CEO, Stena Line
(Article originally published in Nov/Dec 2014 edition.)
A maritime lawyer by training, Carl-Johan Hagman has been CEO of Stena Line since 2011, but in fact he is responsible for all of Stena’s maritime activities. Prior to joining Stena, he served variously as President and CEO of Höegh Autoliners in Oslo; President and CEO of Eukor Car Carriers in Seoul, and President and CEO of Wallenius Lines in Stockholm. He spent several years as an officer in the Swedish Navy and has lived over half his life in Japan and Korea.
Tony Munoz: You’ve spent most of your career in the Far East. Where are you based today?
Carl-Johan Hagman: In Gothenburg, on the Swedish west coast. It’s the only real deepwater port we have in Sweden, and it’s the largest port in Scandinavia and Finland, actually. We have a nice shipping heritage since 1621 when the Dutch engineers came and helped build the city for us.
TM: Tell us about the operations you manage.
CJH: Okay, they include Stena Bulk, which controls 100 tankers – about 50 clean and 50 dirty – and some LNG vessels; Stena Line, which has 40 ferries; Stena RoRo with 20 RoRo and RoPax ships; Stena Drilling, which currently is probably the most important operation from an earnings point of view with seven rigs and drill ships; and Northern Marine, our ship management company with more than 100 ships and about 6,500 seafarers – many for third-party owners.
TM: Where does the name Stena come from?
CJH: The founder’s name was Sten Allan Olsson. He started the company in 1939 as a metal-trading firm, and that legacy lives on in Stena Metall. His son, Dan Sten Olsson, is the current Chairman and CEO. The company is still family-owned and controlled, and they invest in all of its business endeavors.
TM: How large is Stena Line?
CJH: Stena Line transports about 15 million passengers, three million cars and two million trucks annually. Some of the ferries are as big as small cruise ships, and there are overnight cabins for longer routes. Stena is one of the world’s largest ferry operators with 23 routes in Scandinavia, the UK and the Baltics. We have 5,600 employees and connections to 10 countries.
TM: As CEO of a major vessel operator in northern Europe, how will the final implementation of the Sulfur Emission Control Area (SECA) legislation, effective January 1, 2015, impact you?
CJH: In total, Stena operates around 60 ferries and RoRo vessels in the Baltic, Irish and North seas. The ferries will therefore be the division most affected. They operate in a huge body of water, including the Baltic and North seas and the English Channel, which has been mandated to reduce the sulfur content in fuel from global standards of 3.5 percent to 0.1 percent. In the SECA area, the reduction is from 1.0 percent to 0.1 percent. Those are huge reductions and will increase our annual fuel costs by 50 percent or around $70 million.
The environment is extremely important to northern Europeans, but SECA mandates have been swift, and the technologies to meet them have not been readily available. Northern Europe represents a fraction of the global shipping industry, but it will unfortunately bear most of the research and development costs involved in compliance. The utility and auto industries dealt with emissions requirements more than a decade ago, but the grace periods for them were much longer.
TM: What will be the impact on your customers?
CJH: Our freight customers could be facing around fifteen percent across-the-board rate increases. While it may not sound exorbitant, bear in mind that transportation costs from Scandinavia to continental Europe are already many times higher than within Europe itself or to Asia and the U.S. If our clients become uncompetitive because of increasingly higher costs, they will cease shipping cargoes or seek out alternative modes of transportation. If they move from sea routes onto highways, there will be huge increases in pollution, congestion and infrastructure costs.
The wonderful thing about the ocean is that it has an endless amount of capacity and the infrastructure, in the form of ships, is already there. What is now happening is we are laying up vessels. We’re taking vessels out of service, and the consequence will be that many countries in northern Europe will have to build more highways. Now that’s both costly and, from an environmental point of view, not a very good thing to do. So it’s counterproductive to the original intent of the SECA legislation, which was to reduce the amount of sulfur emissions.
TM: Who will enforce SECA?
CJH: It is an uncertain situation. If it were the EU government, the policies would have been clearly defined. But separate countries in Europe are formulating policies and penalties. It’s all over the place and extremely convoluted. While the mandates for the U.S. begin at the same time, at least operators know the U.S. Coast Guard and EPA will be in charge. Surely the Canadians have done so as well. But not so for the Baltic and North seas, which are made up of many countries and governments. For Stena Line, which operates in many countries every day, who is in charge?
TM: Has Stena installed scrubbers or will it be using alternative fuels?
CJH: There are a number of options under review at this time, but some of the technologies, like scrubbers, are not yet fully developed. One could ask why the cleaning should take place onboard? It would be much cheaper to clean the fuel onshore at a larger facility and then load it onboard a vessel. LNG is definitely an alternative, but the infrastructure to support its distribution is not in place yet, and it could take years to build. The challenge for Stena is that we have 60 ferries and RoRo vessels in operation and the vast majority of them cannot be converted. Consequently, we will be forced to purchase low-sulfur fuel at a huge premium and, unfortunately, pass along parts of that cost to our clients.
Now methanol – which is basically natural gas – is an interesting fuel because it will reduce CO2 emissions by 100 percent. The company has been experimenting with one vessel and discovered the fuel works well with the existing engine. There will be full-scale trials next year, but it will be more than five years before a supply chain can be established for the full fleet.
While global shipping is a fantastic business, to get the 85,000 vessels operating worldwide to run on methanol or LNG would be a massive task, and it would take many years. But time is not part of the agenda, and today the burden is on just a few operators and shippers in northern Europe.
TM: Can there be a level playing field?
CJH: Complying with SECA will require a big effort for ferry operators like Stena, who have many short transits to a number of different countries. And those of us operating within these regions will have greater scrutiny than global tramp ships transiting in and out of the area. While regulations are part of doing business, compliance is often not cheap. So a level playing field will be difficult to achieve.
TM: Can absolute enforcement take place in northern Europe?
CJH: Again, if the EU were implementing these regulations there would at least be some level of uniformity, but SECA is viewed more as a national issue. In Gothenburg, sensors have been placed at the entrance to the port to measure the exhaust from each vessel. Our ferries may very well be dealing with different methodologies and enforcement issues in different countries. While we don’t yet know how the actual enforcement handled in many countries, we know what we need to do to comply.
TM: What about ballast water treatment? How is Stena dealing with this issue?
CJH: I am an environmental maritime lawyer by training and, while protecting the environment is very important, some legislation is just not well thought-out. Many of our ferries transit less than thirty minutes into a country, and the ballast water must be cleaned for a few nautical miles? Ballast water legislation should exempt ferries operating over such short distances.
TM: Is Stena mandated to comply with ballast water treatment because it transports general cargo as well as passengers?
CJH: No, enforcement is based on routes operated to various countries. We have routes that are less than three nautical miles and take as little as 14 minutes to complete. Yet our ferries follow the same regulations as a trans-global freighter.
TM: In this context and given all the constraints presented by the SECA legislation, what are your goals for Stena Line?
Essentially, it would be to move significant amounts of roadway traffic onto short-sea shipping routes. Europe has huge constraints in rail capacity and highway congestion. Short-sea shipping can create sustainable change, which can benefit society as a whole. With that in mind we recently joined with several other companies, including Maersk, Wallenius-Wilhelmsen and Höegh, to form the Trident Alliance, whose objective is to give shipping in northern Europe a unified voice on legislated sulfur issues and help enforce a level playing field.
In addition, we are working through our national and European shipowners associations to reengage Europe’s politicians in a sober discussion concerning the cost of environmental compliance and the need for the EU to be competitive in global markets. There’s a lot at stake. – MarEx
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The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.