downward spiral”. However, the container lines have problems too, underscored by years of negative earnings in the sector, he pointed out.

A transition of business from conventional to containers might not be so easy for the remaining high-volume reefer shippers as container shipping is increasingly dominated by ultra-large box ships and hub-and-spoke networks that do not lend themselves to perishable cargoes.

Although the sulphur cap will have “quite a disruptive effect”, there will always be room for dedicated reefer shipping services as fresh supply chains need fast, dedicated, and direct services, Wildöer argued.

“We are carrying 8 million tonnes of cargo per year and we plan to continue doing so, whether with our own [conventional] ships or with container ships. It’s not that we are faced with a shortage of ships,” he said.