German Shipowners‘ and Ports Associations Scandlines/TT-Line/Team Lines

1. THE MARPOL EFFECT German study Stockholm 24032011Dr. Gernot TeschMD Scandlines Deutschland GmbHRostock/Germany German Shipowners‘ and Ports Associations Scandlines/TT-Line/Team Lines

2. MARPOL Annex VI – regulation of sulphur content in ship fuels Global and local sulphur regulations: High burdens for SECA especially problematic for feeder and ferry operators as direct competition to road

3. Background • Structured dialogue with German Government since 2008 • GER with support for MARPOL VI regulation • GER also acknowledged the need to prevent modal shift • In December 2008 agreement for a joint impact assessment • German focus in addition to other studies

4. Background • Study by wellknown and reputated Institute of Shipping Economics and Logistics (ISL) Bremen • Analyse cost effects on Short Sea Shipping and relevant markets • Analyse the effects on competition of transport modes • Estimate the volume of modal shift • Estimate effects on German ports • Recommendation

5. Assumptions Relevant Market • Analysed corridors with impact on Germany • West SWE/N • South SWE • Balticum states • Russia • Finland - Belgium - SWE

6. Assumptions Relevant Market – corridors & route alternatives ISL 2010

7. Assumptions • Reference scenario • Ship costs • cost components for truck transport ISL 2010

8. Results • Total cost increase in RoRo-sector for sea transport ISL 2010

9. Some Results • Total cost increase in feeder sector ISL 2010

10. Results • Risk of modal shift in RoRo sector ISL 2010

11. Results • Risk of modal shift in container shipping ISL 2010

12. RoRo: 604.000 trailer à 100 km 60 mill extra truck km Container: 820.000 TEU 113 mill extra truck km Feeder: 315.000 TEU (2 TEU / à 360 km) 14 mill extra truck km Short Sea: 95.000 TEU à (2 TEU / à 150 km) 187 mill extra kmon German roads Impact on the German road transport infrastructure 2015

13. Recommendations and solutions • Discussion of all measures to prevent modal shift with German Government as regards SECA sulphur limit • Exhaust gas treatment technology • Alternative fuels (LNG) • Adjustment of sulphur caps • Postponing • Discussion/alignment of position with other countries

14. Exhaust Gas Treatment Technology • Technology not sufficiently mature: Ongoing prototype testing by producers, but NO single sale at the market reported (test installations only and only on 1-engine-type vessels; we are running with 4 engines on main routes) • Found not sufficiently reliable at this stage (DFDS as test operator decided not to put scrubbers onto additional vessels until reliability has improved) • Low penetration in the market – no experiences about longer term reliability/effectiveness • National and international regulation – which systems are allowed in the Baltic? “Wet” method -> discharge at sea not recommendable in the Baltic, “dry” method –> requires setting up a disposal system) (again: different systems in the different SECA areas) • Availability of HFO in the Baltic area as precondition for scrubbers still unclear • Additional operational costs (higher fuel consumption, additional consumables, maintenance costs), hence higher CO2 emissions • Most suitable for new buildings, retrofitting of existing to be found unrealistic: • Dry docking, additional electrical power, space for scrubbers not available, impact on ship stability, loss of cargo capacity and deadweight, ice class issues (increased draft), stability and noise problems • On RoRo and RoPax scrubber installations will be most challenging due to weight, design, capacity issues and decreased deadweight: Exhaust Gas Cleaning System Association: “not suitable for all vessels” (volume vessels like ferries) • capacities not available for retrofitting 600 inner-SECA vessels until 2015 • Upper limit regarding engine power, unless running multiple scrubbers in parallel (given that space is available) • We are using 0,1 % since years voluntarily on HH, haven`t identified scrubber as alternative yet • MAIN PROBLEM: NOT CONTRIBUTING TO CO2 – REDUCTION

15. LNG • More seen as a long term option for new buildings only • Currently valid for new buildings on pre-defined routes (no change of fleet for at least 20 years expected) and with the support of considerable subsidies (single vessel VIKING Line 27 M€) • space, technical and costs constraints for retrofitting • more space is required to accommodate the LNG tanks (up to a factor of 4) • worsens the ratio of investment costs to income from cargo transport, difference between the price of LNG and MGO sufficiently high • Much needs to be done in terms of infrastructure and bunkering support • Bunker infrastructure not existent and not to be created overnight, will not be available 2015 for sure • Lack of harmonized rules and procedures • CAN CONTRIBUTE TO SHIPS CO2 EMISSION REDUCTION

16. Fuel with 0,5 % sulphur content

17. Conclusion • Investments requires certainty about technology, fuel availability and legislation (wet or dry) • Additional regulation expected (CO2) • Investment in scrubbers for a few years only and a later switch to LNG isn`t acceptable • Loss of investment when sale into different parts of the world • Loss of flexibility (no charter/sale possible any longer) • Difficult bank financing • Different measures for existing vs. new ships as retrofitting of the existing fleet economically not viable whereas for new buildings a technical solutions seems to be possible, considering the technical progress until 2015 and the preparation work, possible on new buildings but hardly on existent vessels • Interim solution for existing fleet urgently needed (0,5% vs. 0,1% ) or postponement (Swedish/Finnish initiative), in order to prevent the modal shift and to enable the operators to accumulate the necessary capital for a stepwise replacement of the existing fleet

18. Thank you! Dr Gernot Tesch Scandlines Deutschland gernot.tesch@scandlines.com