Energy Transition Interviews Shipping

Maersk’s Lars Nielsen: “We need to see a move forward in the fuel supply side”

Head of Americas Operations discusses low carbon shipping in Latin America in an exclusive interview

In an exclusive interview with Maritime South, Lars Ostergaard Nielsen, Maersk Head of Americas Liner Operations Cluster, discusses low carbon shipping and the business environment in Latin America. The 45-year-old Danish executive has over 29 years served in a wide variety of roles for Maersk, including as country manager in Uruguay, Colombia, Suriname and Guyana. In December 2017, he became the Regional CEO of Maersk in Latin America and the Caribbean. Then, in August 2020, the Head of the Americas Liner Operations Cluster.

Methanol: “It’s a proven technology”

Maritime South: The backdrop of our conversation is three announcements Maersk made over the last 4 weeks. The first carbon neutral vessel for 2023 – a methanol dual fuel vessel – and then the initiatives in Denmark and Singapore regarding ammonia. So, the first question is, why methanol? And when Maersk mentions intra-regional trades, one expects this vessel is going to be employed probably in the Baltic, or the North Sea, or somewhere in the Pacific. But what are the expectations for Latin America?

Lars Ostergaard Nielsen: To answer the first part of your question, “why methanol” or “why e-methanol or bio-methanol”, the simple answer is that it’s a technology that is available, so we can say it’s something that we can do with a level of certainty. The second point is that we can also combine it with dual fuel technology, because the big challenge we have right now is partly technology but also availability of fuel to suit that technology, whatever we choose. We have chosen the dual fuel technology with methanol right now because it’s a proven technology. The engines are available, outside container shipping there are a few vessels already using it.

And then we have other projects around ammonia, because we don’t necessarily believe that methanol is the only solution. If you look at shipping on a global scale, we are going to need more than one technology and more than one fuel type to be able to decarbonize the whole global fleet.

Then if I zoom in on Latin America and where we’ll deploy this first vessel. First, the vessel will be around the 2,000-TEU mark – we are still finalizing the exact plans – so this means there are certain trades and scopes where such a vessel will fit. The next consideration is availability of the appropriate fuel. We will have to place that vessel into a part of the network where in 2023 we see a higher likelihood of getting access to enough fuel. But right now, I simply don’t know if we’ll have access to fuel in Latin America.

And I think that discussion is also part of why we believe it’s important that we lean out and take this step, because we do need to see a move forward in the fuel supply side. Obviously, it’s the old chicken and egg problem. What comes first? Do we need to supply fuel before people will order vessels or do we need the vessel before the fuel suppliers will get into action? We feel that, as part of our role in the industry, we have an ability and an opportunity here to put the order in and that will hopefully lead some of the suppliers to start saying: “listen, the industry is serious about this”.

We have also made the commitment that all future vessel orders will use new technology for the engines. And this is the first one, so hopefully that will drive the supply side on the fuel to start moving faster and engage with us as well.

Political backing: “it’s only to be expected that further developed nations are also able to take a step initially in terms of making some of the investments”

Regarding decarbonization, it seems that in Latin America the political authorities have their heads buried into the sand. You see the initiatives in Europe, in Asia, now with the shift in power in the United States, things might change there as well. But in Brazil, for example, the government is rolling out new subsidies for fossil fuels. In Argentina and Mexico, most further infrastructure development is still based on oil and gas. But would you say there is some perspective, or a particular country that could lead this transition and be the first one to provide infrastructure for carbon neutral fuels?

At this point in time I don’t have a specific country I can share with you because it hasn’t advanced enough to get to that state. But as you say, there are clearly countries and regions that are further ahead and investing into certain technologies. And you know, as much as it is a global problem and it’s one of a political nature that is not really for me to comment on. There are nations that are coming from a different economic reality in terms of where you can invest and how you are placed. Therefore, it’s also fair that perhaps there are regions, countries that are further ahead simply because they have lesser other political problems to deal with. So, it’s only to be expected that further developed nations are also able to take a step initially in terms of making some of the investments.

But that being said, we have also seen some nations almost skipping a step. If you see for instance how mobile technology is developing in Africa, I think that’s a very good example. You see countries considered to be part of the developing world that have almost leapfrogged the Western world. They’ve said “you know what, instead of going from this first technology and to a second, then to mobile, we just skip the middle step and jump straight up to mobile technology”. Perhaps some of this could happen in this field as well where some nations simply say, “you know, we don’t have the same history, we don’t have the same current infrastructure and industry that you need to protect”, so you can simply start something new. We are certainly hoping that that could happen.

Fuel production: “Some of the bio-methanol and e-methanol production could be sustainable in Latin America”

It’s clear that Maersk is not really a fan of LNG propulsion. Would you say a similar approach of skipping a technology could be beneficial to Latin America?

I think you’re right, and I think of course LNG is not big in Latin America. And yes, our belief is that LNG is not the long-term solution. It’s not carbon neutral, and therefore we don’t see it as having a place. I mean, others feel that it could be a transitionary solution. But I think the challenge an industry like ours has is that when you invest in an asset, you are going to live with that asset for 20 years. And that’s part of why we are saying we don’t see LNG being part of the solution with a 20, 30-year time horizon, so therefore we would rather skip that step.

Additionally, part of the bio-methanol case is about having enough biomass. And then you could argue that some of the Latin American countries could actually get to a meaningful biomass level. You do have countries that are relatively large and have a strong history with agriculture and other production where you could produce biomass. And we have seen examples, part of it being used in some of the blends for petrol for cars in Brazil, etc. So perhaps, there could be a future where some of the bio-methanol and e-methanol production could be sustainable in Latin America.

The lignin blends have been mentioned over the last 2 years by the company. In 2021, though, it seems Maersk is not really focusing too much on the research you have been doing into lignin blends. Why is that?

We are still looking at it, and it is still something that is in our plans, but is not very mature, so we haven’t gone out broadly with that. We have not disregarded the lignin blends, but we don’t feel we have enough data at his point in time to say this is a real alternative.

Waiting time at port: “We measure down to minutes”

Before you have this fully decarbonized fleet, you are still operating a fairly large conventional fleet. What are currently the challenges of lowering emissions of your vessels, especially the ones from Aliança and some of the Hamburg Süd vessels that are mainly operating in Latin America?

We have done quite a lot over the years. We have lowered our emissions quite significantly and that has mainly been done via making sure we utilize our assets more meaningfully. Basically, what it means is that if we are sailing a vessel, the more we can make sure that that vessel is fully utilized, we of course then lower the emissions per ton of cargo moved. That’s because the emissions don’t change significant depending on how full or how empty a vessel is.

The other thing was the introduction of slow steaming back in the day, of being very careful in terms of how we plan. There’s a lot to be gained in terms of how you actually plan the rotation of a vessel. Because way back when I started in the industry, almost 30 years ago, you didn’t really pay so much attention to the specific schedules. Are you speeding up, are you slowing down, are you speeding up again? But to use technology for planning has quite a significant impact on the outcome of emissions. We’re trying to plan our scheduling, our port stays in a way that we can run the vessel in between the two ports at the most optimal speed in terms of emissions. It’s a little bit like your car, right? You drive a lot further if you do 80 km/h than if you do 110 km/h. It’s exactly the same with a vessel, that if we can make sure we don’t have these peaks in how we have to speed up to catch a port and slow down, then we’d have idle time when the vessel is still using fuel, but actually not moving cargo. As part of that, I engaged with all the ports and the terminals to make sure that the time the vessel arrives we have the minimum number of hours, and actually we measure down to minutes of waiting time before the vessel can go to the quay and moved out again.

So, we’ve done a lot of things around planning using technology run at the most optimal speed. And that’s the same technology or the same approach that we employed after we bought Hamburg Sud and Aliança at the end of 2017.

Operational optimization: “There’s only so much we can keep on tweaking”

And after all these investments in efficient planning, slow steaming, just in time arrivals and so on, can you give an estimate of how much still can you improve using these operational initiatives? Is there still some fat to be burned?

There is always opportunity, but without being able to give you an exact number, I would say we are down in single-percentage points that we can probably keep tweaking. And that’s also why we are saying to truly get to carbon neutrality. That requires investments in new technology in terms of new engines, new fuel types. Because there’s only so much we can keep on tweaking. In Maersk we actually measure every single week how we are performing in terms of how much fuel we use per container, per tonne moved. When I’m talking to my team, it’s a weekly update that we discuss: “have we managed to lower the fuel consumption?” Because at the end of the day, it’s really about lowering the consumption, because that lowers the emissions.

But we are done now, you can say, to keep on fine tuning that. So, to answer your question, it’s down to smaller percentages now, and the big ones will have to come from new investments, such as the announcement we made a month ago.

Could you comment broadly about the shipping business environment in Latin America? Looking at the short term, the volumes development and the freight rates, which have skyrocketed.

Overall, we are seeing a relatively strong start to this year, and we saw a good performance last year. I think the challenge that the industry has is that Covid and everything it has brought with it, has really changed some of the dynamics.

As an example, because of all the lockdowns, shutdowns, and economic hardship for parts of the populations, we saw a dramatic drop in import volume. That’s also driven by exchange rate fluctuations. You would know from Brazil of course as an example, when you see the real moving from hovering around 4:1 to the dollar to getting down to 5,5 and even 6, then of course that impacts the average consumer’s ability to buy imported goods. But on the flipside of that, you then saw that the same effect is positive on your exports. So, what we have seen is quite a significant shift in the balance of flows, and it seems to be leveling a bit in 2021, but we certainly not back to what we were used to before Covid.

Container imbalance: “We are not running out, but we are from time to time running tight”

So that means a potential problem of empty containers too, right?

Yes, there are challenges with the flows of containers that we are having to manage very carefully. We still have containers available in Latin America, so you can say we are not running out, but we are from time to time running tight. Part of it is simply because the models that we have used to been working with, some of that data is simply no longer relevant, because it has shifted, so we’ve been having to adjust a lot more that what we were used to.

On your question on the freight rates, then of course, yes, the short-term freight rate market is then impacted by this supply and demand situation that has changed quite a lot. I mean, we are clearly seeing that it is shifting back a little bit again so the extremes that we saw last year, they have started to come down to a more normal level, and I suspect that it will continue. So as the world gets used to the new normal, if I can call it that, then of course that will also flow in to supply, demand, and therefore will also flow in to how the freight rates are developing.

Modal competition: “Although shipping is not carbon neutral, it’s certainly better to move a container on a ship from a carbon perspective”

We are seeing some reforms, for example in Brazil the discussion of the new cabotage law (BR do Mar), this is expected to change substantially the environment there even though the roll out of the legislation is quite slow. Other countries have done or are considering doing similar reforms. How do you see the long development of liner shipping in Latin America?

Latin America has a reliance on shipping to get to markets, because if you look at trading partners, then I certainly foresee a future where ocean volume both the long haul, but also the short haul, that will grow. That I’m pretty certain. And I think as you just mentioned, for instance cabotage, etc. It’s mainly on the East Coast [of South America] that you have a couple of very big countries where you can say domestic shipping can be and is an important alternative to overland transport. And that I suspect when we think environmentally that that’s of course an important factor for countries to make sure that we lower the overall carbon emissions. Although shipping is not carbon neutral, it’s certainly better to move a container on a ship from a carbon perspective than it is to move it on a truck or on a railroad for that matter. So, I certainly see that we are looking at a future where shipping will continue to grow and be very relevant in Latin America. That I have no doubt about.

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