[111118.EN.BIZ] CMA CGM Asia Chief Warns of Heavy Cost Sharing to Come With IMO 2020

CMA CGM's Asia Pacific's chief Mathieu Girardin is confident that his Group will be ready for the new regulations expected to befall world shipping in 2020.

Admittedly, things are going well for most carriers today on the booming transpacific eastbound route as shippers race to beat threatened tariffs in the tit-for-tat Sino-America trade war.

But next year as tariffs bite and the year after when costly eco-fuel mandates kick in, it will be a different story for carriers - CMA CGM included, Mr Girardin told the Hong Kong Shipping Gazette at the recent Journal of Commerce TPM conference in Shenzhen.

Most serious is the impact of IMO 2020, the United Nations rule that virtually bans sulphur content in ship emissions from January 1, 2020, when allowable sulphur content will be cut from today's 3.5 per cent to 0.50 per cent by the UN's International Maritime Organisation (IMO).

But Mr Girardin is comfortable with full compliance as CMA CGM has already decided to favour the use of 0.5 fuel oil for its fleet and to invest significantly by ordering several scrubbers for its ships and by using LNG to power some of its future containerships. The Group ordered last year 9 LNG-powered ships, which are currently being built.

Still, he said, the new sulphur regulation is a complete game changer.

"The average cost of the measures taken by CMA CGM to be compliant as from January 1, 2020 is of US$160 per TEU. But it is a positive regulation. We see it as good for the industry because it will drive us all to be more committed to the protection of the environment and especially because fewer sulphur emissions mean better air quality," he said.

"It is something that CMA is committed to and has been committed to for the past 10 years, that is, decreasing the environmental footprint of our company. It's an opportunity for the shippers to pay the fair price of sustainable transport."

His attitude is comforted by the knowledge that the company's LNG needs are guaranteed through a contract with Total, the French energy giant.

"We believe that with this new solution we have signed for LNG with Total, we will be able to source LNG, and to bunker LNG for big ships in Northern European ports like Rotterdam or Dunkirk, and probably in other ports as well in the future," he said.

LNG reduces sulphur emissions by 99 per cent, not 85 per cent. "That's going to be beyond the regulation, and this is what CMA CGM, under the leadership of Rodolphe Saade, has been doing by ordering these new ships for 2020," he said.

"Same for scrubbers, CMA CGM is to 16,000 TEU to test this solution. We believe there is potential for scrubbers. But until January 2020 there will be limited capacity to retrofit other ships with scrubbers." This will leave the remaining tonnage reliant on costly but compliant fuel blends.

Mr Girardin's big concern today is the need to prepare shippers for the shock of the considerable extra cost they soon must share occasioned by the UN regulation.

"For CMA CGM the impact is massive, and we need to have more awareness. We believe this is a positive regulation, and we will be compliant as from day one, but there is a very important first step - the shipper will have to prepare too," Mr Girardin said.

And sooner rather than later. "We will come out with a very transparent explanation as we go towards 2019 contract season and 2020. This new adjustment of fuel surcharges starts now. We are not going to do that in December next year. We need to start explaining very clearly this adjustment mechanism in full transparency. This is the way forward for CMA CGM," he said.

The vast majority of ships will have to use other compliant fuels, known as blends because all recognise that the existing fleet cannot be retrofitted to use LNG.

While ready to respond to the ramifications of the trade Sino-US trade war, Mr Girardin pays little heed to panicky talk about re-shoring manufactures from China to south east Asian countries.

"This talk is nothing new, this is a long-term trend, and CMA CGM is a strong market leader in South-East Asia. It remains to be seen what will potentially be shifted to South-East Asia due to the trade war. If it accelerates beyond the trend we have been looking at over the past year, then yes, definitely we shall respond and adjust our network," he said.

Beyond the Asia-US trade where CMA CGM and its subsidiary APL are major players, Mr Girardin is keen on developing the intra-Asia trade with the dedicated CMA CGM Group brand Cheng Lie Navigation Co (CNC).

He is dismissive of the view that the intra-Asia trade while the world's biggest trade by volume largely carries low-end goods. "You do more voyages when you ship intra-Asia because the distances are shorter. You make greater use of your containers as a result."

While Mr Girardin appreciates the long-range objectives of China's Belt and Road initiative, providing links into remote hinterlands of Eurasia and Africa, for the moment, he sees rather positive effects and opportunities for the French shipping giant, especially as a source of project cargo linked to infrastructure construction.

While coping with a possible downturn in 2019, the result of the trade war, and the brighter possibilities of the intra-Asia trade, the big thing in Mr Girardin's mind is building awareness among shippers so they can find the ways and means to share the skyrocketing price of being green and sustainable come IMO 2020.

Source : HKSG.