What’s in store for 2020?
As we enter the holiday season, ShipInsight is taking a short break. Although we shall be actively monitoring things on a daily basis, we shall not be posting any articles or newsletters from 24th December until 6th January.
We would like to take this opportunity to thank you for your support throughout the past year and look forward to providing you with our unique blend of news and insight through 2020 which looks to be shaping up to be a most interesting year. We also wish you all a happy holiday and a prosperous New Year for 2020.
The changing of the year is traditionally a time to look back on what has happened and to try and predict what the new year might bring.
For most the big thing is of course the 2020 sulphur cap. An awful lot of observers think it was rushed in at the earliest of the two possible dates – the other being 2025 – because the IMO had suffered some significant humiliation and criticism over the debacle that was the Ballast water Convention. Having been obliged to change the dates because of lack of ratifications and then a delay so as to avoid further problems with owners decoupling the necessary certificate to gain an extra five years, the IMO has refused to consider any climbdowns over sulphur cap.
What the most likely problems will be are well known; firstly, a lack of compliant fuels. There may well be sufficient in the big bunkering hubs but away from there things begin to look less certain. There is the FONAR to fall back on if ships cannot find a suitable fuel, but this is an unsatisfactory solution and one fraught with problems.
The biggest fears are actually not about compliance but safety caused by fuel incompatibility. This issue seems to have been played down but it is doubtful that such strongly held concerns can all be mistaken. The fact that advice has come from such quarters as class societies and engine makers makes it all but certain that there will be several incidents. It can only be hoped that lives and vessels are not lost as a result.
MEPC 75 comes after the March ban on carrying anything other compliant fuels but it may well be that if the experience of the first three months is that there are major problems with safety and availability of fuels, there may be something of a rethink by the IMO. If there are serious problems and no movement by the IMO to relax the rules it will alienate the shipping industry at a time when its supports is needed for ambitious decarbonisation plans.
So the big question is about enforcement. Will states fully support the 2020 rules or apply a light touch? For most of the 21 Century, the IMO has been heavily influenced by EU policies and directives and it is very likely that it is Northern European states will be most keen on the strictest adherence to the 2020 rules. Shipinsight believes that many other will not. Some have already said as much and like Indonesia have been criticised, but others have not been put off with the UAE and South Africa being the most recent to suggest that offenders will not be treated harshly.
The arguments over enforcement have the potential to cause some severe strain on IMO commitment to future emission policies including decarbonisation. It was noticeable at the Madrid COP25 conference that the united front on CO2 emissions is crumbling. The US, Australia, Saudi Arabia, Brazil and others are less enamoured with it and there are many indications that even in France the home of the Paris Agreement that the policies being pursued by governments are not popular. Farmers protests in Holland and Germany are examples of this as are the Gilets Jaines protests that have been held weekly in France throughout 2019. It would be no surprise if this popular protest in individual states does not begin to also affect IMO relationships.
On the subject of the COP talks, the next one in 2020 will be held in Glasgow in November. That will be just a matter of weeks before the UK ceases to be a member of the EU. The decision to leave the EU was taken by referendum in 2016 and has been the subject of much political argument and delay by the left leaning parties in the UK parliament. A general election in December 2019 saw Boris Johnson who lead the Leave campaign in 2016 re-elected as Prime Minister with a vastly increased majority and the Labour party gaining its lowest share of seats since 1935.
Johnson has indicated a commitment to green policies as a priority for his government but ShipInsight doubts that he will do much to raise expectations for the COP26 conference because true progress is not expected with many believing that the constant string of failures does nothing to enhance the reputation of host governments.
Britain’s departure from the EU will be the first time that a leading member of the organisation has decided to terminate its membership. There are many who feel that the UK will not be the first and that other member states will be reconsidering their own membership. It has become increasingly difficult for the EU to accommodate the wishes of member states as it seeks to evolve from a regional organisation into a federal state in its own right. It is likely that a movement to terminate membership in other member states will get underway through 2020.
The UK has put a limit on trade talks with the EU ensuring that by the end of 2020 there will either be a new deal or trading relationships between the UK and EU will revert to WTO conditions. That will have an impact on formalities for ships trading between UK and EU ports. Depending upon the UK’s adoption or otherwise of EU policies, many shipping companies may find it advantageous to switch allegiance away from EU flags and ports to the UK.
Shipping in 2019 has been badly affected by the trade dispute the US and China. With President Trump facing an election in 2020, there are two ways this could develop. The first is for an accord to be reached and there are some stirrings in this direction at the end of the year. On the other hand, Trump may prefer to be seen as a tough negotiator and press for further concessions. Regardless of the outcome, trading conditions are being affected by more than this dispute and there are no real indicators of a surge in 2020.
Trump’s election as President came as a surprise to many in 2016. Those same people do not believe that he will be re-elected in 2020 but the farcical impeachment attempt by the Democrats has very probably that he will win a second term and probably with a higher vote. There are also US senate seats up for reselection in 2020 and the result could either clip Trump’s wings a little or alternatively see him gains some further advantage in the upper tier of government.
Following on from the results of the Australian election in 2019 and Brazilian Presidential elections in 2018, there are fewer major events taking place in 2020 although there will be some. The disappearance of UK MEP’s from the European parliament will change the make up of that institution but in truth its rulemaking role is quite limited. Arguably the most interesting election after the US will be for the Polish presidency.
The incumbent Andrzej Duda is widely tipped to win and if so will consolidate the hold of the ruling Law and Justice (PiS) Party. Poland could be a candidate for following in the steps of the UK and leaving the EU which has criticised many recent government actions. It will be a difficult one to call as the country does benefit economically from membership but often finds itself in conflict with EU policy and law.
Turning back to shipping we can expect to see at least five ballast system makers and quite likely many more than that call it a day this year and retire from the market. The retrofit bonanza will finish by September 2024 leaving only two or three thousand systems required for newbuildings each year thereafter. October 2020 sees the new revised G8 standard being needed for any installed system. To obtain that will mean a new round of testing which must be completed by October.
Linked to the ballast system retrofit programme will be the experience building phase and enforcement. This could see many ships being fined or detained for non-working systems. Anecdotal evidence of poor performance is quite high and this could soon be confirmed as a true reflection of the operational situation. If it does, expect more problems for the IMO for pushing for regulation in advance of technology maturity.
If ballast system makers are looking at a shrinking market, scrubber makers may well be in for a second spike in sales. A high number of ships will initially switch to running on distillates but if the price of compliant fuels maintains a big differential, then reverting to HFO and fitting a scrubber will be a good strategy. The number of scrubbers in service or on order could quite easily increase to 8,000 to 10,000 by the end of 2020.
2020’s big exhibition is SMM in Hamburg in September. It will be a highly interesting event to attend. Lots of talk about decarbonisation and potentially even a few pioneering power sources making debuts. But do not expect the dominance of diesel engines to be challenged by any of them as few owners will take the risk of adopting prototype power systems in a difficult market.
The biggest engine maker and developer MAN Energy Solutions could find itself under new ownership by the end of the year. Volkswagen which is MAN’s ultimate parent has expressed a desire to return to core markets and to sell off divisions such as MAN. At least three potential buyers are said to be in the running at the end of 2019. Innio from Austria, Cummins from the US and Mitsubishi Heavy Industries. Hyundai which was once in the hunt has apparently pulled out.
Of the three, Mitsubishi must be considered among the front runners, but Cummins did make an initial exploratory bid in the summer. The sale of MAN would mean that all three of Germany’s biggest engine makers are in foreign hands. MaK is owned by Caterpillar, MTU by Rolls-Royce. It will be interesting to see what develops.
Newbuilding orders are likely to drop to a new low in 2020. The trading conditions of the last two years have not been conducive to new speculative ordering and owners will be limiting themselves to replacements for disposals and maybe not even that.
In the bulk sector it will be the large Capesize and ore carriers that feel the pinch most as China appears to be cutting back on steel production and use. For smaller vessels, the import of feed grains for pigs will be impacted by the African swine fever outbreak which resulted in a mass cull of animals. Some meat imports may help but these will be on reefers and in containers not bulk carriers.
All in all an interesting year ins tore for shipping with many factors unclear even at this late stage. One definite event is the Second ShipInsight conference in February – see details here.