Stricter environmental norms are coming – how can shipping companies cope?

Martin Stopford, the world’s best known maritime economist wrote in April 2020: “In the next 20 years the maritime industry must rebuild its cargo fleet. If this is done with the radical technologies now available, it will lead to the biggest change in ship design since steam replaced sail in the 19th century.”

Shipping has a long history of staying out of the overall social burden. As late as 50 years ago, the same fuel was used in shipping as in cars, for example. As environmental standards were tightened in car traffic, an increasingly cleaner portion of the fuel was burned in cars, and the remaining, increasingly dirty, cracked waste was burned at sea.

Ten years ago, the maritime industry first woke up to the fact that environmental requirements changed existing shipping. In the Baltic Sea, the Sulphur Directive entered into force five years earlier than elsewhere, already in 2015. The whole of the world moved under the Sulphur regulations in 2020.

At first, the requirements of the Sulphur Directive seemed overwhelming. After all, the affordability of shipping was based on cheap fuel, but soon various exhaust gas cleaning systems and new cleaner fuels came into the industry, as well as new LNG-vessels. The anticipated shift from sea to land did not happen.

Since the Sulphur Directive, attention has been paid to carbon dioxide emissions in shipping. Shipping currently accounts for less than 3% of global greenhouse gas emissions. This may be small from some point of view, but the share will of course increase as other sectors of energy production or transport become more low-emission.

Already in 2018, International Maritime Organization (IMO) stated that the total annual GHG emissions from international shipping should be reduced by at least 50% by 2050 compared to 2008. In June 2021, the International Maritime Organization (IMO) decided on measures aimed at reducing the carbon intensity of shipping by 11% between 2019 and 2026. Decisions on 2027-2030 were postponed, as were measures until 2050.

In July 2021, the European Commission presented the Fit for 55 package, which included proposals for the inclusion of shipping in the carbon trading, the carbon content of fuels, the abolition of duty-free treatment of bunker and the distribution infrastructure for alternative fuels. These rules are much more strict than the global IMO regulations.

In other words, EU will be a forerunner in reducing greenhouse gas emissions of shipping. The big question is how to prevent cargoes from switching routes outside Europe in a way that minimizes emissions charges, but even increases emissions themselves.

The service life of the fleet is practically always more than 20 years, up to 30 or more. It is therefore important that the ship plans already on the table take the best possible environmental standards into account in the future as much as possible – energy solutions are as emission-free as possible and the ship’s energy consumption is kept to a minimum in relation to the amount of cargo carried.

There are three ways to reduce emissions from shipping. Ship fuel solutions, ship design and operational solutions, i.e. ship type selection and ship speed choices. Energy companies are currently in an accelerating debate about fuel solutions and ship designers about new technological solutions, but everyone acknowledges that operational solutions can still bring the biggest emission reductions at the lowest cost. For example, very common slow-steaming significantly reduces emissions without requiring additional technology or new fuels.

Contrary to popular belief, cargo in international transport is sensitive to changing modes of transport if conditions change. During last year’s pandemic, as passenger air traffic declined, rail traffic between Europe and Asia has increased. Similarly, we see that cargo volumes have increased in unitized traffic this year as declining industrial batch sizes shift.

It is important, therefore, that the low-carbon targets for maritime transport do not rely solely on technological solutions or fuels, or even on existing operational models such as speeds or cargo modes, but support less low-emission traffic and each cargo batch can find the transport mode that suits it best in cost, emissions and speed.

It is estimated that trillions of euros will be needed to achieve the carbon neutrality in shipping. This is calculated by using the currently commercially-available technology as the assumption. The question in the whole shipping area is – as we do not know what kind of technologies there will be available for shipping in a decade or two – how can the shipping companies prepare themselves for the coming new regulations?

There are six important steps how the maritime sector can prepare itself for the carbon-free future. First four actions are for shipping companies, one for shippers, and one for regulators.

  1. First, shipping companies should improve the energy efficiency in their newbuildings. The service life of a vessel is practically always more than 20 years, up to 30 or more. It is therefore very important that the ship designs on the table are as energy-efficient as possible. This action has already decreased substantially shipping companies’ emissions, for example bulk vessels being built today can use 50% less fuel compared to the ones being built 10 years ago.

  2. Second, shipping companies should pilot various technical solutions to increase their energy efficiency. These include rotor sails; smart IT- solutions to manage data for maintenance, bunker optimization and safety; air lubrication systems; use of batteries in ports and fairways; information for port arrivals, etc. There are multiple solutions for energy efficiency of vessels being developed around the world, and shipping companies should be active to get them to everyday use. Their effect might be only a few procent in decreasing the carbon emissions, but they are always worth to test. It is the total effect what counts.

  3. Third, shipping companies should reduce their speed and port companies improve their operations. One of the most efficient ways to decrease greenhouse gases of vessels is to reduce vessels’ speed. With the fastest vessels, a drop of few knots can decrease the emissions by one third. In many cases, the improvement of data operations and cargo handling in ports save time that can be used at the sea without increasing the total transport time.
  4. Fourth, shipping companies should prepare themselves for the new low or zero carbon fuels. We do not know what is the fuel of tomorrow – is it hydrogen, ammonia, biofuels, methanol, or even electricity? Or them all? However, some of them are coming and shipping companies should increase their knowledge of various alternative fuels suitable for their own business models.
  5. Fifth, shippers cannot solely rely that maritime sector will change their operations. Shippers should also re-evaluate their full transport chains. Are there possibilities to use slower speed vessels instead of high-speed, or use containers instead of trucks, or rail instead of road, or have more cargo transported at the same time, or more precise cargo tracking to give better estimations for the time of arrival? Should there actually be more inventory and not to rely on fast transports? These decisions have to start by analysing the needs of the final customer, e.g. are they actually wanting high speed or just to have the products when needed.
  6. Finally, authorities and regulators have to introduce rules and support mechanisms and carbon taxes to help shipping industry to move towards carbon-neutrality. It is very important that these rules and mechanisms treat shipping companies in a fair way, so that they really focus on carbon reduction and do not make unfair situations in competition.

By following these six steps, there is a way for shipping sector to achieve carbon neutrality in a balanced way and make the shipping companies even stronger in the future.

This text has been published in Estonian Shipowners’ Association Yearbook 2022.

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