Firm freight, but stagnant sales
“My clients say ‘yes, the market is great but if we sell what do we buy? And if we buy, how can we be sure we can use those ships in a few years – because there is regulation coming out that is going to change the ships that can be used in the market.”
The other problem, he said, is understanding what those regulations actually are and what they mean in practical terms for buyers looking to invest in ships today. “What will owners have to do to comply. How does the future look in 2025, 2030, let alone 2050? What are the challenges and who is going to finance it? Does the technology exist for full compliance? I don’t know the answer to these,” he said.
These unknowns have led to the “three deadliest words in S&P: wait and see”, Ward said. “That means no sales any time soon.”
In an attempt to answer some of those questions, a panel comprised of an owner, charterer, regulator, financier and engine developer discussed the problems facing the market.
Camille Bourgeon, technical officer for the marine environment at the International Maritime Organization, said it makes sense to link the future of shipping with decarbonisation and that everyone is engaged in the transition. Regulation, he added, is key to the pathway to decarbonisation and also the driver of innovation.
These unknowns have led to the “three deadliest words in S&P: wait and see”, Ward said. “That means no sales any time soon
But Alex Haubert, manager of ocean freight at Brazilian commodities company Amaggi, disagreed. He said that while the industry needs regulations to quantify the problem and put everyone on a level playing field, regulation alone cannot solve the emissions challenge or bring the entire industry to transition. “I think that the end consumer will be driving the change and transition, and this will take some time. Right now, it is difficult to go to a farmer and say ‘this is good, but you also need to make sure that you ship your beans in ships that burn less emissions’. I don’t think we are there yet.”
Ioanna Procopiou, managing director of dry bulk ship operator Prominence Maritime, added that working with all stakeholders will be necessary. “It will take a collaborative approach to get anywhere,” she said. “Dr Martin Stopford said recently that it is going to take $3.4 trillion to decarbonise our industry so this burden has to be shared among stakeholders.” It is therefore important for the regulations to have a holistic approach and be clear on the environmental benefits.
Procopiou said that ship owners can only go so far on the decarbonisation road as they are constrained by the designs and technology that is currently out there. “We are the end users; we do not create the products. If the best design or engine is not available, what can we do? If the best that is available is not good enough, we cannot be the ones who are producing the R&D and technology for that – this is not our role, we are the transporters.” This puts ship owners in an awkward position, she said. “The regulations are there, but we don’t know how to comply with them even though we want to. It’s not a clear cut path.”
If the best design or engine is not available, what can we do?
Flexibility is the key word for Mauro Sacchi, director of business development, marine power at Wärtsilä Corporation. However, this brings uncertainty. “The technology that is ultimately needed to comply down the road is not there; there is not one answer that can fix it all. We cannot expect a ship owner to scrap a ship that is ten years old just because they need to introduce a new technology to comply.” Sacchi asked what the industry can do in the short term to patch the present. While energy efficiency technology can give compliance to a certain extent, the industry will reach a plateau where the technology today is not enough – but an owner will still need to take a decision.
Owners have been deterred from being the first mover as traditional business models leave little room for significantly increased fuel costs, pointed out Christopher Rex, head of innovation and research at Danish Ship Finance. “If you look at the average return on investment on capital for the past ten years or so it has been quite low. We are looking at fuels that are much more expensive and much more available. So if you are considering adding significant costs, I would consider it would be quite difficult to find a feasible business model going forward.” He said that the industry needs to find a fuel that can scaled to bring down the costs. But, more importantly, the sector must consider new business opportunities and not see the switch to green fuels as a burden. “Can we turn decarbonisation into a business opportunity where we can begin to create business value? We might consider a perspective where new players, new drivers and new business models could enter our industry and compete differently to what we are used to seeing.”
The technology to deliver just-in-time arrivals already exists, it is not rocket science
On the subject of who pays for greening of the shipping industry, Haubert said that any increase in ocean freight rates needs to make economic sense from day one. But he said that charterers would likely be interested in contributing to investments to improve fuel consumption with selected owner partners so that they could reduce their fuel bill. He is also an advocate of slow steaming as “good for emissions and good for the market”. But while just-in-time arrivals could be “implemented tomorrow”, according to Sacchi, there is a business case to be ironed out before those wheels can be set in motion. “The technology to deliver just-in-time arrivals already exists, it is not rocket science,” he said. “Everybody around the table is saying ‘if we implement this there will be clear gains, but we do not know who is going to gain from what and what and how this will impact my excel file’.” Consequently, commercial drivers and business models needs to change. “This requires much more transparency of data and a different model – it’s indicative of the challenge we have here: it is not only a technological one.”
Source: The Baltic Briefing