Examination of Witnesses (Question Numbers
140-159)
MR JESPER
KJAEDEGAARD, MR
EDMUND BROOKES,
MR DAVID
ASPREY, MR
ROBERT ASHDOWN,
AND MR
PHILIP NAYLOR
28 OCTOBER 2008
Q140 Martin Horwood: Have you suggested
that to government?
Mr Kjaedegaard: I am not suggesting
anything at this point in time; I think it is premature.
Q141 Martin Horwood: In fact one
of the amendments down this evening is to link it to the economic
activity in the country. So in fact you would not be charged on
cargo that was designed for another port.
Mr Brookes: As we said before,
we are looking at all these ideas at the moment to try and rationalise
in our minds how to do it, and this discussion is helpful.
Mr Kjaedegaard: Another example
would be the offshore sector where we are heavily involved in
the North Sea. It would not be very good for Britain if we saw
a lot of the bases in Aberdeen and Peterborough move to Bergen
or Germany, simply because there is a fee for calling at Aberdeen
and Petershead but there is no fee for calling at Bergen. You
can service the North Sea rigs out of both. So we want to make
sure it is not detrimental to the British flag and the British
bases.
Q142 Martin Horwood: You think we
should be able to agree a system that does not just involve charging
a fee every time you call into Britain? I think that is probably
likely to be a basis for a lot of agreement. I do not think anyone
is really suggesting that, are they?
Mr Brookes: No.
Q143 Martin Horwood: Are you aware
of anything actually suggesting that is the basis of a scheme?
Mr Kjaedegaard: No, but if we
are applying a fee for oil consumption if you call at the UK then
that supply ship does not have to call at the UK. You can service
the same rigs from Bergen where there may not be a fee.
Q144 Martin Horwood: Have you already
raised these concerns with government? What kind of reaction have
you had from government?
Mr Ashdown: We have extensive
and ongoing discussions with government. This issue of allocation
has been around for a number of years, and it is a real stumbling
block. The European Parliament mandated the Commission to find
a method for including shipping back in 2002; they still have
not managed to do so. They have commissioned yet another study
which started in October of this year to again investigate the
best ways of doing this. It is very, very difficult to try and
find a method of allocation which meets all of the diverse sectors
within the shipping industry. This is what we are working on;
we are going to work with WWF again internally to try and present
a case to government which we think covers most of the bases but
it certainly is not an easy task to do.
Q145 Dr Turner: Can I just try and
get to the bottom of the importance of fuel costs in shipping
emissions. Your memorandum[5]
says that CO2 emissions from shipping are relatively small because
"shipping for many decades has had a strong market-driven
incentive to focus on reduction of fuel consumption". That
was contradicted by witnesses last week who said the opposite.
They said that shipping fuel had been so cheap that there had
never been a financial incentive to invest in more efficient technology.
The truth lies presumably somewhere in between. Could you enlarge
on it?
Mr Brookes: Fuel is a significant
cost, irrespective of the current price and what it was six months
or two years ago. We are not in the business of burning fuel for
burning fuel's sake. We want to use the minimum amount of fuel
to do our business as economically as possible, so that we are
as efficient and can offer as an economical a service, so that
cruise ships do not have to charge too much for the tickets; so
that the cost of bringing a container from the Far East or taking
a bulk load to China is the minimum. It is in our interests to
minimise the use of fuel. That has always been the case and the
shipping industry has been practising that I would suggest since
it changed from coal to oil. We went from oil, to steam turbines;
we went from steam turbines to high speed diesels; we went to
medium speed diesels to slow speed diesels and all these sorts
of things from a pure engine room perspective—apart from
the hull form and the coatings, which have been referred to—there
is an incessant drive to reduce costs and fuel is a large part
of that.
Mr Naylor: I think you put the
question very well in the sense that the reality lies somewhere
between the two. It is fair to say that for many years fuel prices
were comparatively low and did not form a significant proportion
of our operating expenditure, sufficient really to capture people's
attention within the industry, in the sense that there were other
levers to pull, or there was (to use the jargon) other low hanging
fruit that people could focus in on to actually achieve the economies
and the cost efficiencies. Having said that, as I say the other
side of that is over the last 18 months to two years we have certainly
seen a huge increase in the cost of fuel, as we have all seen
as we fill our cars up. That certainly has captured the imagination
of shipping company managers; has encouraged all kinds of ideas
to improve fuel consumption and fuel economy in the shipping industry;
and I think it is also fair to say, in the design of future ships,
is encouraging the idea of technical innovation and development
of ships into the future. I would also think it is fair to say
that any absence of an Emissions Trading Scheme, or any kind of
taxation on carbon emissions, that continued or resumption of
high fuel prices will act as a sufficient spur on the shipping
industry to reduce its emissions in the medium to long-term. I
think fuel prices themselves will do the job.
Q146 Dr Turner: Is this going to
be complicated by other costs that affect profitability of shipping?
The impact of the recession, for instance, at the moment seems
to be fairly drastic. We are told that the cost of hiring a large
container ship has gone down from around $¼ million per day
to less than $10,000 per day, which seems really quite extraordinary,
if it is true. If you have got such a range as that, does that
impact on your ability to invest in energy saving technology?
Mr Kjaedegaard: I think you are
talking extremes here. Firstly, it is not containers it is bulk;
it is the tramp trades where we have seen extremes; when there
is a huge shortage of supply then the rates are high for a very,
very short period of time and, yes, it has been reported that
some ships are fixed at $250,000 a day. That is exceptionally
unusual. It hasnow also been reported that some, what we call,
back-haul trades have been fixed at less than $10,000 a day. A
big container ship which could have been chartered for, say, $35,000-$40,000
some months ago may now have dropped to $25,000-$30,000.
Q147 Dr Turner: How do these other
costs affect your investment?
Mr Kjaedegaard: At the peak, fuel
used to be more than 50% of the operating costs. Of course it
costs a lot of money to build a ship; it costs a lot of money
to operate in the ports and crewing et cetera; but typically you
would say that about 25% of a container ship's costs are related
to the handling of the containers on and off, and about 50% in
recent months being related to fuel.
Mr Brookes: Could I add to what
Mr Naylor said earlier. We are now ordering ships for delivery
in 2012 and they will have a 30-year life. That is the sort of
scale we work on. Ships that are being delivered now were ordered
two or three years ago. Orders for ships in the Far East yards
are being cut back, so far as they can be. In one sense the downturn
further incentivises us to reduce our operational costs and look
at any way we can minimise operation costs, accepting that at
all times safety must be absolutely key. That is one thing we
are not prepared to compromise on—I must stress that. They
are looking at innovative hull forms. You design a hull for a
particular speed and, as I said, if you drop below the envelope
it actually has a negative effect. The answer to your question
is not a straight yes or no, I am afraid. It is a long pipeline.
There are ships being ordered by my colleagues which will be delivered
this year, next year and the year afterwards; by which time hopefully
the economy will have picked up. Obviously China is stockpiling
at the moment and we have just got to be very careful and watch
how we spend our money, bearing in mind that we are making an
investment for over 30 years.
Q148 Chairman: Why can we not save
lots and lots of fuel and emissions by simply moving ships much
more slowly?
Mr Brookes: I just covered that
slightly. You can save fuel by slow steaming. As I think we have
already indicated, there is a limit to what you can do. You can
cut the speed and keep outside tankers and bulk carriers only
typically sailing 12-14 knots. With the container ships which
go at 20, 22 and 24 knots you can cut those back; but if you cut
them back significantly you actually increase your costs because
the hull form is less efficient; the engines are less efficient;
you are burning more fuel and you also then need more ships to
carry the same volume of cargo.
Q149 Chairman: Why do you need more
ships to carry the same volume of cargo?
Mr Kjaedegaard: To keep the schedule
on a fixed weekly service. If you slow down in between you need
an extra ship to maintain a weekly service.
Mr Brookes: A typical container
loop might have seven or eight ships in. You might have to increase
that from seven or eight to nine or 10 to carry the same —
Q150 Chairman: Hang on, customers
do not require truck operators on land to break the speed limit
to meet their requirements; they accept the speed limits. Why
could we not have an international speed limit for ships based
on emissions?
Mr Kjaedegaard: You could do that
in theory but it would mean that if you operate a schedule today
of 22 knots and you are suddenly being asked to reduce that to
20 knots to operate the same schedule you will need one extra
ship in the loop to service, say, China to the UK.
Q151 Chairman: Most of the customers
in your industry are incredibly sensitive now about their carbon
footprint and about the carbon footprint of their suppliers, their
contractors and so on. They would be delighted if you came up
with a scheme which said, "Hang on a bit, we're going to
cut the carbon footprint", and they would go and tell their
shareholders and customers, "We're the greenest company in
this industry".
Mr Kjaedegaard: We have already
done it. We were driven by the high oil prices and we did it six
or eight months ago. Most carriers in the world actually initiated
slow steam measures so that the loops that they had, particularly
from Asia to Europe, were slowed down to the most economic speed.
Q152 Chairman: How many ships have
you had to bring into service as a result of that?
Mr Kjaedegaard: Probably on average
one for every string. We used to have eight or nine ships on a
string servicing China to Europe.[6]
Q153 Chairman: So it did not reduce
the emissions in that case?
Mr Kjaedegaard: We reduced the
emissions, yes, because there is equilibrium. It is like your
car, the last 20 miles of speed consumes far more than the first
50, and the same with a ship. If you take the top off at the end
and go down to 20-21 knots you are really saving something like
20-25% of the oil.
Q154 Chairman: I am not quite clear
whether you are in favour of this or against it now. Some of you
seem to be saying it is a good idea and some of you seem to be
saying it is a bad idea.
Mr Kjaedegaard: We are in favour
of reducing the speeds but not necessarily at a nominal number,
because what is 20 knots? It is a slow speed for a container ship
but it is very, very high speed for a bulk ship.
Q155 Chairman: Could it not be done
on an emissions basis; that is the point? As you say, different
ships travel at different speeds. If everyone said, "We're
going to have a 25% cut in our emissions", whatever the appropriate
speed cut would be, why could that not happen?
Mr Kjaedegaard: In theory it could.
Mr Ashdown: There are a number
of other difficulties here. We have spoken exclusively about the
difficulties that the shipowners might face, but of course if
you have more ships with a slower timetable then you will need
more port capacity to be able to handle the greater number of
ship arrivals. At the moment in this country we are already up
to about 98% port capacity, so we are really on the limit. If
you have more ships then inevitably you will need more crew. Crewing
is one of the biggest challenges that the industry faces over
the next five years. A key point which we have not touched on
here today is that for many of these issues the shipowner does
not have control of speed; the speed is set by the charterer.
What you would need to do is you would need to incentivise the
charterer to tell the shipowner to steam at optimum speed. It
is not something which is necessarily within the shipowner's gift.
Q156 Chairman: How much research
is going on into alternative methods of powering ships, other
than using fossil fuel?
Mr Brookes: There have been nuclear
cargo ships in the past but I think that has proven not to be
acceptable. I am not aware of particular research on things like
fuel cells and that sort of thing. There are a number of devices
which "assist" the ship that are on the margins to help
reduce the fuel consumption.
Mr Asprey: It is true that, along
with inboard technical innovations, whether it is waste heat recovery
and all those kinds of things, are external energy producing devices
which are subject to commercial development—some of them
have been trialled in a small way—which might assist to
reduce the consumption of the diesel engine, not as an alternative
but as a way of conserving fuel.
Mr Kjaedegaard: I think you can
say our industry suffers from fragmentation. There is no major
market leader that has a 20-25% share who have the size of financial
strength to fund the research and development and do something
about it. The global shipping industry is so fragmented with the
players and individuals having 8 or 9% maximum market share.
Q157 Chairman: It makes an unhappy
contrast with the motor industry which is pouring huge amounts
of money into researching a low emission alternative for cars,
vans and trucks. Given you are saying it is a 30-year investment
cycle, roughly speaking, what you have just told us really is
that there is no serious technological breakthrough which is going
to be achieved much before 2050. New ships going into service
now are going to be ones that are as polluting as the ones in
the immediate previous generation, so your industry is going to
really struggle to make any meaningful contribution towards cutting
emissions through technological advance. Is that what you are
saying?
Mr Asprey: No, that is not true,
because the emissions efficiency of ships has changed continually
over the last 50 years and will no doubt continue to do so; but
what there will not be is a sudden step change in that arising
from a different form of fuel.
Q158 Chairman: You have just said
you are not even investing in research into it, because it is
too fragmented?
Mr Kjaedegaard: We are looking
at the engine providers. You mentioned the manufacturers of cars.
The manufacturers of cars in our business would be the yards and
the engine providers. We are buying the product from them and
we are joining them in research and development. They are really
the ones to come up with the ideas to work with.
Mr Ashdown: Another point which
can usefully be made is that each ship is almost a unique build.
It is very, very rare to build ships in quantities of more than
perhaps eight or 16; whereas of course what we see in the motor
manufacturing industry and the airline industry is thousands and
thousands of the same type being produced, which means that you
can really hone down and refine the efficiency of that particular
car, that particular plane. We just do not see that in shipping
because a ship is very much unique. As Jesper has said, we do
not have the research. We mentioned earlier, that would be an
area where we think government could offer a useful helping hand.
What we have not seen in shipping is that we have never had a
Formula 1 where you have had a high end of shipping which has
been completely outwith current market conditions. In the aviation
industry we have seen developments in the space race, and from
military aviation, which has fed down into the commercial sector.
In shipping we have not really seen that to the same degree.
Q159 Martin Horwood: With respect,
the car industry is not about refining models. There are electric
cars now coming on the market which have emissions six or seven
times lower than the average. Looking forward to 2050, it is quite
plausible to talk about zero carbon emission cars using either
hydrogen or electric technology. You are saying that really there
is no such step change on the horizon in shipping?
Mr Brookes: At the moment, no,
we do not see it. We have to also look at the scale of the thing.
Mr Kjaedegaard's company which introduced the famous Emma Maersk,
that had a step change because it increased capacity by 20% and
cut consumption. We are talking here of engines of 100,000 shaft
horsepower to drive these ships. If you want an electric ship—
5 See Ev 29 Back
6
Note by Witness: This was required to maintain a weekly service.
lowering the speed and adding a ship will not change the current
weekly capacity provided to the market. Back
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