The worldwide shipping industry faces perfect storms on multiple fronts, says president of Fafalios Shipping and chairman of the International Association of Dry Cargo Shipowners (INTERCARGO) Dimitri Fafalios
From the ongoing Ukraine conflict and the recent unpredictable zero-Covid policies in several countries to the challenge of decarbonisation, dry cargo shipping – and the industry at large – faces many testing issues.
At the end of last year, around 20 vessels were trapped in Russian-controlled ports, down substantially from around 100 back in March 2022 when the crisis began. The hard-fought UN-brokered Black Sea Grain Initiative helped release millions of tonnes of vital food cargo to global markets, and resolving the last remaining crew and ship detentions in a humane, safe manner was both the top-tier priority and a much hoped for endgame. Russia’s July decision to withdraw from the Black Sea Initiative and retract security guarantees for navigation in the northwestern part of the Black Sea raises the prospect of a renewed crisis. For now, shipowners are unlikely to call at Ukraine’s ports until the safety corridors are restored.
On decarbonisation, Mr Fafalios strongly urges caution against vilifying certain vessel types and business models in the drive to decarbonise. Rather, he calls for a pragmatic, incremental transition, focused first on new fuel availability, economics and safety rather than simply imposing complex new regulations on ships alone.
"I’m not happy with the fact that the regulators are creating a background where the sectors cannot respect each other."
He sees genuine promise in wind propulsion technologies such as rotor sails for liners or bulk carriers operating on fixed routes, but remains highly sceptical on scaling such emerging wind solutions for deepsea tramp shipping, given still-unresolved energy density challenges compared with carbon-intensive fuels.
Mr Fafalios also has a stern warning that owners risk "shooting themselves in the foot" by ordering expensive dual-fuel newbuilds while there are "cost-focused charterers who still overwhelmingly opt for the cheapest, dirtiest fuel due to chronically misaligned incentives around fuel choice and emissions."
There is qualified optimism following MEPC 80. "We fully support IMO’s goal of reaching net-zero greenhouse gas emissions by or around 2050. Yet the challenges ahead are massive, and the time left to achieve them is indeed very limited. Governments across the globe must now assume their responsibilities in practice, to enable shipping to decarbonise successfully. Collaboration and action by all stakeholders in the maritime dry bulk chain is vital. We have been calling for urgent acceleration in the development of green technologies, propulsion systems, fuels and related infrastructure, such as Green Hubs, along with mechanisms, including the industry’s proposed levy-based market-based measures, which would allow the transition to net-zero carbon shipping. That said, simply regulating shipping alone will bring distortions and dangers to global trade”.
There are also reservations on the Carbon Intensity Indicator (CII). “A few factors can have a significant adverse impact on a vessel’s CII rating, most of which are outside the vessel’s control. Examples include adverse weather, voyage distance, port waiting times, port infrastructure, actions of cargo shippers, receivers, and charterers’ orders. Paradoxically, when considering voyage distances and port waiting times, vessels with longer travel distances can produce more emissions but have a better CII rating when compared with vessels travelling shorter distances and producing less emissions. There are significant flaws that need to be addressed to make CII fit for purpose. EEDI, EEXI and a revised CII will help improve efficiency and reduce emissions intensity – over time – and they will encourage technology adoption and alternative fuels, but this too requires patience. Shipowners want to use alternative fuels but don’t produce them, so they need the right fuels to be available that are safe and cost-effective."
More broadly, INTERCARGO is working hard to further improve safety standards through new self-assessment criteria for operators. For context, INTERCARGO’s Benchmarking Bulk Carriers 2022-2023 Report, which provides information on detention rates and deficiencies, reveals the 11 leading class societies (IACS members), which class more than 95% of the bulk carrier market, performed significantly better than non-IACS-classed vessels in terms of deficiencies per inspection, with an average of 1.69 versus 4.31.
While acknowledging detention and casualty rates have improved over the decades, Mr Fafalios stresses more work is urgently needed alongside class societies, flag states and port authorities to make dry bulk ocean transport as safe as humanly possible given the forces of nature. He takes a cautious view on external vetting schemes. "True safety must come from within. The North Star of safety must continue guiding all decision-making in the industry." His fervent belief is that "between the company, the classification society and the flag state, there should be enough controls there to keep the bulk carrier fleet in good stead."
There is praise for the ratification of IMO’s Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships. "We commend Bangladesh and Liberia for ratifying the Convention and encourage those who have not yet backed it to do so as soon as possible for safer, greener and more sustainable ship recycling for the benefit of the industry and the environment."
Looking to the future, the industry mood is cautious yet hopeful, says Mr Fafalios. Newbuild prices and secondhand vessel values are still holding at relatively high levels, but a decent income for reinvestment is needed. At the same time, it would be folly to think there will not be more storms for the shipping sector ahead. To prevail, he says, we must remember "shipping unites us – closing ranks is paramount."
INTERCARGO is an official supporter of Riviera Maritime Media’s upcoming International Bulk Shipping Conference, 20-21 November, in London.
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