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April 29 2019

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46 The Journal of Commerce | April 29 2019 www.joc.com Trading Places Peter Tirschwell THE LEAD UP to the International Maritime Organization's low-sulfur fuel mandate has revealed a stark and unfamiliar reality to the industry: Emission reductions take a financial cost that carriers can't bear alone without risking further consolidation and bankruptcies. But no sooner will the industry work its way through the sulfur issue when another dose of reality will con - front it in the form of decarbonization. The regulatory pressure is coming quickly. Maersk committed to a fully decarbonized fleet by 2050, not through offsets, which means, "we must have the first zero-carbon and commercially viable vessel on the seas by 2030," the company said in its 2018 Sustainability Report. If that vessel is new versus a retrofit or an existing ship using zero-carbon fuels, it must be designed, built, and delivered by then, which moves up the timetable for key decisions, essentially to the next few years. Irrespective, Maersk said, "Massive innovative solutions and fuel transformation must take place in the next 5 to 10 years." Maersk's commitment goes the furthest of any carrier and way beyond the International Maritime Organization, which a year ago com- mitted the industry to reducing the 2.5 percent of global greenhouse gas that it produces by 50 percent per- cent compared to 2008 levels. By making that controversial com- mitment, Maersk is ensuring that decarbonization will come onto the industry's agenda immediately, not that it wasn't anyway due to the trou- bling realization across society that the earth's future may hang in the balance. "Clearly, the immediate issue is ensuring that the IMO 2020 low-sul- fur fuel implementation goes as smoothly as possible. In terms of the additional cost pass-on to the supply chain, it's pretty clear that we have consensus across the industry to do that, and, as ONE, we have made very good progress in the discussions and contracts with our customers in that regard," Jeremy Nixon, CEO of Ocean Network Express, told The Journal of Commerce. "But we shouldn't lose sight of the next challenge, which is the future IMO regulations, which by 2030 through to 2050 will require the ship - ping industry to start implementing significant decarbonizing solutions." The outside pressure on shipping is such that container shippers who over the years have been largely silent on the issue will increasingly be part of the push for change. Responding to this, forwarder Kuehne + Nagel started ranking container services by their CO 2 footprint and has intro- duced an industry-first carbon neutral end-to-end service, achieved through offsets. But while that is a tangible step, the journey ahead will be long, uncertain, and costly. "The industry's contribution to climate change, although small, will come under growing scrutiny and require, over time, very significant investments in lower carbon propul- sion and the scrapping or heavy taxa- tion of ships," Ian Goldin, an Oxford expert on technological and economic change, said in a recent report that parsed the findings of a 2018 survey of maritime executives conducted by the Global Maritime Forum; insurance broker Marsh; and the International Union of Marine Underwriters. The reality of decarbonization has forced a paradigm shift in thinking away from decades-long efforts to improve efficiency of engines to ending all use of fossil fuels but with a key caveat: "adaption of zero-emission vessels that can truly emulate the logistics provided by current fleets," Lloyd's Register Global Sustainability Manager Katharine Palmer said in a report of the 2018 Global Maritime Forum held in Hong Kong in October. In other words, the aspiration is for shipping in a decarbonized world to function much like it does today, with ships moving at adequate, consistent speeds and with viable economics to more broadly support customers' supply chains and global trade. As it stands today, there is no clear way to make that happen. "Exactly which emissions reduction strategy to choose seems to be uncertain. None of the competing technological alterna - tives to fossil fuels is currently seen as sufficiently mature or cost-effective," according to the report summarizing the survey findings. "There is no clear pathway," Lloyd's Register CEO Alistair Marsh said in the same report. The challenge is seen clearly in the example of biofuels, which can operate with 80 to 90 percent less carbon emissions and which was highlighted recently when CMA CGM said it successfully refueled a 5,000- TEU container ship at Rotterdam in March in a test with IKEA and the GoodShipping program. Biofuel "generally requires no significant extra capital cost," making it "the most attractive zero-emission vessel solution currently available," Lloyd's Register's Palmer said. But while optimal for the ship itself, bio- fuels "present significant challenges in sustainability and availability." Ultimately, she said, "none of the zero-emission options in their current specifications are likely to be profitable relative to a baseline heavy fuel oil ship." An example of that is electricity: Massive batteries capable of driv- ing ships at today's service speeds eventually could be developed to store electricity originally produced by non-carbon sources such as wind, solar, or hydroelectricity, but the cost would be enormous. The sulfur ban is a sign of things to come. The lesson is that meaningful environmental action in shipping does not come without a hefty price tag. JOC email: peter.tirschwell@ihsmarkit.com twitter: @petertirschwell Low carbon, high impact "The industry's contribution to climate change, although small, will come under growing scrutiny."

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