Compliance and Enforcement  ‐a shipowner / operator perspectiveComments on 2015 compliance

Enforcement –What can we expect?

Economics of compliance: why comply? Roger Strevens, Wallenius Wilhelmsen Logistics

WWL at a glance

WWL

3

Own fleet 60 ROROs– Deep sea, global

153year heritage

‘Factory to dealership’– 4.3m moves by sea, 6m

by land

USD3bn

Enviro frontrunner

MMT - Regulatory Affairs Slide no. 4

The Importance of Strict Enforcement of the Sulphur Regulations

Niels Bjørn MortensenDirector, Regulatory AffairsMaersk Maritime Technology

EEDI

WWL 2015 compliance

5

MGO Scrubbers

Except MGO, compliance solutions still maturing

Economically, best long-term compliance solutions unclear

WWL compliance approach under continuous review

Competitive motivation to minimise cost

Exploring all compliance possibilities

Sulphur Frontrunner

Cumulative SOx saving– ≈ French annual SOx

Frontrunner philosophy– ‘Exceed responsibilities today to reduce

risk and cost tomorrow’

A decade of S innovation– Deep tech. & oper. experience– Real enviro commitment

4 Stream Approach

About 4 Stream Approach

ULSFO Bunker Oil

Distillate Fuels (MGO)

Other Energy Sources (LNG)

Exhaust Gas Cleaning Systems

Leveraging low sulphur experience & expertise

Working on a broad scale– Expect need for more than one solution

Best solution for a vessel depends on:– Age– Size– Trading pattern– Design specifics

7

MGO / HFO differential

8

∆ ≈ USD300/t 40-70t/d USD10-20k/d

Per vessel

WWL’s 2015 ECA perspective

9

Other issues:– Extent– Impact– Uncertainty

Hard hitting regulation

Industry game changer

10

Poor enforcement

EC study – 1/1000 inspection rate– Fines inadequate

WWL: ‘approx.’ 1 sulphur inspection

Bunker theory / practice mismatch

Rumours– Some buy no LS HFO– BDN’s with blank % S ?

As regulatory cost increases enforcement more than regulation alone drives compliance– Enforcement is prime driver of compliance

Weak enforcement & high costs creates temptations– Bad behaviour rewarded, good punished– Inverted regulatory dynamic

Negative for environment & health

Difficult for compliance solution providers

A level playing field?

12

Detection Technology– Vessels underway– Legal standing

Jurisdiction– Territorial waters– ‘Compound infractions’

Enforcement: 2 main issues

?

Much work to do regarding enforcement on the high seas

6 November 2014Regulatory AffairsSlide no. 13

An Aframax tanker can save USD 120-150,000 on a voyagefrom the Atlantic to Primorskand back again by burningHFO instead of MGO.

50 mill. tons of oilout of Primorsk + 25 mill tons out of Ust Luga annually.

Distance sailed withinthe ECA: ~3300 NM

Legal uncertainty

• Can a coastal state issue fines for non-compliance committed outsideits waters of jurisdiction?

• EU Sulphur Directive states: Sanctions must be: • Effective• Proportionate• Dissuasive

• If applied to the last 12 NM, but not the first 800 NM, it may still begood business to be non-compliant.

06-11-2014Maersk Maritime Technology Slide no. 14

Why Comply?

So why comply?

It’s the law and it’s not optional!

Doing the right thing, even if no one is watching

Strategy

Contractual requirement

Vessel financing

Risk mitigation

Market sentiment

Customers care

Interests– Commercial– Contractual– Strategic

Risks– Supply chain– Brand

Business ethicsFair competition

17

Shipping and shippers: bound to compliance

It’s not personal, it’s business

Situation will not self-correct,

Was getting little attention and

…more likely to get worse 2020+

Unacceptable business risk

18

Trident Alliance: enlightened self‐interest

Single issue shipping network Sulphur regulation Fair competition through effective enforcement & transparency 

www.tridentalliance.org

Strong message Aligned: environment, health & industry

Unexpected, but welcome Now a regular headline issue

We are the Trident Alliance

23 Leading shipping companies (so far)

Wide range of company sizes Issue applies to all

See yourself here?

Approach  & Initiatives

Innovation Faster, cheaper & more extensive detection Focussing of resources

Satellite control of drones, Portable fuel analysis devices

Transparency Leading by example

Greatest potential for TA

Not all regulatory problems need regulatory solution…

CommunicationAwareness ‘The tricks of the trade

Collaboration with RO’s

Enforcement: regular headline issue

The ‘tricks of the trade’ - how to cheat

• Many scenarios – explore two:

• Feign ignorance

• False BDN, false allocation tanks

06-11-2014Maersk Maritime Technology Slide no. 22

How to cheat?

• Ignorance: ”Never heard about these new rules!”

• Pro:• In a low enforcement regime, this could go on for years.• If caught, the penalty woudl probably be lower than in case of deliberate non-

compliance.

• Con:• If will only work the first time you are caught.• PSC could check the ECA history of the ship and issue penalties for previous

non-compliant trips in the ECA.

06-11-2014Maersk Maritime Technology Slide no. 23

How to cheat?• False Bunker Delivery Notes

• BDNs state: 3500 t HFO and 1500 t MGO

• Reality: 4800 t HFO and 200 t MGO

• False tank allocation • 3500 t HFO in dedicated HFO tanks

• 1300 t HFO in MGO tank (former LSFO tank)

• 200 t MGO in MGO tank

• Oil Record Book • Recording fuel consumption from MGO tank when inside ECA

• Shift to ”real” MGO upon entering port

06-11-2014Maersk Maritime Technology Slide no. 24

Bunker Delivery Notes –BDN - come in all shapes and formats

06-11-2014Maersk Maritime Technology Slide no. 25

Commercial from a stamp manufacturer:

06-11-2014Maersk Maritime Technology Slide no. 26

• When you need a stamp or seal you need it now, not next week. That’s why Walker Companies specializes in delivering customized stamps overnight and… creating corporate seals while you wait.

How to cheat?

• Tank conversions

06-11-2014Maersk Maritime Technology Slide no. 27

Summary

• Generally poor enforcement efforts to date • How will jurisdictional issues be resolved?• S Regulation has unprecedented cost, impact• Most will comply, but a temptation exists• Weak enforcement – bad for new fuels• Trident Alliance: fair competition objective,

communication focus. Join us!• Tricks of the trade – sunlight is the best disinfectant!

06-11-2014Maersk Maritime Technology Slide no. 28

Fair competitionthrough robust enforcement and transparency