Calls to Accelerate Maritime Decarbonization

By Malcolm Ramsay

Decarbonization across the maritime sector is expected to add new demands for breakbulk shipowners, reshaping the financing of new vessels and creating technological opportunities, according to classification society DNV GL. 

Highlighting key drivers for change, as part of its recently launched Maritime Forecast to 2050 report, DNV hosted a panel discussion with industry experts to discuss the future for shipowners and the changing pressures on ocean transport. 

“We can clearly see that we have entered a new era. It’s really a paradigm shift and ESG is here to stay,” Max Rothkopf, COO of shipping line Hapag Lloyd told delegates at the panel discussion.  “This focus is also supporting technological development and financing for advanced technology is certainly easier to obtain than in the past.”


Carbon Risk Framework

To understand the drivers behind this change, DNV has introduced a new carbon risk framework that aims to enable shipowners to assess the technology, fuel, and energy landscape.  

“Our framework consists of two parts,” said Linda Sigrid Hammer, principal consultant environment advisor at DNV, “an assessment of the economic potential of fuel and energy efficiency strategy over the lifetime of a ship and a structured review of the impact of chosen fuel strategy on ship design.”

In its analysis, fuel flexibility will be a key factor for all new vessels, with DNV’s data suggesting that about 12 percent of current newbuilds ordered today have alternative fuel systems and this number expected to grow.

“If you take just one thing away from the report, let it be this: Fuel flexibility is key to staying both compliant and competitive in a diverse and uncertain fuel future,” said Knut Ørbeck-Nilssen, CEO maritime at DNV.


Market Expectations

While much of the shift towards decarbonization has so far been the result of regulatory changes from the IMO or regional legislators, the situation is expected to change as environmental performance monitoring becomes more embedded in supply chains. This is expected to increase pressure on breakbulk operators from customers and cargo owners looking to see measurable improvements in shipping and in the long-term is forecast to impact charter rates.

“While all ships need to fulfil the minimum compliance requirements from IMO, commercial pressure may push shipowners to aim for a leading position in decarbonization as we suspect that poorly performing shipping companies will be less attractive on the charter market and will struggle to gain access to capital,” Hammer said.

One of the key risks for breakbulk shipping lines is the potential for older vessels, that are not easily upgraded to meet carbon-intensity targets, becoming stranded assets. This could lead to a downward cycle for poorly-performing firms as they face equity and balance sheet shortfalls due to early scrapping of ships and lack the access to funds to meet new requirements.

“This will drive companies to ensure that they achieve acceptable carbon-intensity ratings and deliver according to other performance indicators such as the Poseidon Principles, and Sea Cargo Charter climate alignment,” Hammer said. 


Regulatory Shift

The need for consistent standards, underpinned by global regulation, also remains a key focus in the near term, as shipping lines navigate a historic shift in sentiment from investors, customers and policymakers.

“The main thing for me is the regulatory framework and getting clarity,” Jan Dieleman, president ocean transportation at Cargill, said during the panel event. "There are certain things we could make a lot simpler than they are today.”

The introduction of the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) rating scheme from 2023 are expected to be the next major adjustment for most breakbulk shipping lines with Hammer stating “we expect them to have a significant impact on ship design and operations.

“The three key drivers will be regulations and policies, access to investors and capital and expectations of cargo owners and consumers,” Hammer said. 

Speaking during the panel discussion, Magda Kopczynska, director for waterborne transport at the European Commission, predicted that the upcoming COP26 meeting in Scotland this year will "leave no other option but to revise IMO strategy upwards.”


Fuel Strategy

Going forward, DNV predicts that fuel strategy will be a major consideration for cargo shipping, as vessel operators will need to navigate a more fragmented landscape with differing requirements and infrastructure between regions.

To meet this demand, DNV has introduced a new Class Notation – Fuel Ready – which will indicate that a conversion to an alternative fuel has been accommodated and verified in the newbuild design. The alternative fuel(s) the ship is prepared for will be represented by a qualifier in the class notation and the level of preparation represented by attributes to the qualifier.

To date, the firm estimates that LNG leads the way in terms of alternative fuel systems but predicts that increased R&D spending will lead to a plethora of new fuel options in the long term.

“Clearly there are a lot of challenges ahead of us,” Luc Gillet of SVP Shipping said. “The carbon-neutral fuels will require significant industrial investment and new processes and that all takes time. The quantities and the volumes needed by the shipping industry are very significant.”

Dieleman concurred noting, “the problem today is not the technical availability it’s really the scalability ... All these fuels have a green premium and we also need to look at the existing fossil fuels and make those more expensive as well.”

The Maritime forecast is part of DNV's wider Energy Transition Outlook 2021 report published this month, which examines how the global pandemic and new policy ambitions are set to accelerate the energy transition globally over the next three decades.

Photo: dship Carrier`s economic multi-purpose F-500 vessel MV Mick