IS OUR WORLD REALLY CHANGING ?
"Energy conservation is no longer just a slogan, there are now tangible targets"
The year 2015 has been as bad as expected. Shipping in all its forms has lost its lustre. We estimate some $65bn in underlying market value has been lost in shipping assets over 2015. This year saw historic (adjusted) lows or near lows, in almost all market sectors except tankers. Only the tanker markets defied predictions: despite an oversupply of new tonnage, they remained strong, but fragile on the back of an unforeseen and unprecedented fall in oil prices...
With COP 21 closing a year of turmoil on the energy markets, there is a global realisation that our energy appetite has to be restrained. Whether it be coal, oil or gas, some 40% of world transportation concerns raw materials that have fuelled the industrial revolution and our globalisation. This is not good for shipping! There are already major consequences taking place, and we expect them to accelerate over the year to come… Coal and oil companies are switching their emphasis to renewables. Energy conservation is no longer just a slogan, there are now tangible targets. And despite a fall in energy costs to post-China expansion lows, this potential economic stimulus has done nothing to restore world trade. The mining industry has seen its product’s prices collapse. Demand has been cut more than expected by the double effect of sluggish economies and China’s refocus away from heavy industry.
Consolidation is no longer good enough. Elimination has already started with coal and iron ore mines closing, steel mills shutting and power plants being mothballed. Shipping companies have gone under, leaving their assets in the hands of new owners with cheaper capital costs. Yards have closed and others have been rationalised.
The irony of our situation is that the industry thought that by building bigger, less energy would be consumed per ton or per teu transported, and thus we would be more efficient. The mining industry players thought that by producing more, they could bring down their breakeven point and grow their market shares. Shipping companies ordered new ships also to average down their breakeven, while yards built more, faster.
Each actor made its decisions as if it was the only one in its market. But the markets do not expand indefinitely. We are waking up to a maritime sector that was being dimensioned to meet the demand of an adolescent China with mature Western economies weaned off energy consumption, and the expected globalisation of trade. Today there is a realisation that it is not only the cost of energy that will drive world trade, but the consequences of global warming.
Although pollution from transportation is lower than from heat production or industrial processes it is evident nevertheless that shipping will be required to find new ways to meet aggressive targets. The Sulphur Emission Control Area (SECA) zones are just the beginning. The International Maritime Organisation and International Chamber of Commerce are actively working to participate, and now with the Tier 3 emission limit, the Energy Efficiency Design Index (EEDI) and Oil Discharge Monitoring Equipment (ODME) have tangible results to show. But there will surely be more: speed limits, or high tech development by the yards and designers, new fuel types with less pollutants, port or State control measurements, and CO2 limits per ton/teu transported.
Our industry, which represents about 2.5% of global greenhouse gas emissions, is way behind the car and airline industries in seeking cleaner transportation solutions. Will shipping contracts be awarded to companies that pollute less, will there be tangible premiums for industrial users of freight to choose low pollutant carriers? The carbon credit system in its infancy might just allow the start of a redistribution but it will be the companies themselves, pushed by their investors and consumers seeking a commercial advantage from lowering global emissions, that will allow our world to change.
Our industry needs to put in place objective and measurable standards on a worldwide scale. We need to work with international organisations to ensure there is a premium for polluting less. Our industry needs to get its act together and thus find a medium term solution to our current crisis. Putting a premium on lowering pollution will have several effects. It will strengthen the emphasis on research and development, it will incite owners to scrap outdated vessels, it will encourage financiers to calculate with shorter life cycles, it will incentivise end users to choose the least damaging mode of transportation for their goods, and thus it will enable charterers to seek out and pay extra for less polluting carriers. The world, our maritime world, really needs this change.