Anthony J. Firmin / »A vision for 2020 and beyond« / HANSA-Forum 2018

Investing into a new era: A vision for 2020
and beyond. A liner company’s perspective
Anthony Firmin, COO Hapag-Lloyd AG | HANSA Forum

Hapag-Lloyd’s recent mergers have increased the
company’s international footprint
With our 226 modern ships, 120 services and offices in 127 countries we are a truly global player
and therefore we are constantly dealing with a large number of local and global regulations
One
Global
presence
127
Countries in
five regions
+600
ports called
7
Continents
2

We are stronger today and have the best expertise on board
People
12,600
Volume
7,000
11,700 TTEU
5,900 TTEU
2014 9M 2018
2014 LTM 9M 2018
Ø Vessel size & age
7,200 TEU
Revenue
USD 13,200 m
5,300 TEU
USD 9,050 m
8.7 years 7.5 years
2014 9M 2018
2014 LTM 9M 2018
3
Note: Rounded figures

Regulatory challenges have always
played a role in shipping
Hapag-Lloyd has successfully adopted new regulations
throughout its history and this is why we will tackle the
challenges the IMO2020 Low Sulphur regulation poses
Tier III
IMO2020
24-hour rule SOX max 3.5%
ISPS*
Shipwrecking
Ballast water
…
4
*ISPS = International Ship and Port Facility Security (ISPS) Code

As of 2020, all ships will be required to use fuel with 0.5% sulphur
content or less on all the world‘s ocean
IMO2020 is the first in a series of steps by the International Maritime Organization (IMO) to
reduce emissions in response to climate change.
3.5%
or less
11/2018
0.5%
or less
01/2020
SULPHUR CONTENT
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
Outside ECAs
Inside ECAs
0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
PROGRESSION OF THE MAXIMUM PERMISSIBLE SULPHUR
CONTENT OF MARINE FUELS
Complying with the new low sulphur regulation will make the industry significantly greener, but
compliance will have a significant cost impact on the industry, Hapag-Lloyd, and customers
55
Note: Stricter 0.1% sulphur regulations will remain in the emission control areas in Europe and North America
Source for Maximum Permissable Sulphur Content; Alphatanker, The Marine Fuel Market: Challenges And Opportunities, 2018
0.1% sulphur limit
0.5% sulphur limit

Low Sulphur fuel oil is the key solution for Hapag-Lloyd and the
industry to ensure compliance in the short term
Industry has three promising options for ensuring compliance. However, the majority of all
vessels in the shipping industry are expected to be operated with low sulphur fuel oil by
2020. It is also currently the most environmentally friendly option.
1 2 3
Liquefied natural
gas (LNG)
Exhaust gas
cleaning systems
Compliant
fuels
Estimated mix of solutions for fleet as of 2020 – The majority of vessels is expected to run
on compliant fuel
76

Compliant fuels are the only realistic
solution for ensuring compliance by 2020
Using compliant fuels is the key solution for the industry
and Hapag-Lloyd as refitting a sufficient amount of vessels
to LNG or installing enough Exhaust Gas Cleaning Systems
is not feasible by 2020
Pros and cons of compliant fuels
7
+ Currently the most environmentally friendly solution
+ Major suppliers have confirmed availability
+ No capital expenditure
– Higher fuel price
– Higher operating expenses
– Possible compatibility problems
– No downtime and costs for conversion
– Expected additional cost increase of USD 1 billion for
Hapag-Lloyd annually

The IMO2020 regulation will make the industry greener but it
will come with a price
Costs will go up as both compliant fuels and investments into new technologies will be expensive
On the assumption that the spread between
high-sulphur fuel oil (HSFO) and low-sulphur
fuel oil (LSFO 0.5%) will be 250 US dollars per
tonne by 2020, Hapag-Lloyd estimates its
additional costs of around 1 billion US dollars
annually.
ESTIMATED IMPACT
ON ENTIRE SHIPPING
INDUSTRY
ESTIMATED IMPACT
ON CONTAINER
SHIPPING INDUSTRY
ESTIMATED IMPACT
ON HAPAG-LLOYD
8

To recover fuel related costs caused by the IMO2020, Hapag-Lloyd
has developed a Marine Fuel Recovery (MFR) mechanism
• Marine Fuel Recovery Mechanism will be gradually implemented from beginning of
2019 – all customers will take part in this change
• Hapag-Lloyd will replace all existing fuel charges with a new MFR mechanism
e.g.
…
9

The new MFR mechanism is logical,
transparent and easy-to-understand
Hapag-Lloyd’s MFR mechanism aims to create
transparency and is based on a set of variables and
average market data
• Helps our customers predict and plan price increases
• Customer feedback on the MFR has been largely positive
• The MFR is based on market data (fuel consumption, fuel
price and carried TEU) and averages for Market Class
Vessels
• Unique approach also considering price difference between
0.1% and 0.5% Low Sulphur Fuel
• Dominant and non-dominant legs are treated in the same
way
10

Liquefied Natural Gas (LNG)
Hapag-Lloyd will test operating one vessel with LNG in 2019/2020. If the test is
successful, we might convert more vessels.
• Hapag-Lloyd has 17 LNG ready vessels in its fleet and is refitting one A 15 class vessel in
2019/20
• LNG might be a solution for the mid-term future as it not only has lower sulphur content but
also reduces CO2 as well as other emissions
+
–
• Regulatory certainty
• Lower emissions
• Future availability
• High capital expenditure
• Bunkering network not yet in place
• Availability in ports not yet suf-ficient
• Estimated additional costs for
conversion and newbuilds 25-30
• Attractive payback
11

Exhaust Gas Cleaning Systems (EGCS)
Hapag-Lloyd will conduct 10 retrofits with exhaust gas cleaning systems
• Hybrid scrubbers will be installed to 10 Hamburg Class vessels (13,000 TEU)
• Due to environmental reasons Exhaust Gas Cleaning Systems are only a short- to mid-term
solution
+
–
• Lower capital investment than LNG
• No issues with fuel (HSFO 3.5%)
• Economically attractive
• Proven base technology
• Increased fuel consumption and
higher CO2
• Direct discharge of scrubber water
into the ocean
• Short-term solution
• Estimated installation cost USD 7-10
million per ship
• Attractive payback
12

Governance is crucial – Hapag-Lloyd
welcomes the Carriage Ban
A robust enforcement regime is necessary for
ensuring a level playing field
• The International Maritime Organization itself has no
authority for governance
• Instead each Flag and port state is responsible for
enforcing the regulation with sanctions and fines
• The strict control in ports is extremely important
• Carriage Ban as of March 1, 2020
As a tool for enforcement, the IMO Bans vessels that
are not equipped with scrubbers to carry fuel with
higher Sulphur content than 0.5%
Hapag-Lloyd is a member of the Trident Alliance
The Trident Alliance is a network of ship owners and operators
who share a common interest in robust and effective enforcement
of maritime sulphur regulations
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Will the new regulation affect the supply - demand balance in
liner shipping?
Disadvantage of inefficient vessels will become more apparent as older vessels need to use
more expensive fuels
Fuel costs per day for an old
4,000 TEU vessel
[USD/day]
+$224,250
+62.5%
32,850
Illustrative
+$138,000
20,216
+$3,943
Cost per sea day
@ 400 USD/mt
Cost per sea day
@ 650 USD/mt
• Might lead to increased scrapping of older, less efficient vessels…
• …which would further improve supply - demand balance
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Wrap-up
Key takeaways
• IMO 2020 will effect the industry as a whole
Regulation 2020
• Three options are available to achieve compliance (LNG, EGCS, compliant fuels)
• Majority of containerships will run on compliant fuel as of 2020
Hapag-Lloyd’s
approach
• Hapag-Lloyd embraces new regulation as industry is becoming greener
• We will test LNG and install 10 EGCS
• Using compliant fuels is the key solution for the industry and Hapag-Lloyd
• MFR mechanism in place to tackle higher bunker costs
Going forward
• Positive result from LNG test might lead to further installations
• IMO envisions significant emission reduction by 2050 and wants to be emission free by 2100
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Thank you very much!

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