No time for ‘wait and see’ to green shipping
Capt Rajalingam Subramaniam, president and CEO of AET Tankers, shared that the operator welcomes creative challenge and discomfit when it comes to addressing the climate crisis. He noted that the maritime industry contributes about 3% of carbon emissions through its movement of 80% of global trade. “We can do more,” he said, advocating for the use of LNG as a transition fuel. “LNG is proven from a well-to-wake basis to give a 23% reduction against a standard fuel set,” he said. “So, do you wait for something to come when the call to action is now? We believe decarbonisation will not be one solution and if we do not try and put our money where our mouth is we are doing a disservice to the industry. Only time will tell what the right decision is, but we believe that standing still and doing nothing is not an option.”
Panellist Philip Clausius, founder and managing partner of Transport Capital, said pointed out that regulations relating to the environment will get more demanding, particularly as regional trading blocs push forward with targets ahead of IMO enforcement. “It’s a certainty that these IMO targets will be revised and will become tougher and stricter in the next few years,” he said. “The EU does not agree with the IMO targets and has mandated stricter targets.” This adds to the UK’s announcement that shipping is an industry like any other and therefore needs to fall in line with the Paris Agreement targets – which are significantly tougher than the IMO’s. Clausius added that the US is expected to work closely with the IMO to shift the regulations so that shipping will come in line with a net zero carbon target by 2050. “It is going to become a lot tougher – I am sure of that.”
We believe decarbonisation will not be one solution and if we do not try and put our money where our mouth is we are doing a disservice to the industry
Many large charterers have already planted their green stake in the ground, aiming for a net zero target by 2050 so the pressure “will only increase”, said Clausius. The big question, though, is how the industry will achieve this, he added. He said he is a “growing believer” in the need for a carbon tax or levy and one that is significant. “It is all about relative price,” he said. “You will only kickstart massive R&D in alternative fuels and propulsion if those solutions are cost competitive with conventional systems.”
The good news is that the big players in the shipping market are taking the environmental problem seriously. For example, Maersk has said that it will never again order a conventionally fuelled ship, while Eastern Pacific has also been at the forefront of green shipping developments.
While there are critics of the switch to LNG as a transition fuel because of methane slip that needs to be managed, Clausius, like Subramaniam, believes that it has potential. “My own view is that you can do LNG the right way and you can do it the wrong way,” he said. His statement illustrates the fuel challenge problem: the problem is complex and there is no silver bullet. “The solution depends on where you trade, what you carry and so on. The biggest struggle for a lot of industry players is that they don’t know where to start.” But while this is undoubtedly a difficult and complex problem, that cannot be an excuse not to move forward, he said.
Transport Capital calculates that almost a third of the current orderbook incorporates alternative fuel systems, either as dual-fuel systems, batteries or a hybrid solution. Flipping the problem on its head, Clausius view the owners of the remaining 70% of the orderbook with conventional propulsion as “the brave ones”. “They are investing in assets with a useful economic life of 25 years and they are building these ships in an environment which is only going to get tougher and where these ships are going to get phased out.”
My own view is that you can do LNG the right way and you can do it the wrong way
This period of change presents the market with an opportunity to consolidate some of the middle market away. Acknowledging that the industry should never underestimate the high number of resilient shipping families that have been in the industry for a very long time, Clausius said he is concerned that if those parties do not join the net zero movement alongside the big operators then the sector as a whole will suffer. “We will be significantly delayed in meeting targets,” he warned. “They say ‘we don’t know what the winning technology will be, so we wait and see’. I don’t think we have the luxury of waiting.” Another objection to greening ship operations, raised by mid-size operators, is that it’s not clear who will pays for fuel changes. Here, Clausius encourages owners to “check in” with their main charterers on a monthly basis. “I’m absolutely convinced that they are there to pay up and support projects on medium size ships.”
His closing advice is to stay close to cargo owners in this era of industry change. “We are coming off a period where the speculation on the ship was more important that the transportation service. That is changing and that is to the benefit of the industry and will make it more investable.”
Source: The Baltic Briefing