From 'milk runs’ to e-boats, decarbonising marine logistics sector must bring tangible business benefits: PaxOcean CEO

But it has also been difficult for them to ignore the costs associated with operating more electric vessels, said Tan Thai Yong, chairperson of an industry-led alliance in Singapore looking to revamp Singapore’s coastal logistics system. 

The pressure on the global maritime industry to decarbonise has intensified in recent years, especially with global polluter-pay initiatives expanding to include sea transport. Closer to home, the Maritime and Port Authority of Singapore (MPA), announced a mandate earlier this year that requires all new harbour craft to be electric or compatible with the use of net zero fuels by 2030. 

“There is regulatory push…and the building of electric vessels takes time, so the change needs to start now,” said Tan, who heads PaxOcean Group, which owns and operates five shipyards in Singapore, China and Indonesia. PaxOcean is part of the Kuok Maritime Group (KMG).

“But we must also prove that there is something in it for most in the industry,” he stressed. 

Next month, KMG is expected to start running a one-year trial with its new supply boat –  Singapore’s first fully-electric vessel – for combined multiple deliveries of food rations and spare parts to seagoing vessels.

Known as “milk runs”, the concept of organising multi-stop round trips for distribution is common for on-land logistics, but Tan, who chairs the 40-member Coastal Sustainability Alliance, said the firm will take a cautious approach to implementing the trial and actively review feedback from industry players. 

Lessons from the trials are meant to help refine the design and development of future electric supply vessels. KMG said each e-supply boat trip is expected to cut 0.5 metric tonnes of Scope 3 greenhouse gas emissions per arrival of a merchant ship at the Port of Singapore; and the trial is expected to reduce annual carbon emissions equivalent to taking about 100 petrol cars off the road. But these benefits must be demonstrated, said Tan. 

In an interview with Eco-Business, he also outlines some of the challenges faced by the maritime sector amid growing geopolitical uncertainties. 

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What is most pressing for ship owners now are the tariffs that United States President Donald Trump has implemented. If your ship is in China or if your vessel has made-in-China parts, how much would you be impacted? I think this is what boards and company leadership are discussing right now. 

Can you give us a progress update of the Coastal Sustainability Alliance since its launch in 2022? Tell us more about the “milk run” trial that Kuok Marine Group is conducting with shipping companies.

The alliance has grown quite significantly. Personally, I was quite surprised at the positive reaction towards this industry-led alliance. There is more interest and everybody is supportive, and some of the stakeholders have even put money on the table to invest and build the prototype vessel so that we can test our operational capabilities and do trial runs, including to prove that the concept of “milk runs” can work to ensure supply to the last mile. 

Compared to land decarbonisation, it has been more challenging for us to pursue low-carbon solutions for sea logistics as the maritime industry needs to adhere to much stricter regulation. The “milk run” concept is very new. Currently, the supply of spare parts or food to the vessels is done via single point-to-point voyages. If something is ordered, the diesel boat will send it, and the deliveries are not combined. 

We have managed to sign a letter of indemnity (LOI) with seven major ship agencies and one chandler. They will map the routes and prioritise goods to transport. 

With the implementation of the milk runs, I foresee the challenges for the operators would be – people asking for spare parts, many of them will want them supplied as soon as possible. But when you do the milk run, there is some juggling and optimisation of the routes that could mean that some vessels don’t get their supplies earlier. The expectations and mindsets, for example, on arrival timings, will need to shift. 

What response to the trial have you received? 

The support is there. KMG is doing this not to make a lot of money out of it, but the company founder has expressed his support for the trial. 

In the year ahead, we will have to set internal guidelines for these operations, as well as categorise the type of goods we will supply in the trial. The working group will have to discuss this with the various government agencies and regulators. Urgent deliveries, for example, of medication, we might exclude those to begin with. Other supplies such as food rations that can be planned ahead by the chef on board of the vessel can be sent applying this trial concept, as they are less time-critical. 

The timing for receipt of the goods is critical. We will need to avoid doing the deliveries, for example, when the vessel is refuelling or doing ship-to-ship bunkering. The appropriate window will have to be determined so that the milk run is carried out smoothly. There might be complaints at the start, and we might have to set up a hotline to manage this [laughs]. 

After we start to optimise the operation, we can then be a bit more aggressive and expand the type of goods sent on the same boat. We are targeting to run the trials by July. 

How much of a game-changer for decarbonisation would it be when these “milk runs” are conducted with the electric supply boat?

We should be tracking how many runs we do per day, and compute how much Scope 3 greenhouse gas emissions are reduced per month. For now, each e-supply boat trip is expected to cut 0.5 metric tonnes of Scope 3 emissions per arrival of a merchant ship at the Port of Singapore. When we have the actual data, we can share this with CSA members and provide feedback to the regulators and agencies, so everybody can see its benefits. 

Moving forward, companies might be able to offset their carbon emissions potentially through a carbon credits programme. 

We must be able to show some tangible benefits. KMG might be able to subsidise the running of this trial for a year, but as a business, we won’t be able to financially support it forever, so we must prove there is something in it for most in the industry. 

It is interesting that you mentioned building in an incentive through the use of carbon credits. What is the conversation among sector players about this right now? 

MPA has mandated that all new harbour craft operating in Singapore waters will be required to be fully electric from 2030 onwards. So there is regulatory push. 

Building these vessels takes time – about two to three years – so the change needs to start now. The availability of carbon credits as an incentive would help but I know the government is also wary about forcing the regulatory requirements on electrification because of its economic feasibility and its impact on trade. So things will have to happen step by step. 

Let’s discuss the broader geopolitical landscape. What are some of the key developments impacting Asia’s maritime logistics sector? 

The pressure on the global maritime industry has intensified, especially with the European Union Emissions Trading System (EU ETS) [which requires polluters to pay for their greenhouse gas emissions] being extended to include maritime transport, starting with a phased approach from 2024. 

China recently also launched an initiative that required international ship owners to report their carbon emissions, though we don’t hear it being discussed much now. But knowing China, if they want to do something, they will push it through. 

I think all of these dynamics are pressuring ship owners to urgently face the challenge of decarbonisation. Compliance is quite complex. There are varying standards for different jurisdictions. Shipowners usually follow the International Maritime Organization (IMO)’s rules diligently, but there are certain ports that may have higher standards, depending on how stringent the local government is. For example, the Port of California is very strict – you cannot even run your diesel generators within the harbour limits. 

For Singapore, so far I don’t see any hard resolution, but who knows? In a few years time, the rules might be tightened, because otherwise how does the government push the sector players to adopt biofuels and implement electrification? 

But something needs to be done to tackle the fragmentation in order not to increase the operational overheads, administrative burden or potential compliance risks. The consequences of non-compliance otherwise could be very serious. 

What is most pressing for ship owners now are the tariffs that United States President Donald Trump has implemented. If your ship is in China or if your vessel has made-in-China parts, how much would you be impacted? I think this is what boards and company leadership are discussing right now. We are looking at the numbers. 

How has KMG been thinking about decarbonisation? 

Over the past few years, we have been actively trying to reduce our carbon footprint. I am in charge of our two technical fleets and we have been asking the fleets to optimise their voyages. If they can go from A to B in the shortest time, we want them to do that – and go at the most fuel-economic speed so that we don’t burn too much fuel. We have data collected from our on-board sensors to monitor the vessel performance for all new shops built in the last few years, including our MR Type 2 tankers [medium-range product carriers] from Korea. Every tonne of fuel that you don’t burn is 100-per-cent saving on emissions. 

For our offshore fleet, we have pressed the point that they need to run on fewer generators at certain times. Everyone used to think that fuel is free, so they do not think too much about use optimisation, but now it is not only about financial savings. We need to cut down emissions. Some of these mindsets and operational risk assessments will need to be communicated and explained to the charter. 

We have been quite successful in pushing these changes through as a responsible vessel owner. The momentum is there for voyage control and optimisation. The challenge is infrastructure support for the use of cleaner fuels and there is a cost to it. 

What are the alliance’s immediate priorities? 

Firstly, we need to get as much data as possible and gain operational knowledge from the e-supply boat trials so that we can motivate the industry to change, to tell them that this is a workable model and that we should slowly switch to electric boats from now until 2030. The first three months would be crucial because we need the feedback from the operators, and the government agencies also need feedback from the ship owners. We also want to avoid the situation where the industry players just do one run of the trial for marketing purposes and then stop applying it. 

Secondly, we would like to see all harbour tugs electrified. For a start, I am thinking very hard if KMG should start using only electric harbour tugs for our Singapore shipyard. For a start, to promote the usage of these tugs, we will charge the same price for vessels that come into the yard. I am trying to lobby Pacific Workboats Pte Ltd (PWPL), the harbour towage operator that is part of KMG, to build one more electric tug. Construction is ongoing already for our first fully electric tug in Batam, to be ready in the first quarter of next year. We will need one pair of e-tugs to start doing something like this, where no diesel tugs are used. It can be done and it will be good if the industry can follow our approach. The e-tug costs a little more – an extra 20 to 30 per cent due to the batteries – and there will need to be market acceptance. Everyone will have to come together to discuss the rate charge so that it will be sustainable, business-wise. 

And what would you say is a key barrier that might delay implementing these plans? 

Industry demand will be critical. Whatever products that CSA comes up with, there must be a long term commercial value. For the first few years, somebody will take the lead and work on the trial prototypes but as you move forward, it will get more challenging. 

But the MPA regulatory push is helpful. In my personal view, I think by about 2027, more players will become more “kancheong” [Singapore English to describe a feeling of nervousness] about making changes to electrify their operations. We are also finding ways to optimise the design of the vessels and bring down the cost of building of supply boats for mass production. 

What next for maritime electrification in Singapore? 

I don’t think it’s viable to use a pure electric ship for long voyages, for example from Singapore to Houston. But battery technology can be applied for postal vessels and there has been some interest. 

The government is probably also looking very hard at the power supply and the grid [which is mostly fossil fuel-powered]. 

But besides the government, it is also important for industry players to work together. We must try not to see each other as competitors and help each other out.

The interview has been edited for clarity and brevity.