Today’s action for tomorrow’s business
Shipping was the original driver of globalisation and remains the critical component of global supply chains. That it seems, will not change, though as we hear more and more often from influential voices, everything else is up for debate.
Until recently, the industry has prioritised timing (as short as possible) and cost (as low as possible), but the future will be measured as much on transparency as efficiency and by a sustainable business model.
The need to adapt to and adopt new technologies reflects a supply chain that is more integrated than ever before; the potential is for collaboration and data sharing, even with potential competitors believes Monique Giese, Global Head of Shipping for consultants KPMG.
“The biggest issue for shipping is to recognise the value of its data; that is shipping’s most valuable asset, it operates in a data-rich environment and without it we cannot achieve efficiencies,” she told the recent Tradewinds technology webinar.
While potentially disruptive platforms are creating noise, it is ‘dramatic shifts in customer behaviour’ that will really drive transparency, she said, creating pressure on both performance and price. “Customers expect real time monitoring and control and for them sustainability is a value driver; shipowners have to implement ESG policies. There is no way around carbon pricing, so we need correct data.”
Michael Parker, Chairman of Global Shipping for Citi believes the same. Speaking at the Hellenic American & Norwegian American Chambers of Commerce annual shipping conference, Parker cast operational data and experience as the key to unlocking shipping’s decarbonised future.
“I think what we will see this year and increasingly in future years is this use of data. There will be more and more data, essentially transparent, we can then judge things,” he said.
The question that follows all too often is whether charterers would actually pay more for more efficient ships that had made modifications or retrofits to reduce their Average Efficiency Ratios.
Parker pointed out that super-charterer Cargill and some oil majors have indicated a willingness to do just that and added that building new ships with old technology makes no sense from a global emissions standpoint “and there’s no point scrapping quality ships that with some investment can have a prolonged life”.
Putting this in the context of the banks that make up his fellow Poseidon Principles signatories, he added that for them, “it’s about lowering the emissions in our portfolio, and if we can help those ships lower their emissions, then we are meeting our obligations”.
For a glimpse of what that means across a global organisation, consider being the most recognisable name in shipping. AP Moller-Maersk – often the only name that non-shipping people have heard – has been active on sustainability over a decade. Three years ago it adopted a decarbonisation strategy that aims for net zero operations by 2050 and to have a commercially viable net zero vessel in service before 2030.
As Simon Bergulf, Director of Regulatory Affairs for Maersk told the IMO Symposium on alternative fuels, “in 2018 lots of people said that was a Moonshot and was not achievable. Well things have changed so quickly and exponentially over the last two years we have to ask ourselves whether we don’t need to accelerate our own strategy.”
Maersk identified four pillars of design for carbon-neutrality, reflecting first that technical means of driving energy efficiency are ‘drying up’ for its fleet of containerships.
New fuels are the second pillar and one in which it seek to drive innovation. “The era of one general fuel is over, there will be a number of different ones and we don’t know yet which ones are the silver bullet. What we do know is that they will be far more expensive than the ones we are sailing on today,” Bergulf added.
But while advocating for research and development in fuels, he stressed that this “will have to come from fuel suppliers”.
The third pillar is the company’s customers, since “to be successful you have bring customers on the journey”. This has a direct relationship to the cost of decarbonisation since customers need to be persuaded to pay “and they [customers] have to be ready to put their money where their mouths are.”
The final pillar is regulatory affairs and Maersk considers that 2021 will be a key year for the IMO, one in which substantial progress must be made. Bergulf said IMO needs to “leapfrog and demonstrate leadership, we need to stop talking about saving percentages [of vessel efficiency] and look further forward than short term measures”.
And he said the focus should be on support for operational expenditure rather than the capital expenditure required; measures such as the mooted bunker levy should be encouraged to push forward the use of new fuels in market, closing the competitive gap to more costly alternatives.
Maersk also believes Market-Based Measures – traditionally the rock on which IMO’s ambitions for seismic change have always foundered – are unavoidable, especially if the industry is to support a higher ambition level than those set to be agreed in 2023, the EEXI and Carbon Intensity Indicator.
“We need to reward first movers and we need to raise the bar. We learned a lot from IMO 2020; chiefly that enforcement cannot be an afterthought, you have to build it in. We cannot rely on the normal way of doing things in the IMO; this is an unprecedented challenge and we need to be creative. We have to think out of the box, with compliance on a fleet basis to reward owners that create a zero emissions ship.”