New Zealand's reluctance to adopt international regulations on cleaner marine fuel is causing confusion and uncertainty in the domestic shipping industry as a January 1, 2020, deadline approaches.
Shipping sources say that regardless of whether New Zealand signs up to an international treaty known as MARPOL Annex 6, it will significantly change the logistics environment.
MARPOL 6 cuts the maximum level for the sulphur content of emissions to 0.5 per cent, down from the current limit of 3.5 per cent.
Refining NZ - which is responsible for meeting about 70 per cent of New Zealand's fuel needs - doesn't make low-sulphur fuel but oil companies are expected to make available fuel that meets the standard.
In the meantime, most of the ships operating around New Zealand that are flagged to countries which have ratified the annex will be bound by it.
Annabel Young, executive director of the NZ Shipping Federation, which represents coastal ship operators, said about 98 per cent of the world's shipping had adopted the new standard but local shipowners have been left in the dark about when, or if, the new rules will apply to domestic coastal shipping.
Associate Minister of Transport Julie Anne Genter said New Zealand is a party to MARPOL, an international treaty to reduce various types of maritime pollution.
"Previous governments, however, chose not to sign up to Annex VI of MARPOL which regulates shipping emissions affecting human health and the climate," she said in comments supplied to the Herald.
Genter said she was "keenly aware" that the shipping community needed certainty about signing up to the treaty, and she expected to take a recommendation on this to the Cabinet in the coming months.
The ports sector and Refining NZ have made a case for delaying its introduction until 2023.
To comply with MARPOL 6, ships can fit "scrubbers" to their engines or shift to another fuel type such as diesel, which is about 50 per cent more expensive than heavy oil.
Young, a former National Party MP, said the new standard have would far-reaching consequences. "Inevitably, it will alter the logistics environment," she said.
"It is unknown as to what sort of fuels will be available in New Zealand.
"What's going to be made available in New Zealand and at what price?
"There is uncertainty as people don't know what the best course of action is," said Young.
World-wide, she said, the impact of the change in fuels is already being felt, by way of surcharges on freight and the choice of routes or speeds.
"This is the case even though the switchover, to new fuels or alternative technology, is only just beginning."
MARPOL 6 will affect shipping, but also all users of oil-based fuel, as well as users of products which rely on oil in their supply chain.
The fuel companies are proposing to make available "dirty diesel" - a mix of the old fuel plus enough diesel to bring down the average emissions to below the required level - from January 1.
Investment research company Shareclarity, in an analysis of Napier Port's upcoming share float, said the new standard could result in shipping companies increasing their fees and reducing the number of ports they visit.
"We have laboured this point because the impacts of these new shipping regulations will be seen early next year and they have the potential to affect many companies, particularly ports, agriculture, logistics, retailers and manufacturers," Shareclarity said.
Much of the money raised in the float will be used to build a new wharf, called 6 Wharf.
"More specifically, it could call into question the planned expansion and expected return on Napier Port's container wharf," Shareclarity said.
Napier Port, in a written response to a Herald inquiry, had no comment on the research, other than to say the primary need for 6 Wharf was to ease congestion and constraints on port operations.
"It is a long-term solution which will enable us to capitalise on future growth opportunities and to continue to support our customers," said chief executive Todd Dawson.
Ken Harris, managing director of Container Co, who has an extensive background in ports administration and in international marine transport, said MARPOL 6 would not alter shippers' behaviour in terms of the number and location of New Zealand ports they visit.
"I would not envisage that as being a problem for New Zealand. They can carry a great deal of fuel and, of course, they are highly efficient," he said.
Nevertheless, the new standard would bring big changes for the logistics industry.
"Everyone is focused on it and the international shipping companies have found solutions, so they will be compliant," Harris said.
"The domestic scene will be just working through its options and working alongside the Government to make sure they get through, but the domestic side is obviously a very small part of the problem - the bulk of the problem has been handled by the international shipping companies' compliance."
There are ways the local fleet could comply, at a price, Harris said, adding that the best options could involve biofuels, LNG or the use of scrubbers.
He said New Zealand-bound ships were most likely to load up with fuel overseas - probably in Singapore.
He said the coastal shipping fleet was surprisingly small, given the efficiency that it could offer over road and rail.
"If there is a confusion, it's the fact that there is no obvious solution for New Zealand, unless it wants to get serious about its coastal trade."
Harris said international freight rates had fallen to low levels over recent years and changes to MARPOL may mean they rise slightly.
In 2018/19 the Ministry of Transport engaged in consultation with interested parties on whether New Zealand should sign MARPOL.
The ministry said the rules would reduce carbon emissions and improve air quality around our ports and harbours, provide investment certainty to domestic ship owners and fuel suppliers, and would demonstrate commitment to a "level playing field" for international maritime regulations.
But the ministry said the regulations would impose costs on ship owners and operators, and their customers.
Call for delay
The ports industry and Refining NZ have argued for delaying introduction of the new rules.
In their submission to the ministry, a group representing the country's port chief executives said it supported "accession", or compliance with MARPOL 6.
"While we support accession we note that this treaty will have significant implications for the economy," the group said.
"It will lead to an increase in freight costs and may accelerate a trend to the use of larger ships.
"It might have implications for the competitiveness of some low margin freight."
The group questioned whether it was feasible for MARPOL 6 to come into force on January 1 and said that globally there were concerns about the availability of cost-efficient low-sulphur fuels.
The alternative to using low-sulphur fuel was scrubbers, but they take time to install.
"Should it be possible to delay implementation until such time as more compliant fuel was available or to allow all ships travelling to or in New Zealand waters to install scrubbing technology, this would appear sensible," it said.
Refining NZ, in its submission, said MARPOL Annex 6 "does, to some degree, represent a threat to our toll refinery given it may restrict our ability to process as wide a range of crudes as we do at the moment thereby impinging on our refining margin and revenue stream".
Delaying MARPOL 6 until 2023 would allow the refinery sufficient time to progress these potential solutions, working in tandem with policymakers and industry, it said.
Kevin O'Sullivan, chief executive of the New Zealand Cruise Association, said all cruise ships arriving in New Zealand had been MARPOL 6 compliant for some time, but fuelling up here could be a problem.
"Cruise ships will be MARPOL 6 compliant - most of them are now - but the ships that come to New Zealand will be compliant as from January 1, 2020."
Compliant ships will have converted to low-sulphur fuel or have been fitted with scrubbers.
"Fuelling up here could be a problem because the fuel industry has not made low sulphur fuel available in New Zealand, with the exception of marine gas oil - the marine equivalent of diesel," he said.
Increasingly, the cruise industry had been turning to cleaner burning liquefied natural gas-powered engines, O'Sullivan said.