Environmental Matters – Regulatory Burdens to Define Sector
By Carly Fields
Protection of the environment has fast become the overarching aim of commercial business today, swayed, as it is, by ever-rigorous public opinion.
Witness the breakneck public backlash against plastic, resulting in the rapid disappearance of single-use plastic products: no more straws for your smoothies; home Tupperware needed for deli fill-ups; and the swansong for disposable cutlery at the weekend barbeque.
In the transportation and logistics industry, sustainability and, by extension protection, of the environment is primarily driven by regulation and is not optional. That regulatory focus has only intensified over the past few years, as green movements have captured the public’s imagination and pushed them to demand more of this industry.
Robust clean air legislation in U.S. states, most famously California, and European emission standards for trucks have already influenced the profile of the land-based, out-of-gauge moving equipment fleet in the developed world. But most recently the environmental focus has shifted to the seaborne fleet, a sector that was famously left out of the Paris Agreement on Climate Change, but has fought back to ensure that it does its bit for the environment. In April this year, the International Maritime Organisation’s Marine Environment Protection Committee, or MEPC, adopted an Initial Strategy for reducing greenhouse gas emissions from international shipping. While shipping is still far and away the most economical way to transport breakbulk and project cargoes worldwide, there is still a material cost to the environment that this new legislation hopes to address.
Speaking at Posidonia shipping week in Athens, Greece, in June, IMO Secretary General Kitack Lim said that he could not stress strongly enough how significant this agreement is. “For the first time, there is a clear policy commitment to a complete phaseout of greenhouse gas emissions from ships, a specific linkage to the Paris Agreement and a series of clear levels of ambition – including at least a 50 percent cut in emissions from the sector by 2050.”
He described it as a “landmark decision for both the environment and for human health,” demonstrating a clear commitment by the IMO to ensuring shipping meets its environmental obligations.
Costly Challenges Ahead
Roger Strevens, global head of sustainability at Wallenius Wilhelmsen, has watched the green drive escalate and noted to Breakbulk that shippers and ship operators can no longer cruise through “greening” operations.
“The low-hanging fruit of sustainability improvement have almost all been picked. What’s left are the thorny, difficult and costly challenges. These are becoming ever more impactful,” Strevens said. For example, ballast water regulation will be a driver of early recycling of some tonnage due to the high capital expenditure costs, while the global sulfur cap change marks the first time an environmental regulatory development becomes a commercial issue between shippers and carriers.
The issue for shipowners and managers is that the big game-changers on the near horizon for environmental planning and compliance represent expensive technologies and/or resource-heavy solutions.
“In such a challenging market where carriers and shipowners are under so much pressure, it’s hard for them to consider such costs without immediate financial return,” said Ruben Oggel, managing director of Columbia Shipmanagement (Singapore).
CSM manages a large and diversified fleet, including multipurpose vessels, and bears what it describes as a “tremendous” weight of responsibility to meet high standards of regulation and compliance across the board. Last year it appointed an in-house project team to formally research the operational and financial impacts of compliance with the Ballast Water Management Convention through the analysis of the many technological systems on offer promising compliance.
Lim acknowledges that in many cases, shipowners will find they have more than one way to meet new regulations. They might, for example, have to choose between retrofitting onboard systems or equipment, or radically changing operational procedures. And in some cases, even ending a ship’s economic lifetime early and investing in new ones.
There are also fuel quantity and quality issues to consider: how can multipurpose tramp operators ensure they can get sufficient compliant and quality fuel when and where needed?
“It’s tough enough for big liner operators who at least know where their vessels will be months in advance and can plan bunkering with dependable suppliers accordingly,” Strevens said.
For shippers, protection of the environment goes beyond a simple box-checking exercise for public shareholders or for financials.
Group SCM starts its environmental compliance journey at the request for qualification process in its transport and logistics division. Matthieu Jeannin, category manager for logistics and warehousing activities at the group, includes environmental obligations in his qualification process for all vendors.
As a group, ABB has a baseline commitment to the environment, building greener ship propulsion units and investigating the feasibility of hybrid marine electric propulsion systems for semi-submersible heavy-lift vessels. On land, it has made a sizable sponsorship to the FIA Formula E Championship, a class of auto racing that uses only electric-powered cars.
Thomas Skellingsted, ABB vice president, global head heavy-lift and project operations, added that the manufacturer is also developing better battery capacity and storage for electric units, plus it is looking into solar panels and how it can better optimize the sun’s power.
Multipurpose vessel operator AAL notes the increased “green” cargo being carried on its ships.
Nicola Pacifico, head of transport engineering at AAL, said: “You need look no further than the growing volume of renewable energy cargo being transported globally and the multiplication of manufacturing hubs for giant wind energy components – literally on every continent. Even taking into account the slowdown in oil and gas sector projects due to global price instability, the balance of power seems to have moved significantly.”
ABB also measures carbon dioxide and emissions and requires green key performance indicators from its suppliers on a quarterly basis as part of its supplier qualification. Skellingsted said that the output ABB receives varies greatly: “It’s a rain forest; sometimes they don’t even know what the KPIs are. But we are getting there.” Skellingsted adds that ABB wants to make the world a better and greener place to live in and is content to take on a mentoring role in that respect.
AAL, too, takes its environmental responsibilities seriously and couples education with technology to optimize ocean transportation to ensure the longevity of the sector and the wider environment.
“We believe that investing in education of our excellent sea and land-based personnel together with continuous research and development will provide AAL with many more environmental engineering solutions for a better future,” Pacifico said.Only the Brave
Pacifico also sees a silver lining in the demands of environmental shipping legislation: “The compliance with cost-heavy and upcoming IMO environment protection regulations, like ballast water management and the 2020 sulfur emissions cap, could, most likely, be a reason for the global MPV fleet to shrink, as scrapping will have to take place probably sooner than planned for many of the very old vessels, as it just won’t make economic sense to bring them up to scratch.”
Newbuilds – many on hold due to the uncertainty of the regulations and questions on fuel availability – will replace the old fleet, but this will likely take many years and will require a global market recovery to be sustainable.
“We at AAL, can foresee a period in between where all the major players in the world industry will opt for a natural selection of ships to comply with their environmental commitments and responsibilities similar to what was done before for the offshore with the Offshore Vessel Inspection Database, for example. AAL is ready for that moment to come.”
However, with each shipowner setting its own investment horizon, this ultimately dictates the potential uptake and investment in these expensive greener technologies.
“A shipowner with a short-term view is chasing immediate and higher profits – so will naturally be reticent to invest in the future,” Oggel said. “On the other hand, someone with a 20-year outlook is far more willing to make investments that will benefit them and the market longer-term.”
But environmental considerations do not need to be diametrically opposed to economic interests, Strevens notes. “We’d maintain that if you’re doing it right, they’re one and the same thing.” Take, for example, in-water hull cleaning systems, he explained. A clean hull reduces all emissions to air, mitigates an invasive species risk – if the cleaning system captures what it removes – and avoids fuel over-consumption. “It’s surprising that these systems aren’t better known given the benefits they offer.”
More Surprises to Come
There may also be more environment-related surprises on the horizon. On top of its ambitious GHG emission targets, the IMO has specified 13 candidate measures that its MEPC Committee will consider for implementation in the short term. On that list, Strevens points to three that focus on the vessel owner/operator: tweaking the Energy Efficiency Design Index – which will likely only affect new vessels; operational efficiency levels; and speed-related measures.
“Speed may seem like a deceptively straightforward regulatory tool, but in reality it’s anything but,” he said.
“To begin with, what do we actually mean when we talk about reduced speed: speed on the water or over land. Then there are the policy issues. For example, in the interests of fairness it might seem that percentage speed reduction should be applied across a given segment, however that would affect inefficient and efficient vessels in the same way – hardly a desirable outcome.
“Whatever measures are adopted, it can be safely concluded that they will be impactful. If they include speed-related measures, there is the very real prospect of changing the service the industry offers its customers. That’d be another big first for environmental regulation,” Strevens said. “In the face of such tumult, we believe the best and only approach is to engage in both innovation and the regulatory process. Nothing else can better help with anticipating what’s coming.”
Carly Fields has reported on the shipping industry for the past 18 years, covering bunkers and broking and much in between.
Photo credit: Shutterstock
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