Pop quiz: What is the real fuel of the future for the container shipping sector and the rest of the world’s supply chain?
If your answer was collaboration, you’d be right. You’d also be in the minority, because most views from outside the maritime cargo sector favour one or another fuel alternative as the answer. But there is no single answer to the question of which heavy marine oil bunker fuel alternative will power maritime shipping companies in B.C. and elsewhere around the world on their journey to net-zero carbon operations.
And neither is one piece of the complex global supply chain going to reach that destination on its own.
There is clarity, however, on the shipping sector’s 21st century destination. It is net zero or bust.
It is also clear that reaching the destination will be very expensive and that all links in the supply chain, including consumers at the end of it, will need to share in that cost and collaborate in efforts to keep shipping on course to net-zero operations.
Here is another clear message from leading shipping and energy insiders: there are no shortcuts, and the timetable is extremely tight.
Climate change, according to the head of the world’s largest container shipping company, “is one of the biggest challenges facing our industry.”
Added Søren Toft, CEO of the Mediterranean Shipping Co. (MSC): “It’s not a challenge that can be overcome by one company acting alone. It really requires collaboration and co-ordination rather than individual leadership.”
Toft was among a group of shipping, energy and financial industry executives and analysts involved in a fuel of the future conference organized in January by DNV, a global maritime industry risk management company.
Despite the cost and complexity of weaning container cargo carriers and other deep-water ships from heavy marine oil, Toft told conference attendees that MSC believes its industry must and can decarbonize by 2050.
But among the biggest challenges for maritime cargo carriers is that most of the potentially viable alternative fuels, infrastructure and technologies to power ships are not ready for prime time today, but bets on which of those alternatives will power ships in the future need to be made today because the working life of a container ship is between 20 and 30 years.
So new ships ordered now will still be in the water in 2050.
“And with the total cost of decarbonization estimated for shipping in the trillions, we are making significant and very expensive capital systems that will live for decades to come,” Toft said. “Meaning that when we change the fuel source of a ship, it’s a decision that is going to not just last five years, 10 years, 15 years, but it’s really going to last maybe 25 or 30 years. And we need a better understanding of what the future [of] fuels will be and, of course, we also need to make sure that the additional cost that is there eventually will be passed on to the consumer.”
The cost and logistic implications of alternative fuels and decarbonization are priority considerations for Seaspan, the world’s largest lessor of container ships. The Vancouver-based subsidiary of Atlas Corp. (NYSE:ATCO) is in the midst of a rapid expansion of its fleet to service the growing market for containerized cargo.
As of September 2021, it had 131 ships and 70 new vessels under construction, which, once delivered, would give it a fleet of just over 200 ships and a container carrying capacity of 1.95 million 20-foot-equivalent units (TEUs).
Seaspan’s container ship fleet will then be one of the largest in the world.
Of its current order of newbuilds, Torsten Pedersen, Seaspan’s chief operating officer, told BIV that 25 will be designed to burn both heavy marine oil and liquefied natural gas (LNG), which is one of the few lower carbon-intensive fuels readily available now for deep-water shipping.
The price of a new 15,000 TEU container ship ranges anywhere from US$100 million to US$200 million. Add another 15% to 20% to that total to build a dual-fuel container ship that can be powered by LNG and you have a serious capital investment commitment by any measure.
However, decarbonization’s cost is only one of the challenges for ocean carriers. The complexity of the global supply chain is another. After all, it is a massive goods movement system that is necessarily interdependent but not necessarily interconnected.
Also, many of its key links are small operators that have neither the financial resources nor the technical expertise to make major changes in their operations. And most do not have the personnel to take on the more complex reporting requirements for green and environmentally sustainable operations.
In addition, investing in ship refuelling infrastructure resides, for the most part, in other sectors.
So, the overriding message from the DNV conference was that industry-wide co-operation rather than cutthroat competition needs to be the key driver of global shipping’s net-zero emissions initiative.
Or as Knut Ørbeck-Nilssen, CEO for DNV Maritime, put it: “… this is not a competition, nor a race. It is a rescue operation. It is a movement, an irresistible wave of change and maritime renaissance.… This is collaboration, the true fuel of the future.”
Options for viable fuels to replace the heavy marine oil that currently powers most of the world’s container and other shipping fleets range far and wide – from ammonia and biofuels to hydrogen, LNG and methanol.
Some are closer than others to being market-ready enough to make significant inroads into displacing traditional crude oil bunker fuel, but no single option is up to the task of going it alone.
Nor is the bunkering infrastructure and alternative fuel availability along major trade routes close to being ready for a major shift in ship refuelling.
So, as Lynn Loo, CEO of the Global Centre for Maritime Decarbonisation, noted, the future of shipping “is not going to be dependent on a singular fuel. And the fuel type will depend on the trade routes that the ships take, the ship configuration, the types of ship, and, of course, the natural resources that are available in the vicinity of the relevant ports.”
The conference’s panel of experts and executives also pointed to ways technology today can be applied to reduce emissions from the current shipping fleet. Harnessing wind propulsion and improving carbon capture systems on board maritime cargo carriers were two examples.
But there is no avoiding the staggering cost required to decarbonize shipping, which, despite its contribution to greenhouse gas emissions, remains the most environmentally efficient mode of goods movement.
For example, while transportation is responsible for an estimated 19% of global carbon dioxide emissions, ocean carriers account for just 11% of that total, even though they move approximately 80% of goods worldwide. Road transportation on the other hand, according to McKinsey & Co.’s The Net–Zero Transition report, is responsible for 75% of that total.
The report estimates the overall capital costs required to shift energy and land-use systems to net zero operations between 2021 and 2050 at US$275 trillion. No single industry alone can shoulder those costs and survive.
While green financing is gaining traction, governments and organizations like the United Nations and the International Maritime Organization need to establish a global carbon pricing policy and create a structure to promote and provide worldwide incentives for green shipping.
Toft added that MSC also supports the establishment of a multi
billion-dollar global marketplace decarbonization fund overseen by the UN or another international organization.
Some progress is being made to promote the greening of maritime cargo movement.
For example, Canada is one of 22 countries that have committed through the Clydebank Declaration to establish six green shipping corridors that promote financial, regulatory and other incentives for zero emissions shipping along major maritime trade lanes.
Still, increased global trade and ongoing supply chain inefficiencies and dysfunction add up to more emissions. Simpson Spence Young, the world’s largest independent shipbroker, notes that global shipping’s 2021 CO2 emissions increased 4.9% from 2020 and surpassed the sector’s 2019 pre-pandemic levels.
So, charting shipping’s course to net-zero emissions remains long, complicated and, for some, unreachable.
But Andy Dacy, J.P. Morgan Asset Management’s global head of transportation, told the panel discussion at the DNV conference that all major supply chain players need to focus on legs of the journey rather than the final destination.
“If we think about the destination, as opposed to the route that we need to take to the destination, it can be overwhelming.”
Success, he said, will be achieved “in a series of … incremental steps to continuously push the envelope forward and bring this out of the discussion process and into the implementation process.”
Seaspan shares that pragmatic outlook.
As Pedersen told BIV, Seaspan cannot afford to wait for the perfect solution to reduce the carbon footprint of its fleet and do nothing in the meantime.
“So, we are going into this with the mantra that let’s not make perfect the enemy of good. What we are saying is, we are doing something now [but] that doesn’t prevent us from doing something even better in the future.”
