Dive Brief:

• In an industry first, Hapag-Lloyd will convert a 15,000 TEU vessel to operate using liquefied natural gas (LNG), the shipping line announced Tuesday.
• A shipyard based in Shanghai will retrofit the "Sajir" containership's fuel system into a dual fuel engine, which allows the vessel to operate using LNG and low-sulfur fuel as a backup. The conversion will take about 90 days, a spokesperson for Hapag-Lloyd told Supply Chain Dive by email.
• Hapag-Lloyd has 17 vessels in its fleet, including Sajir, that were designed to be able to be retrofitted. "We hope to learn for the future and to pave the way for large ships to be retrofitted to use this alternative fuel," Richard von Berlepsch, the managing director of fleet management for Hapag-Lloyd, said in a press release.

Dive Insight:

With IMO 2020 on the horizon, carriers are accelerating their plans to ensure compliance with the low-sulfur regulations coming at the beginning of next year. 

Hapag-Lloyd's decision to convert a ship to LNG sets it apart from other carriers. "We will be the first shipping company in the world to retrofit a container ship of this size to LNG propulsion," von Berlepsch said. 

The majority of container lines will take the low-sulfur fuel route, analysts told Supply Chain Dive earlier this year. Only a handful will install scrubbers, and even fewer will use LNG.

This is in part due to associated costs. In the short-term, converting to low-sulfur fuel is the simplest and least expensive option. In the long run, however, low-sulfur fuel could be costly, resulting in higher operating costs for the vessel — and in turn, higher fees for shippers.

The container line estimated its transition to low-sulfur fuel would cost $1 billion in the first few years. To cover the costs, it introduced a fuel surcharge mechanism that was "gradually implemented" starting Jan. 1 of this year.

Hapag-Lloyd said the LNG option costs $25 million to $30 million per ship. The carrier also named insufficient infrastructure as a downside to LNG use. "At present, there is no supply chain in place to provide ships reliably with LNG," the company said in an IMO presentation. Sajir's dual fuel system takes this into account, allowing for low-sulfur fuel as a backup.

Despite some uncertainty, LNG use carries significant environmental benefits and could reduce carbon emissions by 15% to 30%, according to Hapag-Lloyd.

Still, even if the carrier converts all 17 of its vessels designed to be retrofitted, this remains a small portion of the shipping line's fleet of 222 ships.

"Though we believe that currently low-sulfur fuel is the key solution for Hapag-Lloyd and the entire shipping industry, to comply to the IMO2020 regulation, we want to make sure we have evaluated all options," the carrier stated in a presentation.