Chairman's CSR Message

2019 was a volatile and weak year for dry bulk shipping. It was also a year in which we invested heavily to dry-dock ships in preparation for new environmental regulations. Consequently, we produced a lower profit compared to 2018, but we continued to perform well relative to the market.

We grew our owned fleet further with the delivery of eight modern ships, including trading up from two older, smaller vessels that we sold. By the end of April 2020, we will own 117 ships after a few more committed acquisitions are delivered. Including chartered vessels, we typically operate over 200 ships overall.

The more than threefold growth of our owned fleet since 2012 has helped 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 colleagues both ashore and at sea, as well as our customers, suppliers and all stakeholders for their continuing support.

A Sustainable Business Model

We are an owner and operator specialising in modern Handysize and Supramax dry bulk ships – mid-size versatile ships in 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 the Handysize and Supramax segments – drawing on our scale, high-quality interchangeable ships, customer focus, cargo systems, and ship operating and cargo expertise – enables us to maximise our fleet utilisation and fuel efficiency, and generate TCE earnings that outperform freight market indices.

We are dedicated to our customers and we value long-term relationships over short-term gain. 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 business and its success, reputation and sustainability over the long term.

We are thankful for having an excellent team of colleagues in our offices and on our ships. We aim to offer them a safe, caring and fulfilling workplace in which everyone is treated fairly and with dignity and respect.

Safety First

Our day to day priority remains on safety of life, ships and the environment. We challenge 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!

We have steadily reduced injuries on board our ships over many years. In 2019, we recorded a lost time injury frequency (LTIF) of 0.71, which marks a 13% improvement year on year and our lowest LTIF since 2004.

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

We have made excellent progress in implementing compliance solutions for major environmental regulations IMO 2020 and the Ballast Water Management Convention, and we continue to assess and plan for a long-term environmental challenge which is high on the industry agenda and poses significant technical, operational and financial burdens of compliance on ship owners.

2020 Global Sulphur Limit

The IMO 2020 global 0.5% sulphur limit took effect on 1 January 2020, and ship owners must comply either by using newly available, more expensive low-sulphur fuel, or by continuing to burn heavy fuel oil in combination with installing and operating exhaust gas scrubbers. The majority of the global dry bulk fleet, especially smaller vessels such as our Handysize ships, are complying by using low-sulphur fuel.

Including chartered in ships, about 85% of Pacific Basin’s overall fleet complies by using low-sulphur fuel, and our ships have made the switch without any major unplanned operational disruption, as we prepared thoroughly by cleaning our fuel tanks, securing availability of good quality compliant fuel, and training our crews to ensure compliance and seamless service delivery to our customers.

As Supramax vessels consume more bunkers than Handysize vessels, we chose a balanced approach to how we comply, took early actions to prepare for the expected volatility in fuel prices in early 2020 and installed exhaust gas scrubbers on a majority of our owned Supramax vessels allowing these ships to burn cheaper heavy fuel oil. In early February, we completed our scrubber retrofit programme with scrubbers successfully fitted and operational on 28 of our 35 owned Supramaxes. Having scrubbers on about 15% of our approximately 200 operated ships provides us some optionality in how we manage our fuel needs to comply with the new rules.

The majority of dry bulk vessels (especially in our segments) will increasingly sail at reduced optimal operating speeds – as has already been evident in early 2020 since the IMO 2020 regulation took effect – due to the higher price of low sulphur fuel.

Ballast Water Management

The Ballast Water Management Convention 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. 53 of our ships are now fitted with BWTS – mostly systems based on filtration and electrocatalysis – and we have arranged to retrofit all our remaining owned Handysize and Supramax vessels by the end of 2022.

IMO Greenhouse Gas Reduction Strategy

Looking ahead, the IMO’s ambitious greenhouse gas (GHG) reduction goals represent an even greater challenge. Improving the global fleet’s carbon efficiency by at least 40% by 2030 and then cutting our industry’s total GHG emissions by half by 2050 (both relative to 2008) will soon require new fuels, engine technologies and bunkering infrastructure that are not yet available for use in dry bulk shipping and will take time to develop.

What is needed are major decarbonisation initiatives and the research and development necessary to roll out the world’s first commercially viable deep-sea zero-emission ships by as early as the end of this decade. We have joined the recently formed Getting to Zero Coalition of over 100 companies committed to exploring how to achieve that goal.

We are among the most carbon-efficient companies in our segment partly because our ships are laden with cargo for over 90% of the time. That is a significant advantage compared to the average owner of similar ships which spend much more time in ballast.

Additionally, we invest in fuel-efficient secondhand Japanese-built ships, energy-efficiency technologies and fuel optimisation practices that reduce our emissions. For example, we plan the most fuel-efficient passage using weather routing services, and we improve course-keeping with advanced self-tuning autopilot systems. We improve hull and propulsion hydrodynamics by fitting our ships with propeller boss cap fins, non hub-vortex propellers, rudder bulbs and Mewis ducts. Our team has recently made new progress in other areas of fuel optimisation, such as improving trim optimisation to reduce hull resistance and retrofitting new LED lighting in our ships to reduce energy consumption.

In the short term, what the industry can and should do to reduce GHG emissions is to invest further in such initiatives that bring incremental energy-efficiency gains and, most importantly, to slow down existing ships and refrain from ordering new ships with old technology.

In a few years, more detailed regulations will likely be introduced to drive the decarbonisation movement so the industry meets the IMO’s GHG goals. We are well-equipped with an excellent team and good financial health to adapt and cope both practically and financially with compliance and new technology.

As the world decarbonises, Pacific Basin will continue to carry the non-fossil fuel commodities that will be the mainstay of global seaborne trade.

Other Current Regulations

IMO’s Data Collection System (DCS) for fuel consumption commenced on 1 January 2019, so that verified aggregated data is entered into IMO’s ship fuel oil consumption database. This will allow IMO to analyse fuel consumption of the global fleet, potentially leading to further regulatory measures to decarbonise shipping. We have integrated fuel consumption monitoring, reporting and verification procedures into our Pacific Basin management system for IMO DCS compliance.

We are on track to attain Inventory of Hazardous Materials (IHM) certification on all our ships by the end of this year, ensuring that our control of hazardous materials on ships complies with the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships.

An Experienced, Reliable Team

We are fortunate to have an outstanding team of people who provide world-class expertise and professionalism right across our business. All share sensible values and are dedicated to delivering excellent service. Thanks in particular to our in-house fleet management operations, we are well prepared to meet the challenges of new environmental and other maritime regulations.

This CSR Report

This CSR Report seeks to better satisfy our stakeholders’ 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 towards the safety and wellbeing of our staff, ethical business practice, 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.

We welcome any feedback from our stakeholders on our CSR programme and the scope and materiality of the contents of this report.