There has been a remarkable increase in trade in the last two centuries, leading to a global economic transformation. As the roots of globalization continue to spread, national economies are becoming more integrated, and trade is becoming easier. This is why approximately 20% of global production is exported. The increase of international trade is owed to the improvement of communication, transport infrastructure, and technology. With options such as air and freight and robust road networks, it is easy to transport goods from one country to the next. Among these transport solutions, container shipping is the biggest contributor to global trade. But it’s also one of the biggest contributors to environmental problems, and it’s time to focus on cleaning the maritime sector.
In this article, you will learn about the role the shipping industry plays in global trade and why it’s considered the dirtiest transport sector.
Take a Look at the Global Shipping Industry
The global shipping industry is projected to grow at a compound annual growth rate of 8.3% up to 2025. As a result, it is expected to be worth $ 11 billion, up from 4.6 billion in 2016. The industry has been experiencing such growth for decades now. Further back in 1980, container ships transported approximately 102 million metric tons of goods. Since that period, this figure has risen to over 1.8 billion metric tons.
One of the main propellants for this growth is the increase in deadweight tonnage of container ships from 11 million metric tons to 266 million metric tons. This sector plays a crucial role in the global economy and has helped many nations grow.
Impact of the Shipping Industry on the Environment
Undoubtedly, the shipping industry has progressed leaps and bound over the last century. In the process, it has created opportunities for millions of people in the freight business — and other sectors less directly. This has facilitated national and international economic growth.
However, along with the economic benefits, increased shipping has come at a high environmental cost. Of all the oil consumed in the world, maritime transportation accounts for 7%. Due to the high sulfur dioxide content found in bunker oil, shipping contributes significantly to pollution.
The need to curb pollution is necessary for sustainability. In 2018, the United Nations warned that the world only had 12 years to curb catastrophic levels of global warming. Ever since, there has been increasing pressure on international shipping to adopt cleaner and more sustainable approaches.
This is because shipping is one of the largest emitters of greenhouse gases. Along with the sulfur dioxide emitted, which is linked to respiratory illnesses, they also emit methane and carbon dioxide. These gases trap heat in the atmosphere, resulting in global warming.
To put this into perspective, 3% of global carbon dioxide emissions come from maritime transport. A report by the World Economic Forum suggests that, if shipping was a country, it would rank as the world’s sixth-largest polluter.
The International Maritime Organization’s projections further compound the need to perform serious reforms to shipping. If vessels continue to rely on fossil fuels, there will be a 50-250% spike in emissions by the middle of this century. If this happens, shipping will account for 17% of global carbon emissions.
In a CNN Business interview, Dr. Tristan Smith, an expert in shipping and energy from the Energy Institute of the University College London (UCL), echoed the need for reforms. He emphasized the need to build zero-emission vessels and incorporate them into fleets by 2030. But remember, are consumers willing to pay higher delivery fees from their Amazon purchases? Are businesses willing to take the massive up front CAPEX hit to build these new fleets in hopes that they can pass along the costs to you and me? Are governments will to assist by managing the cost reduction curve?
Efforts to Reduce Emissions in the Shipping Industry
Efforts to curb carbon emissions have been ongoing for some time. In 2015, the Paris Climate Agreement committed the international community to action. Because it is challenging to allocate shipping emissions to individual countries, the sector was not included in the agreement.
Due to rising sea levels, island states under threat have put pressure on the international community to find a solution to shipping emissions. As a result, the International Maritime Organization has developed stringent regulations (IMO 2020) to compel shipping companies to adopt a cleaner operational model. These efforts are an attempt to slash carbon emissions in half by 2050, compared to 2008 levels.
What You Need to Know About IMO 2020
In 2017, the marine sector was responsible for half of the global oil demand, equivalent to 3.8 million barrels a day. Sulfur, which is one of the main components of the emissions from ships, poses a significant risk to the environment. With global warming and climate change increasingly becoming a threat, there is a clear need to reduce emissions. This is precisely what the IMO 2020 was designed for.
The IMO 2020 has been in effect since January 1st, 2020. These regulations have the aim of reducing emissions by the marine sector in international waters by 80%. Previously, the limit on sulfur in fuel was no more than 3.50% m/m in the shipping industry. With IMO 2020 in effect, the limit lowered to 0.50% m/m for any ships in navigation outside of designated controlled areas.
How Businesses Are Adjusting to IMO 2020
IMO 2020 is all about reducing emissions by using cleaner oil and cleaning the maritime sector. However, for businesses within the sector, it will be about a lot more than changing the oil used. For bunker oil suppliers, there is the need to prepare their storage and barges to accommodate acceptable fuels, such as diesel or Very Low Sulfur Fuel Oil (VLSFO).
Also, shipping companies will be required to retrofit their existing ships to use the recommended oil. Ultimately, there will also be a need to invest in new ships, which will be expensive. In turn, those costs can significantly affect shipping prices. However, with government support, shipping companies can manage to transition to cleaner fuels without burdening consumers with increased costs.
The largest shipping companies have demonstrated significant support for taming carbon emissions. At present, they have committed to plying the oceans at reduced speeds. According to a report released by the Carbon Disclosure Project (CDP), such efforts have reduced emissions by 30%. Though it is a considerable start, a lot more needs to be done.
The Role of Investment in Cleaning the Maritime Sector and Shipping Industry
As part of the solutions to carbon emissions, the International Maritime Organization has encouraged innovation. Because of this, along with the expectation that there will be even more strict regulations within the industry soon, some players have begun to innovate.
Usually, cargo ships stay in use for two to three decades. Therefore, vessels that can operate with very little to no emissions should be available for commercial use in the coming decade to meet the 2050 goals.
Such innovations may include developing new fuels. Alternatively, new ships might use rotor sails instead of traditional fabric ones in a bid to provide auxiliary propulsion or rely on the wind entirely. However, for the emission-free goals to be met, a lot more than stringent regulations are needed. Factors such as political goodwill and investments in research and development will be required. With the latter, private investments will play a crucial role.
Effect of IMO 2020 on Shipping
Roughly 60,000 freight ships transport over $7 trillion worth of goods across the globe every year. Each of these ships and any new entrants must comply with the IMO 2020 guidelines. This will mean the adoption of new fuels, which requires fitting the ships with new exhaust systems and using auxiliary power systems.
In addition to such costs, shipping companies also have to use more expensive fuel. The dirty fuel the regulations are phasing out costs $325 per ton, whereas new compliant fuels cost $600. In total, the difference in fuel prices will cost the shipping sector $60 billion annually. If shipping companies fully comply with the regulations, the cost can rise to $240 billion.
Though shipping companies will absorb these costs at first, they will ultimately transfer them to consumers. This is yet another factor necessitating investments in developing newer, cleaner, and cheaper fuels.
Investment Value of Clean Shipping Fuels
Ricardo Energy and Environment released a report that was commissioned by the Environmental Defense Fund (EDF). It indicates that the implementation of clean fuels like green ammonia opens up investment opportunities worth $1 trillion.
How Investments Will Create the Foundation for Cleaning the Maritime Sector
Developing countries have abundant, untapped renewable energy sources such as wind and solar. Since they are also falling in cost, renewable sources are suitable for producing zero-emission maritime fuels, with the production also fueled by renewable energy. Capitalizing on such potential will require a great deal of governmental and private collaboration and investment.
Countries that have renewable energy resources must lay down the framework for tapping it. This includes preparing necessary legislation and offering incentives to attract investment. Once we have a hospitable environment for investment, it will be easy to harness the power of renewable energy sources.
Consequentially, the cost of producing sustainable alternative fuels will reduce. This will incentivize the adoption of clean fuels, and businesses and consumers will not have to pay more in shipping costs. Though there is still more work to be done regarding legislation, there are already investments worth trillions of dollars on the horizon in line with IMO 2020.
When to Invest in Clean Shipping Solutions
The goal of IMO 2020 is to reduce greenhouse emissions in the shipping sector by half before 2050. Though it’s three decades away, there’s little time to ensure the objective is met. This is because it will take some time to develop new alternative fuels and begin mass production.
The industry will also need time for shipbuilders to adjust their designs to suit clean fuels. It will take some time for shipping companies to phase out their vessels or fit them with the necessary equipment.
With all this in mind, there’s no better time to invest in clean shipping fuels. As with all burgeoning sectors, investors who move first and fast will gain a competitive edge and reap the most.
Cleaning the Maritime Sector and Managing Sustainability Go Beyond Clean Fuels
Other than polluting the air, ships also pollute the oceans. As a result, the life of millions of marine animals is at risk. Also, for those who enjoy sending time surfing in the Atlantic and the Gulf of Mexico, pollutants will affect the experience. However, the primary objective, for now, is curbing shipping emissions by 2050.
Do you have an innovative idea that could help in cleaning the maritime sector up? There are many investors ready to fund good ideas. As an investment director at Shell Ventures, a venture capital organization interested in funding ideas on energy solutions, I deal with many investors. Reach out today to find out how you can secure funding for your idea.