On the occasion of Hong Kong Maritime Week, Mare Forum & Hong Kong Maritime and HK Maritime and Port Board hosted an interesting virtual discussion “Asian Century of Shipping” on November 21st, 2022.
The panel moderated by Dagfinn Lunde and Benjamin Wong began with everyone sharing their views on the development of world trade and its impact on shipping in the next 5 years, proceeded to discuss how shipping might fare in comparison to the rest of the world with the advent of new regulations and the ‘green transformation’, and concluded with a glance into the great global opportunities for Asian countries in the future.
Panelists were optimistic about the long-term performance of the industry but divided in their opinions of the near term.
While some believed that the slower speed of vessels in operation due to CII being introduced from 1st Jan 2023, and delays in ordering new ships would be good for the market in that demand would outweigh supply, others believed that the current situation is foggy and lacks the transparency which is essential for all stakeholders.
Changing attitudes and crises across the supply chain coupled with a lack of leadership and industry-regulator dialogue were other key concerns voiced by the panelists.
Force majeure clauses in legal contracts would help safeguard the industry at large from unforeseen events, considering the environmental, social and geopolitical issues faced by the world currently.
With the advent of the EU taxonomy, European banks may soon be less inclined to invest in shipping. Other market players and alternative financiers including PE firms may express greater interest in the industry. Risk analysis will become more important in investment decisions and could benefit from revisiting lessons learnt in past crisis situations.
The new regulations mean that the existing fleet will need to be updated and this would lead to a strong orderbook in the longer term once more clarity is obtained.
Other South-East Asian countries too are growing stronger within the shipping industry and have an overall positive outlook to the trajectory in the longer term. In some of these nations, shipping is closely intertwined with state policy and is protected by the government.
The ‘Green Transformation’ & Regulations
Starting January 2023, it will be mandatory for all ships to calculate their Energy Efficiency Existing Ship Index or EEXI and initiate calculation of data for reporting on annual operational Carbon Intensity Indicator or the CII rating.
‘Decarbonisation’, ‘Green Fuels’ and ‘Green Transformation’ have become buzzwords across industry discussions and views on them are varied, but most of the panelists seemed to agree on a few fundamental challenges.
The disconnect between regulators and the shipping industry has created uncertainty around how effective or accurate the new indicators/ratings and regulations are in practice. Below are a few highlights from the discussion:
1. Shipowners’ existing vessels will need to operate at lower speeds in an attempt to conserve energy. They will also delay ordering new ships due to a lack of clear requirements and information. Access and knowledge regarding new greener fuels is limited at the moment, and the underlying technology to support the proposed transformation is not fully developed yet.
2. The CII rating framework was deemed to lack a comprehensive outlook on some operational factors, port waiting times and congestion, as well as other exceptions. As a result, charterers and investors should not consider this rating as the sole measure of a vessel’s efficiency. It could help to perform a thorough analysis into how the CII rating works and the factors affecting it. This might help charterers understand the extent of accuracy and also be cognizant of the factors that were left out in the calculation. However, it is a time consuming, complicated and difficult task to monitor and analyse the efficiency of this efficiency rating, and smaller shipowners and operators will have the toughest time.
3. At present, shipping burns fuel that no other industry wants. With the advent of this transformation to meet regulations, shipping will need to compete with the rest of the world for ‘green’ fuels. Around 54% of the current global capacity for renewables would be needed per year to produce the amount of green fuel shipping needs. To reach the 2050 net zero goal, shipping’s fuel would require electricity from renewables equivalent to the entire world’s current renewable energy production.
As a result of the above points, shipping will most likely be slower than other industries to align and be compliant with new regulations, decarbonisation goals and 2050 net zero targets. What regulators and the IMO need to consider is not only how to decarbonize shipping, but also how this trajectory for shipping could influence world trade and maybe even be an enabler for the transition. A closer and more frequent dialogue between regulators and the industry, as well as the influx of a younger generation of technically sound professionals is indeed the need of the hour.
John Kaare Aune
International Chamber of Shipping