Two-tier market emerging as ocean carriers win or lose on spot vs contracts
A two-tier market within the container shipping sector is opening up as spot rates in ...
Supply chain decarbonisation, critical as it is, is morphing into something new and very different as the Covid-led transformation of the maritime sector sees the rise of customer-led sustainability pledges away from the traditional regulatory theme.
In a recent study on transport decarbonisation, consultant McKinsey said shippers and forwarders want to pay for sustainable fuels, but there are several barriers preventing the scaling-up of green transport solutions.
But with the transport sector emitting some 7.2 giga-tonnes of carbon – 21% of the global total – there is a lot to pay for. And carriers are not getting the right indicators from their customers.
Those barriers include “a lack of clear demand signals and industry-wide standards and high premiums for sustainable offerings versus conventional ones”.
The differential in price between conventional and sustainable fuels is expected to be addressed in next year’s International Maritime Organization (IMO) meeting of its Maritime Environmental Protection Committee.
Meanwhile, air cargo fuels are also undergoing similar scrutiny. McKinsey also pointed to a lack of a clear signal for demand in sustainable fuels, with some shippers willing to pay the premium.
“Carriers need to secure sufficient demand through long-term commitments in order to invest in lower-carbon assets and infrastructure.”
To address this problem, several initiatives have been developed that put consumer pressure for change in how supply chains operate at the centre. One example is GoodShipping, developed by Dutch company GoodFuels, which produces sustainable biofuels from sustainable sources such as waste products. Goodshipping calculates the amount of biofuel needed to carry a container from A to B, and then calculates the carbon emissions saved.
GoodShipping allows owners and shippers to choose sustainable fuels for their vessels or cargo. Onm 16 August, GoodFuels’ Singapore office said it had successfully supplied a NYK bulk carrier with sustainable fuel.
This is a comparatively simple arrangement, with bulk carriers, on the whole, having a single charterer who can decide to pay a premium for sustainable fuel.
The calculation becomes more complex when there are possibly thousands of shippers and shipments on a containership or, indeed, on a cargo plane or in bellyhold.
“It does not matter where in the atmosphere you substitute a material with a better alternative, as the net result for the atmosphere is the same. In the case of GoodShipping, the material that is in need for urgent replacement is fossil fuel,” argues GoodShipping on its website.
Effectively, GoodShipping says, once a shipper or forwarder orders a premium service with reduced emissions, the biofuel can be loaded anywhere and on any ship or aircraft, leading to an overall reduction in carbon emissions.
Carbon reductions will, however, depend on what type of fuels are used, including the feedstock and manufacturing methods. For example, the use of palm oil as a fuel reduced the carbon emissions from the exhausts of ships, but led to the wholesale destruction of forests in Indonesia.
Dirk Kronemeijer, CEO of GoodFuels, told The Loadstar: “With carbon insetting, what really matters is whether carbon emissions were avoided as a direct result of each cargo owner’s decisions. It’s therefore critical that emissions reductions are measurable and verifiable. This is why GoodShipping relies on tested carbon accounting principles to ensure that any carbon emissions reductions are only claimed once, by the cargo owner who paid for the biofuel.”
All GoodFuels’ biofuels are certified by the International Sustainability & Carbon Certification (ISCC), a multi-stakeholder verification company that only certifies aviation and marine fuels produced from sustainable feedstocks, and that do not compete with food production or cause deforestation.
Moreover, the production of carbon-neutral methanol will only be contemplated by Maersk, for example, for its vessels if that fuel is produced using energy from windfarms, the so-called power to x production process, rather than from the fossil fuel LNG.
GoodFuels and Maersk say theyhave been at pains to make sure customers paying the premium for carbon-neutral fuels are getting what they pay for. But it is not clear if other fuels are similarly accredited or if others offer independent oversight into sustainable fuels and how any checks can be effective.
Haris Zografakis, a partner at Stephenson Harwood and legal advisor to the Aspen Institute, which established the cargo owners’ Zero Emission Vessel (coZEV) initiative, believes the best regulator for the system is the industry itself.
Mr Zografakis told The Loadstar: “It will be decades until all ships and ports can offer decarbonised fuels, but by developing systems such as coZEV, major shippers can catalyse demand and therefore push the maritime industry to catalyse ship fuels.”
According to him the system works better because “it’s a demand-driven initiative”, and he insisted: “Progress [on decarbonisation] won’t come through regulatory pressure, but from pressure applied by consumers once they say ‘I will pay extra for my green bread’.”
He added that those in the maritime sector were keen to point out that shipping moves 90% of all goods at some point, which means shipping has a share in 90% of the carbon footprint of everything.
Mr Zografakis agrees that these systems of catalysing demand and supply of biofuels have “no auditing standards” and/or regulatory oversight, but he argues that the private sector in the maritime industry is more effective in creating change than regulatory bodies.
Shipping, according to him, operates through a series of guidelines but ultimately, “I believe more in the power of contracts than regulation. We need a free market that self regulates”, he said.
Not all customer-led initiatives are un-audited, however. The recent announcement by digital forwarder Forto, which has epartnered with German carrier Hapag-Lloyd, offers shippers and forwarders the option of booking freight with a biofuel service in the same way as the GoodShipping and coZEV initiatives, using the mass balance principle to calculate emissions saved.
Johannes Saade, Forto’s VP of seafreight products, told The Loadstar its system was audited by class societies, but he conceded that the system could only work for full container loads.
“We are trying to convince customers to be part of the system and to pay for it, trying to educate them that it is worth it to use sustainable fuels,” said Mr Saade. “We are discussing how to deal with LCL cargo,” he added.
Looking further ahead, Mr Saade said, there were physical limitations to biofuels.
“Only 5% of global fuel used will be biofuels, there are physical boundaries in the supply,” he explained, while the company must also now consider pre- and on-carriage via zero-carbon trucks.
Post-pandemic, supply chains are changing fast and freight forwarders need to be aware that there are no easy answers to climate change and costs will necessarily rise. But the solution for shippers is make the transition to sustainable fuels short in order to bring down the costs of carbon-neutral fuels quicker.