Sergios Arniakos, Sustainability Manager Latsco Shipping Limited
Sergios Arniakos, Sustainability Manager Latsco Shipping Limited
Challenges for the Maritime industry (both technological and environmental) for the coming years, ideas for practical solutions and a small account of the past four years
As we are now halfway in 2022, the world and the shipping industry being a major stakeholder of global trade, is facing two black swan events, the COVID pandemic which is slowly receding and the Russian invasion of Ukraine at full force. Apart from the grave social implications, these two crises have caused disruption to global trade and the shipping industry specifically. We are witnessing unprecedented and tectonic changes in the global supply chains, an energy transition required to fight climate change and we are also facing the world’s first global energy crisis caused by the Russian invasion. The past couple of years, progress in seaborne trade was uneven across the sectors, with container, dry bulk and gas trade rebounding resolutely, while oil trade saw limited improvements. Recovery in seaborne trade begun in late 2020 and continued throughout 2021, with overall volumes returning to pre-Covid levels by mid-year. 2022 had already started with a number of key risk factors, including impacts on global oil demand from increasing oil prices, macroeconomic headwinds, continuing “cooling trends” in the Chinese economy, the impact of tapering stimulus, increasing pressures from inflation and concerns about emerging market debt.
Furthermore, the shipping industry is being subjected to complex and diverse regulation, considered to be a game changer for the industry. Technical, operational and market-based-measures are being used from the IMO’s and the EU’s arsenal, in an effort to decarbonize the shipping industry and fight climate change. The IMO has set a target for the reduction of CO2 emissions by 40% by 2030 and 70% by 2050 and a reduction of total Green House Gases by 50% by 2050 versus 2008. In order to provide shipowners with a reference point to reduce the emissions and meet the targets, the IMO introduced two decarbonization measures, the EEXI (Energy Efficiency Existing Ship Index) and the CII or Carbon Intensity Indicator. EEXI compliance will be mandatory by 2023 and is likely to have a small impact on modern tonnage, however CII may have a more fundamental impact and may affect commercial contracts, as it becomes progressively stricter over time. As regards to the EU, shipping is responsible for circa 13% of GHG emissions of the EU’s transport sector and in July last year, the EU, which has a higher ambition than the IMO, announced an update to the EU Green Deal, the “Fit for 55” package, aiming to reduce the net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The goal is to accelerate the greenhouse gases emission reduction in the next decade. The “Fit for 55” package impacts the shipping industry mainly with two dedicated proposals:
While meeting medium-term regulations set for 2030 is manageable, especially for shipping companies with modern tonnage, longer-term regulations set for 2050 will not be possible without new technologies, low or zero carbon fuels and scalability.
As such, the industry is entering an era of accelerated innovation in technology and increased transparency that will differentiate forward-thinking companies. This environment presents a substantial technological challenge as there is no silver bullet in terms of optimal ship propulsion technology and fuels. Regarding low or zero carbon fuels, scalability is presently a constraint and as far as larger vessels are concerned ammonia and methanol seem to be the current forerunners. However, we need to remember that a complete value chain for these new fuels, i.e. production, distribution and on-board technology needs to be developed and tested. In addition, the IMO regulations and high EU carbon permit prices may also drive alternative methods of dealing with CO2 emissions, like post combustion carbon capture. Efficiencies may also be realized through digital technologies like AI and dedicated maritime software, but the human factor will always be the foundation and driver of the shipping industry. Man and machine need to learn to work together and complement each other. As regards to the ESG landscape, an increasing number of shipping companies align their ESG and business strategies and disclose their ESG performance. Environmental Social and Governance criteria may affect financing as a large percentage of institutional investors have already started to use ESG performance to screen their investments. Furthermore, the Global Maritime Forum has introduced two initiatives, the Poseidon Principles and the Sea Cargo Charter, which push towards the same direction as the regulations. Some of the world’s biggest shipping banks have become signatories of the Poseidon Principles in order to incentivize decarbonization in the industry and align their shipping portfolios with the sustainability objectives set by the IMO. In a similar pattern, some of the world’s biggest charterers became signatories of the Sea Cargo Charter in order to underpin their commitment to reduce the Green House Gas emissions of shipping. Looking ahead, in view of these numerous challenges that the shipping industry is facing, shipping companies are strategizing and are carefully considering their fleet renewal plans, while constantly researching and learning about the advancements in ship technology and fuels in order to make the right decisions at the right time. Sustainability, resilience and agility are required more than ever in order to create value for all stakeholders..