Look beyond green fuels for sustainability
The development of sustainable fuels has been the driving force in aims to meet the International Maritime Organization target of reducing emissions by 50% by 2050. But, said the report’s co-authors, other drivers for sustainability – including increased demand for transparency about product and asset lifecycles, and rising consumer pressures for extended producer responsibility – take a more holistic look at sustainability.
“In effect, how can we make parts or all of shipping’s lifecycle more environmentally and socially sustainable while still commercially viable?” says the report.
To transition to greener fuels, the fleet will either need to be retrofitted or scrapped, meaning that operators will need to be quick to adapt to rapid change to mitigate compliance costs and stay competitive. This, says the report, presents an opportunity to review existing practices within the industry and assess the business case for adopting circular economy thinking.
This could be through the introduction of modular designs in ship building or the standardisation of vessel parts, which could better enable refurbishment, repair, upgrade and recovery of components and resources at end-of-life.
The report states that there can be “substantial synergies” between circular economy business models and the change to new fuel types. “With circular economy thinking the process of building a new fleet of zero-carbon vessels can be optimised to minimise waste and secure a circular flow of valuable resources. This can mean resource efficiency and cost savings, as well as reduced environmental impact and improved social working conditions.
“By rethinking current ship design and operational models, new circular economy business models can present opportunities to increase revenue, reduce costs, and improve risk management.”
Circularity in practice
Currently the shipping industry is by definition a ‘engineer-to-order’ environment – the placing of an order prompts the execution of the services necessary to fulfil it. This bespoke environment makes the industry less flexible and less ready for retrofitting to meet future regulation, the report noted.
PA Consulting calculated. Added to which, when remanufactured to the same level of reliability as new components, this process may lower overall component costs by 50% to 80%.
Meanwhile, alternative operating and financing models more in tune with a circular economy might bring added benefits. For example, an ‘access-over-ownership’ model, similar to those seen with leasing schemes in the aviation industry, would allow customers the use of a product without the requirement to purchase it. “Such a model could enable the industry to leverage cost savings that make it commercially viable to update and retrofit vessels (for example, to accommodate new fuel types and regulatory requirements) while also addressing social and environmental consequences at the asset’s end-of-life,” said the report.
The engineer-to-order environment and the current ownership dynamics of the industry are roadblocks to the implementation of circular economy principles. The report points out that some shipowners design, own, and operate large numbers of vessels, which often result in repeat orders of the same ship design, while others operate or lease a small number of second-hand vessels. Similarly, some shipowners own their vessels from cradle-to-grave, while others maintain a young fleet and sell vessels for further trading.
One for all
For the benefits of circularity to be achieved, everyone needs to buy in. There needs to be transparency, common goals and objectives, and the right financial incentives and structures for commercial viability. PA Consulting suggests incentives that “redirect behaviours of shipowners from their current (potential) profit from building when cheap and selling when expensive, as well as address their strategic reasons for building ships to their own specs and inclination to scrap rather than sell vessels to the competition (specifically in container shipping)”.
One example given is the introduction of ‘product passports’ that allow clear incentives for the shipbuilder to maintain and reuse before refurbishing, and refurbish before recycling. Although it is acknowledged that data availability will need to improve to enable transparency and traceability of materials and encourage partnerships across the value chain.
Shipping can also engage with other industry verticals, such as the automotive industry, which is undergoing a profound transition from one energy source to another.
For example, shipping is starting to question existing compromises, such as: Why do we often equate vessel age with quality of the vessel? Why are contracts not standardised? And why is ship design not modular so retrofitting to the latest technology is easy and the lifespan of the vessel can be expanded?
“Recent discussions around circular economy held at the Global Maritime Forum’s Annual Summit in London this year have shown that there is a readiness within the industry to question such ‘compromises’,” PA Consulting said. “Summit participants argued that the industry could take advantage of the current momentum and come together to embark on some immediate next steps that can be taken to redeem the benefits of circular economy thinking.”
Initial suggestions included learning from other industries and reflecting on how those lessons could apply to shipping; bringing industry actors together to run innovation sprints to identify concrete opportunities; and running pilots or proof of concepts to test and iterate on learnings.
Source: The Baltic Exchange, By Carly Fields