Singapore liner PIL rolls out $2.6b plan for greener ships 3 years after Temasek lifeline

SINGAPORE – Home-grown shipping line Pacific International Lines (PIL) is rolling out a US$2 billion (S$2.6 billion) plan to replace part of its fleet with 13 dual-fuel container ships that can run on both liquefied natural gas (LNG) and conventional marine fuel.

The move comes after PIL

received a US$600 million lifeline

from Singapore investment company Temasek’s wholly owned Heliconia Capital Management in 2021 to help it stave off bankruptcy. The bailout involved Heliconia taking a majority stake in the liner.

PIL is now among the top 12 container shipping lines globally and the largest in South-east Asia. Being home-grown, it is now Singapore’s de facto national shipping line after Neptune Orient Lines was acquired by French liner CMA CGM for US$2.5 billion in 2016.

The liner’s adoption of LNG ships solidifies its long-term plan to comply with the maritime industry’s emissions targets and operate sustainably in major trade lanes, chief executive Lars Kastrup told The Straits Times.

The first two ships were delivered in Shanghai on Oct 15 and named by the spouses of Temasek CEO Dilhan Pillay and PIL executive chairman Teo Siong Seng, better known as Mr S.S. Teo. The Kota Eagle and Kota Emerald are two of the biggest in PIL’s fleet, with the capacity to move 14,000 containers each.

They will be deployed in PIL’s longest service between Asia and Latin America and will immediately reduce the liner’s carbon dioxide emissions on the route by some 20 per cent, as LNG is less carbon-intensive than conventional bunker fuels, Mr Kastrup said.

But he added that the dual-fuel ships cost PIL around 20 per cent more to build compared with those powered by conventional fuels.

LNG is also 20 per cent to 25 per cent more expensive as a source of fuel.

As pressure mounts to comply with the International Maritime Organisation’s (IMO) 2050 net-zero target for the shipping industry, liners like PIL are increasingly investing in greener fuels and more energy-efficient ship designs to reduce and offset their emissions.

Mr Kastrup noted that while complying with the IMO’s targets is expensive, it is nevertheless necessary to avoid eventually having to pay steep carbon levies or being forced to withdraw from certain trade lanes as a result of being non-compliant.

Ships over 5,000 tonnes must buy allowances for their carbon dioxide emissions to continue sailing within the European Union. In 2025, requirements to reduce the energy used by ships trading within the EU will also be enforced, among other things.

PIL does not operate in Europe or the United States, but Mr Kastrup expects that global demand for greener shipping will only increase as shippers face growing calls from shareholders and customers to reduce their carbon footprint.

“Our key routes are Africa, South America and the Middle East and intra-Asia. These three routes’ demand for green shipping is not as high as in Europe and the US, but it is developing.”

He added that PIL placed orders for dual-fuel LNG ships in 2022, the first Asian container shipping line to do so.

“Together with the other 11 new dual-fuel ships that will be progressively delivered in the next few years, these vessels mark the start of our plans to modernise our fleet.”

PIL’s efforts to become more environmentally responsible are expected to lead to higher freight rates.

Norwegian classification society DNV in September estimated that

freight rates for containerised goods could double over the next 25 years

as a result of climate requirements, with liners expected to pass on the costs to shippers and their consumers.

This would also come at a time when shipping rates are becoming increasingly volatile.

In September, for example, some of the biggest shipping lines began adding surcharges to their freight rates in anticipation of a dock workers’ strike on the east and Gulf coasts of the US. The strike was called off after three days.

Rates were already volatile after

Israel’s attack on Gaza in late 2023,

which triggered wider violence in the region and forced ships sailing between Asia and Europe through the Suez Canal to cancel those voyages.

Instead, liners have deployed more capacity to the much longer route around Africa, which has driven up freight rates.

This is expected to help keep PIL profitable in 2024.

The liner reported in April that net profit for the financial year ending Dec 31, 2023, came in at US$277.6 million, about 10 per cent of its 2022 earnings of US$3 billion, due to slower global growth and falling freight rates.

It logged US$2.9 billion in revenue for 2023, which was 53 per cent lower than 2022’s figure.