In 2017, we celebrated Pacific Basin’s thirtieth anniversary. Since taking delivery of our first Handysize bulk carriers “Pacific Lover” and “Handy King” in late 1987, Pacific Basin has evolved into one of the biggest and most reputable names in dry bulk shipping. Our fleet, team, network and business model today are the best we have ever had, thanks to the dedication and hard work of many people over the years to grow and improve our company. We thank our past and present colleagues – both ashore and at sea – as well as our customers, suppliers and all stakeholders for their enduring support.
We are an owner and operator specialising in modern Handysize and Supramax dry bulk ships, mid-size versatile ship segments that offer benefits of diversification in terms of geography, customers and cargoes. That means we don’t experience the degree of earnings volatility that other segments do, which is partly how we managed to safely navigate extraordinarily challenging market conditions of the past several years. Our ability to leverage the characteristics of these segments through our scale, high-quality substitutable ships, office network, customer focus, cargo systems, and depth and breadth of experience enables us to maximise our fleet utilisation and generate TCE earnings that outperform the freight market indices.
We are passionate about our customers and we value long-term relationships over short-term gain. These are values that underpin a customer-focused business model. We invest our time and our personalised, innovative efforts to offer a tailored, flexible and reliable service to customers, making it easier for them to do business with us. This is what earns us the customer support that is so valuable to us throughout the cycles and provides the foundation for our sustainability over the long term.
We are passionate about our people, and are caring, fair and treat everybody with dignity and respect. Safety comes first, and our investment in the development and training of our staff underpins our safety performance while also driving knowledge, productivity, engagement, loyalty and a deeper sense of belonging to the company.
Our large fleet comprises quality ships of efficient design, which delivers operational efficiencies for the benefit of our customers while generating lower atmospheric emissions than the average ship in our segment. We have long been early adopters of technological and operational measures to minimise our impact on the environment, and we continue to invest in technologies, systems and processes that reduce our environmental footprint not only because of the moral and increasing regulatory obligation to do so, but also because of the strong business case for taking action.
We welcome new, stricter regulations for greener shipping where prescribed environmental solutions are effective and financially feasible. Two very current regulatory challenges pose potentially significant technical, operational and financial burdens of compliance on shipowners.
The International Maritime Organisation’s 2004 Ballast Water Management Convention (BWMC) entered into force in September 2017 requiring ballast water treatment equipment to be fitted on ships during docking surveys between 2019 and 2024. This global convention aims to substantially eliminate biological organisms from ships’ ballast water, thereby minimising the transfer of invasive species that can damage or destroy local marine ecosystems.
A few of our recently delivered newbuildings and secondhand acquisitions came fitted with ballast water treatment systems. For the rest of our fleet requiring such equipment to be retrofitted, we have selected ballast water management system makers who are compliant with IMO regulations and are on track to obtaining type approval for compliance with United States ballast water management regulations, and we are well positioned to complete implementation across our owned fleet by 2023, one year ahead of the IMO’s mandatory schedule.
The IMO’s global 0.5% sulphur limit enters into force in January 2020, in addition to the 0.1% sulphur limit in Emission Control Areas in North American, US Caribbean, North Sea and Baltic regions. To comply with sulphur limits, shipowners can either burn low sulphur fuel oil or marine gas oil, or install exhaust gas cleaning systems (scrubbers) and burn high sulphur fuel.
We feel scrubbers represent an impractical and ineffective solution requiring tens of thousands of vessels to retrofit this expensive technology on a small-scale basis with significantly increased operating costs instead of extracting the sulphur on a much larger scale at the source ashore. Shore discharge and reception facilities would need to be developed in ports all around the world to make shoreside discharge of scrubber sludge and the use of scrubbers practical. Moreover, there is no guarantee that high sulphur fuel for vessels fitted with scrubbers will be globally available in the coming several years, adding to the case against installing scrubbers. Only around 1% of deep sea ships currently use scrubbers.
We welcome stricter environmental regulation, but we do not think scrubbers are an effective solution technically or environmentally, and we much prefer a mandate for everyone to burn cleaner fuel and the level playing field this would create.
The new environmental regulations discussed above pose significant uncertainties for shipowners, including:
Combined with the attraction of low secondhand prices, these uncertainties are currently discouraging new ship ordering in our segment, and are also expected to impact dry bulk supply in other ways.
A consequence of a global adoption of low sulphur fuel is that its higher cost will discourage ship operating speeds from increasing, contributing to lower emissions and a better supply-demand balance.
The extra investment for ballast water treatment systems (and potentially for exhaust gas scrubbers) and the higher cost of low sulphur fuel will penalise the oldest and worst performing ships, potentially driving such ships to demolition.
Overall, we welcome stricter regulation to minimise our industry’s environmental footprint – notwithstanding our preference for burning cleaner fuel rather than installing scrubbers. We believe these new regulations will be positive for the supply-demand balance and benefit larger, stronger companies with high quality fleets that are better positioned to adapt and to cope practically and financially with compliance.
The implementation of an Electronic Chart Display and Information System (ECDIS) for paperless navigation will be mandatory for all our ships by July 2018. We completed retrofitting ECDIS across our fleet in 2014-2017, have trained our navigating officers in its use and rolled out ECDIS as a primary means of navigation on all our ships well in advance of the implementation schedule.
EU regulations on Carbon Dioxide (CO2) Monitoring, Reporting and Verification (MRV) for shipping require the first reporting cycle to commence in 2018 in a step towards setting reduction targets by mandating the collection and public reporting of CO2 emissions data. We have developed and integrated MRV procedures into our existing management system for compliance.
In 2017, the IMO formalised a 6-year roadmap for developing a comprehensive strategy on reduction of green-house gas (GHG) emissions from ships. This roadmap builds on the IMO’s various streams of GHG emissions reduction activity to date, including technical and operational measures (Energy Efficiency Design Index and Ship Energy Efficiency Management Plan) and the adoption of a data collection system to provide the basis for objective policy debates and additional measures ahead. In April 2018, IMO member states will debate and develop a comprehensive strategy including emissions reduction goals and a list of possible short, medium and longer term measures to help achieve them.
We are fortunate to have an excellent team of people who endow our company with world-class expertise and professionalism right across our business. Thanks in particular to our award-winning in-house technical operations, we are fully prepared to meet the challenges of new environmental and other maritime regulations.
This document is our second standalone CSR Report, designed to serve as a comprehensive CSR reference document to better satisfy the growing interest in the details of our CSR responsibilities and performance. It also serves to clearly address the disclosure requirements of the Environmental, Social and Governance Reporting Guide (“ESG Guide”) of The Stock Exchange of Hong Kong.
The focus of these pages is on how we tackle our responsibilities for the safety and wellbeing of our staff and ethical business practice, and our responsibilities towards the environment and the communities in which we operate.
As a large player in our sector with an ambitious vision for the future, we recognise our responsibilities in these areas which have a bearing on the long-term sustainability of our business.
Commentary relating to our economic sustainability and a detailed account of our corporate governance continue to feature in our Annual Report. We remain committed to the concepts of “Integrated Reporting”, and provide clear linkage between sections in our 2017 Annual Report and this CSR Report (and vice versa). We continue to publish a short summary of our CSR performance highlights for the year in our Annual Report.