The net zero targets of major container shipping lines are much ambitious than the International Maritime Organization, which is under pressure to follow their lead.
The following is an extract from Drewry’s latest Container Forecaster report, just published.
It is a sign of the times that the sustainability reports of container shipping companies arguably make for more interesting reading than their income statements, which no longer contain such mind-blowing numbers.
Sustainability/ESG filings certainly provide more clues on the long-term direction that carriers are heading, filled as they are with pledges on how each will help the industry go beyond the current decarbonisation target of the International Maritime Organization (IMO) – to at least halve shipping’s greenhouse gas emissions by 2050 (compared to 2008).
From the leading 10 carriers – collectively operating approximately 85% of the active containership fleet – eight have confirmed net zero targets by 2050 at the latest (see Figure 1), while one other; Cosco, is aiming for 2060, in line with all Chinese state-owned entities.
The odd one out is Taiwanese carrier Yang Ming, which, so far, has not explicitly said that it will aim for net zero by a specific date. It has, though, committed to the IMO’s targets.
While the net zero target dates, interim goals and methods do vary between carriers, the common thread is a commitment to buying more fuel efficient and less polluting ships to replace the dirtier units that have been the workhorses of global trade for decades.
The reality is that the process of cleaning the containership fleet has only just started and will inevitably take time. As things stood on 1 June 2023, approximately 97% of the active fleet, when measured by teu capacity, had main engines powered by bunker fuel derived from crude oil.
That ratio improves to just under 90% when factoring in ships that are ready for alternative fuels (mostly LNG), but not yet using them.
There is clearly still a long way to go, but the orderbook is where the green shift is much more clearly visible. At the time of writing, only about 40% of the orderbook (measured in teu capacity) was of the “Business as usual” (BAU) variety i.e. intended to be sailed solely by conventional marine fuel. As mentioned previously, those types of orders are becoming increasingly rare.
How long it will take the so-called “eco” container ships to take the lead within the active fleet will depend on three factors; their density in the orderbook, the retrofitting of existing ships to adopt alternative fuels and/or other energy-saving technologies, and the speed at which BAE ships are demolished. Good progress is being made on the first part, more slowly on the second, and even slower on the third.
Making lofty decarbonisation targets is the easy part, delivering on them will be altogether more challenging. Shipping executives might have been tempted to chase the “green sheen” today by promising something undeliverable for 25+ years, safe in the knowledge that they will likely be enjoying retirement by then, but the commitment does seem genuine.
The orderbook provides evidence of the substantial investment already made in greener ships, and today’s liner bosses will be held accountable by the various interim goals that will be regularly measured against emissions reporting. It will be on regulators, shareholders and customers to hold their feet to the fire if they slip.
There is currently a 20-year high-low spread (Maersk to Cosco) for net zero targets among the leading carriers. In our view, decarbonisation targets will only get more ambitious over time as lines battle it out in a game of eco marketing one-upmanship.
However, we don’t think big carriers will shift from their current positions until they get a better handle on short-term progress. More aggressive targets by carriers are unlikely until a time when there is more certainty on alternative fuel sourcing and pricing.
Any carrier resting on the IMO’s current target is likely to see that minimum default raised. The 80th Marine Environment Protection Committee (MEPC) will sit for a week in London from 3 July, with many expecting a far more aggressive emissions reduction target, potentially to as much as 100% by 2050.
Also on the wish list are concrete plans for a global carbon levy and tweaks to the formula of the Carbon Intensity Indicator (CII), possibly accounting for cargoes carried. Some shipowners want the IMO to go even further and outlaw the newbuild purchases of bunker-fuelled ships and mandate the scrapping of said vessels over 20 years old, with implementation sometime in the next decade or so.
MEPC 80 is widely viewed as the last chance saloon for the IMO to prove it can manage shipping’s route to decarbonisation. To make some real progress and have a realistic shot of meeting targets, the industry is demanding clear guidance from the meeting. Another let down would create more uncertainty and an even less coherent strategies, reducing the chances of success.
The IMO’s inability to move quicker is a bad look for shipping – the aviation industry committed to net zero by 2050 in October 2022. The dragging of heels has created a regulatory vacuum that some frustrated national and regional governments (such as the European Union bringing shipping into its Emissions Trading System next year) are stepping into, risking a messy patchwork of rules and taxes.
Shippers will for certain soon be facing additional costs related to the green transition, but what we don’t know at this stage is how much it will be and if it will be standardised at a global level, or done piecemeal on a regional basis?
It remains to be seen whether or not MEPC 80 delivers what the industry is hoping for, but because container lines are generally already a step ahead when it comes to net zero targets, their main focus of interest will be on what happens with carbon pricing and how emissions are measured and tracked.
Carriers are not waiting to see what outcomes arise from MEPC 80 with a flurry of alternative fuel orders placed in recent week.
Since March, dual-fuel orders with a combined capacity of around 480,000 teu have been placed. Leading the way, in the methanol camp, were CMA CGM and Maersk, while Yang Ming headed up the smaller LNG team.
There are quite a few other big deals supposedly on the horizon. MSC is reportedly in talks for a series of 8,000 teu dual-fuel units (either methanol or LNG), while Evergreen is said to be close to signing up for as many as 24 x 16,000 teu methanol dual-fuels, and possibly also some feeder units of the same variety.
These latest contracts indicate that carriers, in particular, are full-throttle on fleet replenishment, but simply relying on newbuilds will take too long and mean net zero timelines will not be achieved. It is therefore vital that more effort is made to improve the energy efficiency of the extant fleet.
On this front, Maersk, one of container shipping’s net zero pioneers, said that MAN Energy Solutions will mid-next year retrofit one unspecified existing ship in its fleet (rumoured to be a 2,000 teu feeder) to become a dual-fuel methanol powered vessel, repeating the process for sister vessels in 2027.
In September, the Danish company will perform the first ever voyage of methanol dual-fuelled containership when a 2,100 teu feeder arrives from South Korea for a naming ceremony in Copenhagen, before heading out to duties in the Baltic Sea.
For the maiden voyage, the ship, ordered in July 2021, will run on green methanol sourced from Dutch producer OCI Global. Adding more shine to the story, Ursula von der Leyen, the president of the European Commission, will be the ship’s godmother.
The delivery of the first methanol ship will be a big milestone for the industry. The next step, in our view, will be to ensure that these dual fuel ships actually use greener fuel and that the cost premium is reduced. IMO, over to you.
Our view
It is easy to lose sight of the bigger picture when wrapped up with short-term concerns such as the direction of freight rates or port throughput. But such matters only carry transitory importance and are quickly forgotten.
What will be remembered in future years is what the shipping industry did to reduce its environmental impact on the world.
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Source: Drewry