2018 was a much more fulfilling year for Pacific Basin. Average dry bulk market rates strengthened again after what has been a slow return to profitable market conditions, and our hard work to position our company for the recovery enabled us to deliver a strong financial performance.
We grew our owned fleet further with the acquisition of seven modern ships, including trading up from an older, smaller vessel that we sold. As at the end of February 2019, we owned 111 ships on the water and, including chartered vessels, we typically operate over 200 ships overall.
We have grown our owned fleet more than threefold since 2012, preparing us well for the market recovery and helping to cement our position as one of the leading names in dry bulk shipping. The value of our Pacific Basin brand today is also a reflection of 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.
A SUSTAINABLE BUSINESS MODEL
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.
Driving our success and reputation are a sustainable business model and culture, and the support of our customers and other stakeholders
We are passionate about our people, and are caring, fair and treat everybody with dignity and respect.
Despite our industry’s topical focus on combatting atmospheric emissions these days, our day to day priority remains on safety: safety of life, safety of our ships, and safety of the environment. We strive to inspire our teams both on shore and at sea to focus on what really matters and to do the right things at all times: safety comes first!
With a focus on stopping unsafe acts, we have steadily reduced injuries on board our ships by an average of 5% per year since 2004 and, in 2018, we recorded a lost time injury frequency (LTIF) of 0.82, which was unchanged year on year to equal our best safety performance since 2006.
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.
STAYING ON TOP OF ENVIRONMENTAL REGULATORY CHALLENGES
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.
We are currently assessing, planning for or implementing compliance solutions for three major environmental challenges high on the industry agenda which pose significant technical, operational and financial burdens of compliance on ship owners.
Ballast Water Management
The Ballast Water Management Convention (in force since September 2017) requires ballast water treatment systems (BWTS) to be fitted on ships during routine dockings between 2019 and 2024 to substantially eliminate the transfer of organisms between marine ecosystems. Following a comprehensive assessment of BWTS options, 14 of our ships are now fitted with BWTS, and we have arranged to retrofit our remaining 97 owned vessels with a system based on filtration and electrocatalysis by the end of 2022.
2020 Global Sulphur Limit
The IMO’s global 0.5% sulphur limit takes effect on 1 January 2020, and ship owners will have to comply either by using more expensive low-sulphur fuel, or by continuing to burn heavy fuel oil in combination with installing exhaust gas cleaning systems or “scrubbers”. We expect the majority of the global dry bulk fleet, especially smaller vessels such as our Handysize ships, will comply by using low-sulphur fuel.
We would have preferred a mandate for everyone to burn cleaner fuel and the level playing field this would create. However, some owners of larger vessels with higher fuel consumption, including some Supramaxes, are installing scrubbers to take advantage of expected lower cost of heavy fuel oil.
As we cannot risk being competitively disadvantaged, we are well prepared and have arrangements in place with repair yards and scrubber makers to install scrubbers on our owned Supramax vessels. These arrangements include fitting and testing scrubbers to gain experience early and to evaluate the equipment both technically and operationally.
Whichever compliance method owners adopt, we believe that the IMO 2020 regulations will reduce capacity in the short term to the benefit of the freight market, as vessels burning more expensive low-sulphur fuel will operate at more economic slower speeds, and vessels to be retrofitted with scrubbers will be withdrawn from the market for several weeks for scrubber installation.
IMO Greenhouse Gas Reduction Strategy
In April 2018, the IMO announced an ambitious strategy to cut total greenhouse gas emissions from shipping by at least 50% by 2050 (compared to 2008) and improve average CO2 efficiency by at least 40% by 2030 and 70% by 2050. There is much uncertainty about how the market will eventually comply with these targets, future emission limits and the legislations that will in due course be implemented to achieve them. The easiest first step to decrease carbon emissions is to reduce speed, but our view is that these new IMO targets will lead to the development of new fuels, engine technology and vessel designs that are not available or practical today.
We believe the IMO’s greenhouse gas reduction targets and eventual regulations will discourage new ship ordering in the short and medium term until new, fuel, engine technology and lower-emissions ship designs become available.
We expect these major new environmental regulations to be positive for the supply-demand balance and benefit larger, stronger companies with high quality fleets that are better positioned to adapt and cope both practically and financially with compliance and new technology.
Other Current Regulations
The implementation of an Electronic Chart Display and Information System (ECDIS) for paperless navigation became mandatory for all our ships in July 2018. We completed retrofitting ECDIS across our fleet in 2014-2017 and 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 MRV (Monitoring, Reporting, Verification) regulations require ship owners to monitor, report and verify CO2 emissions for vessels calling at EU, Norwegian and Icelandic ports, for which mandatory data collection commenced on 1 January 2018.
IMO’s DCS (Data Collection System) for ships’ fuel oil consumption commenced on 1 January 2019, so that verified aggregated data is reported to flag states for entry into IMO’s ship fuel oil consumption database.
We have developed and integrated MRV procedures into our existing management system for both EU MRV and IMO DCS compliance.
We are also making preparations to attain IHM (Inventory of Hazardous Materials) certification regarding the control of hazardous materials on ships to comply with the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships by December 2020.
AN EXPERIENCED, RELIABLE TEAM
We are fortunate to have an excellent team of people who endow our company with world-class expertise and professionalism right across our business. All share sensible values and a passion for delivering excellent service. And 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 CSR REPORT
This document is our third standalone CSR Report, a comprehensive CSR reference document to better satisfy the growing interest in our CSR responsibilities and performance and 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 linkage between sections in our 2018 Annual Report and this CSR Report (and vice versa). We encourage you to read the two documents in tandem.
We welcome any feedback from our stakeholders on our CSR programme and the scope and materiality of the contents of this report. A feedback form and contact details are provided.
Chief Executive Officer