Regulatory Snapshot. 11 th Annual Hong Kong Ship Finance Forum 12 th April Arthur Bowring MH Senior Consultant, Hong Kong Shipowners Association

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1 Regulatory Snapshot 11 th Annual Hong Kong Ship Finance Forum 12 th April 2018 Arthur Bowring MH Senior Consultant, Hong Kong Shipowners Association

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3 Givens The shipping industry is expanding Public awareness is increasing rapidly NGOs and others are taking an increased interest Putting pressure on elected politicians Who put pressure on legislators Resulting in rapidly evolving regulations Ships and global trade are an easy target

4 More Givens Ships have traditionally been built for 20 to 30 years life But the general public want improvements to be made now An increasing number of regulations will be applied to existing ships Resulting in expensive retrofits or early recycling Digital disruption is affecting other (traditional) industries How do we invest to protect our investments?

5 Incentives Voluntary A good thing to do, but the bad operators become more competitive Commercial If there is a return, the investment will be made Regulatory

6 Regulation The Industry likes regulation But it must be technically achievable It must resolve the issue it is intended to address It must not result in increased administrative burden It must be developed through proper cost/benefit analysis It must be targeted at and sanction those who would not comply

7 Regulation may encourage the development of technology But regulation does not guarantee the availability of technology (Ballast Water Convention!)

8 Short term concerns 1 January 2020 Global fuel cap of 0.5% m/m sulphur Implementation how will the change be implemented so that the global fleet is able to change fuel at midnight 31 December 2019? Enforcement how will the new regulation be enforced? Especially on ships trading deep sea. And how will Reg.18 of Marpol Annex VI be dealt with? Fuel Quality how will quality standards be introduced, especially for blended fuels? Will global fuel standards be compatible, and if not, what action can shipowners take? How can shipowners remain competitive?

9 Short term concerns Alternative Fuels LNG will supply be available, and differing global quality standards resolved? Methanol promising, but still a long way off LPG little interest (demand) seen so far Hydrogen and Fuel Cells interesting developments, but not commercially viable at the moment Scrubbers a possible solution for larger ships, but watch out for corrosion, increased power demand, landing waste from closed loop scrubbers and discharging waste from open loop scrubbers

10 Short term concerns EEDI Major gains have been made in efficiency of ships Resulting in calls to do more But large proportion of gains have come from speed reduction, as a result of market conditions, or from fitting smaller main engines Leading to discussion for early implementation of phase 3 And early discussion of phase 4 BUT lower power leads to loss of maneuverability major unresolved safety issue

11 Short term concerns IMO Road Map for GHG reduction Initial strategy at MEPC 72 this week. Industry attempt to speed and influence discussion by presentation of aspirational objectives (in line with Paris Agreement) Important that IMO work recognises industry participation, and takes into account industry concerns Reductions for individual ships vs reductions for shipping industry LNG is not the answer

12 Short term concerns EEDI 2015 Phase 1 10% 2020 Phase 2 20% 2030 Phase 3 30% Initial Strategy? Per transport work 2030 Phase 4 40% 2050 Phase 5 70% Per Shipping Industry % %

13 Short term concerns Cyber security and cyber risks Everyone has been or will be hacked Can hacking be prevented? Apart from pulling the connection Adopt procedures to guard against common forms of hacking Develop procedures on how to deal with the outcome of cyber penetrations Employ ethical hackers to regularly and frequently test your systems

14 Short term concerns Bio-Fouling New Zealand from 1 May

15 Longer term concerns Automation Increasing automation in ships What will be the role of the seafarer? Does automation always work? Seafarers prefer simple ships Autonomous ships likely in certain trades State of development not yet up to scratch Can Artificial Intelligence systems replicate human reactions? Many things are not programmable But what do the older generation know?

16 Future proof shipping Purchase ships to standard designs, with the hope that regulations will contain a grandfather clause? Purchase ships to sell on in a better market, and not to have to comply with future regulations? Hire millennials from Alibaba to advise on the disruptive process? Work with ethical hackers to toughen computer systems? Join a trade association who will work protect your interests!

17 Thank you Questions?