Hapag-Lloyd AG: Complying with IMO 2020

Case Solution

Benjamin C. Esty, Emer Moloney, Mette Fuglsang Hjortshoej
Harvard Business School ()

A new environmental regulation known as IMO 2020 resulted in what one industry analyst called “the biggest shock to the oil and shipping industry in decades.” Under the new regulation, all offshore ships would have to limit their sulfur emissions by January 1, 2020. Executives at HapagLloyd, one of the world’s largest shipping companies, looked at three ways their ships could comply. with the new regulation: use low sulfur fuel, use high sulfur fuel but install scrubbers to clean exhaust gases or convert ships to use liquefied natural gas (LNG) as fuel. Each of the options had its advantages and disadvantages, and the most attractive option depended not only on the values โ€‹โ€‹of key parameters (for example, future fuel prices and equipment costs), but also on the strategies of the operators. owners of the other 60,000 oceans. vessels in progress for regulation. For the industry as a whole, annual compliance could cost up to $ 60 billion; For HapagLloyd, annual compliance can cost up to $ 1 billion or more. For a company with net income of $ 34 million ($ 28 million) last year and losses in two of the last four years, making this decision correctly was of the utmost importance. HapagLloyd executives had developed a proposal for a compliance plan and were going to present it to the law firm’s supervisory board for approval in June 2018.

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