Shipping industry called to account on green credentials

Shipping industry called to account on green credentials

By Costas Constantinou

Moore Global Maritime Leader

Pressure is growing on shipping companies to accelerate efforts to become cleaner and greener, with tougher decarbonisation targets announced recently. For an industry responsible for almost 3% of the world’s carbon emissions, it’s a tough ask.

The International Chamber of Shipping is pushing governments to set a target of zero carbon emissions by 2050 – far more ambitious than the International Maritime Organisation’s mandate of a 50% reduction from 2008 levels by 2050.

Meanwhile, a growing number of financial institutions have signed the Poseidon Principles, pledging to align marine funding strategy to firms’ decarbonisation progress. Momentum for change is building, with the Global Maritime Forum creating a similar scheme for insurers.

This all means that an ability to produce hard evidence of progress on decarbonisation and a good track record on ESG (environmental, social and governances) issues has become critical.

It is no longer enough for shipping firms to know they are being environmentally responsible, they must find ways of quantifying the good they do or face the prospect of being dropped by investors, funders and customers.

On a positive note, there is no shortage of innovative decarbonisation solutions, with at least half a dozen potential alternative low carbon or zero-carbon fuel options available and in development, alongside trials of crewless or autonomous container ships.

However, despite an abundance of potential emission-busting solutions and a positive backdrop of booming global container ship demand, industry leaders are frustrated in their efforts to plan for a future still clouded by uncertainty.

Predicting which technologies and fuel sources will dominate in the decades to come is a risky endeavour – but it is important that uncertainty on these fundamental issues does not result in industry paralysis on other fronts.

We need to ensure there is preparedness at ground level now. That means introducing systems and processes in preparation for a future in which everything will be under scrutiny: finances, conduct in areas like sourcing and recycling, as well as relationships with employees, customers and local communities.

The implications are self-evident: to secure future fleet funding, financial statements and reporting in general need to meet higher quality standards. Also, the green shipping revolution will make access to timely accurate and unbiased data vital. Skilled staff will be needed to interpret the metrics, which will form and essential part of informed decision-making.

The green shipping revolution will also require a data revolution. Suitably trained staff as well as timely, accurate and unbiased data are essential to informed decision-making.

We developed Moore Maritime Index (MMI) to help shipping clients run and understand their own businesses better. MMI enables firms to analyse data and benchmark operational costs and revenue against the sector. This will be increasingly important as firms prepare for transformational change that will have major financial implications.

Formal benchmarking will require evidence of a firm’s track record on all aspects of their operations. Many family-owned businesses we deal with are not only financially strong, they are responsible employers and good corporate citizens with proud histories of philanthropic support of the arts, education and healthcare.

Few measure this kind of activity or its impact in a systematic way. Now, they will have to.

This matters because when it comes to ESG best practice, environmental issues often dominate but failings or perceived shortcomings in social or governance issues are also regarded as a significant corporate risk factor.

Companies may de-risk investments in management information or accounting systems by taking expert advice. However, it is more complex when it comes to big ticket decisions on which kind of vessels to order in future. Firms are frustrated by lack of clarity on which fuel sources and which technologies will be adopted on a mass scale.

Trying to second guess which ship design or fuel source will dominate is neither practical nor sensible at this stage. The industry needs to take a building block approach and install systems capable of sophisticated financial modelling and scenario planning so that capital expenditure plans are flexible enough to embrace change, whichever technology prevails.

As yet it remains unclear whether LNG (Liquified Natural Gas), ‘green’ hydrogen, ‘green’ ammonia, methanol, biofuels or even small scale molten salt nuclear reactors will be the solutions that shape the future of low and ultimately zero-carbon shipping.

Some big players are openly championing favoured solutions – but the battle for industry supremacy continues.

There are pros and cons for each fuel source. Some are more expensive to produce, others are unsuitable for the largest container ships – the biggest polluters – or cannot be produced on a large enough scale.

The idea of nuclear-powered ships is gaining traction as possibly the most practical solution. However, they also evoke safety concerns among the public, despite the fact that small scale molten salt reactors are radically different from the weapons-grade uranium fuel reactors used in naval vessels.

There are also cost implications with all of the potential solutions. For example, it could cost more than four times as much to buy a new nuclear-powered ship as a conventional container vessel.  However, cost comparison is best done on a total lifetime cost basis, taking into account voyage, operational and capital expenditure costs over a 25-year period.

Nuclear experts argue that higher upfront costs are offset by the fact a nuclear-powered ship does not need fuelling for 30 years and can operate at speeds of up to 30 knots. This could allegedly slash voyage times on major routes such as Korea to Rotterdam by as much as 40 days.

Ironically, cargo ships today sail at slower speeds than the famous Cutty Sark tea clipper which hit speeds of 17 knots powered only by wind back in 1870. Modern container vessels have had to throttle down to 12 knots to reduce carbon emissions.

A switch to zero-carbon fuel would open up exciting possibilities to sail faster, change routes and potentially avoid costly transit fees in the Suez Canal.

Switching to autonomous vessels or semi-autonomous vessels would also transform costs as well as potentially alleviating a worrying skills shortage. That said, firms would still need highly skilled staff both on board or in shore command centres.

In the next few months autonomous vessels will take to the water for the first time in Norway and in China. Meanwhile, the Nippon Foundation in Japan plans for 50% of its local fleet to be crewless ships.

In many ways, we are entering uncharted waters and a new era in which ‘climate alignment’ scores will become the industry benchmarking norm. In this context, data is key and knowledge is power.

Many of our clients are multi-generation family-owned businesses that have experienced periods of transformational change before: it’s a challenge the industry faces every few generations. 

The smartest leaders recognise that the next generation has a different perspective and can make a meaningful contribution to strategy, not just on decarbonisation.

Astute CEOs are already talking to external advisers and younger family members about how best to future-proof their businesses. As the Athenian philosopher Plato said: “The beginning is the most important part of any work.”