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Govt subsidies not needed for int'l shipping, says Maersk Line CEO

Singapore

GOVERNMENTS no longer need to subsidise or fund international shipping, which operates in "a competitive and effective market", Maersk Line CEO Søren Skou said on Thursday.

Mr Skou added, while addressing maritime leaders at this year's Singapore Maritime Lecture, that governments have "almost" exited container shipping on realising there is a functioning international shipping market.

He cited Temasek Holdings' divestment of Neptune Orient Lines (NOL) as one example. In September 2016, CMA CGM completed the acquisition of NOL and, along with it, Temasek's interest in the erstwhile Singapore-listed shipping company. More recently, Maersk Line wrapped up the acquisition of German shipping line Hamburg Sud.

Such merger and acquisition (M&A) deals have helped trim capacity in the box ship segment, which also saw its newbuilding order book decline to 12 per cent of its existing tonnage, down from a whopping 60 per cent 10 years ago.

Noting a flurry of newbuilding activity in recent months, however, Mr Skou acknowledged that the industry is not out of the woods yet. In early April, Hyundai Merchant Marine (HMM) unveiled a newbuilding programme involving 20 box ships. This came after Mediterranean Shipping Co and CMA CGM confirmed orders for altogether 20 giant box ships last September.

Observers have flagged government subsidies as an added impetus to this recent spate of newbuilding orders. While refraining from commenting on any specific deals, Mr Skou argued that there is no basis for "government to subsidise shipping at all".

He further contended that even if the market is left to function on its own, it is capable of taking care of consumers. Despite having undergone a massive consolidation, container shipping "is still a very competitive industry, with more than 10 global carriers still standing and new services added every week", he explained.

One other factor that may have fanned these recent newbuild orders is a new international shipping regulation on the horizon. The International Maritime Organization (IMO) had, in October 2016, firmed up its earlier plan to impose a 0.5 per cent cap on sulphur content in marine fuel from 2020. Ahead of the IMO cap, CMA CGM has committed to use mostly liquefied natural gas (LNG) to power all nine ships on order with yards in China.

Burning LNG, a greener fuel compared to the commonly used marine fuel oil, is one option to comply with the IMO cap. Mr Skou did not rule out the use of LNG for Maersk Line, but he qualified that the LNG option is only on the table if the shipping line wants to build new ships. He also reiterated Maersk Line prefers not to go with a second option that calls for the installation of scrubbers.

Scrubbers are used to remove sulphur oxides from ship engines and boiler exhaust gases. The key concern holding Maersk Line back from using scrubbers on its ships is the massive amount of space taken up by such equipment, which otherwise will go to accommodate more containers.

For now, instead of investing in LNG-fuelled ships or scrubber installation, Maersk Line's preference is to take "clean fuels" from refiners, Mr Skou noted. That is likely the key option shipping lines may turn to during "the first part of 2020s" while LNG as a marine fuel will take one to two decades more to gain the required traction, he opined.