Pandemic uncertainty has hit shipping orderbooks, but it is also driving increased decarbonisation demand and digitalisation, experts told attendees at Riviera’s Maritime Air Pollution, Europe conference
Kicking off the virtual conference, former IMO emissions policy chief and Green Marine Consultancy owner Dr Edmund Hughes said that – while implementation of rules limiting sulphur in marine fuels globally had been a success for the industry – shipping needs to maintain a focus on environmental sustainability if it wants to remain relevant to society.
The pandemic is pushing those narratives to the fore, he said, and doing it quickly.
With correlations linking high levels of air pollution and increased mortality from lung diseases, including the respiratory illnesses caused by the Covid-19 virus, Dr Hughes said the public’s tolerance of air pollution was wearing thin.
“There’s no doubt about it, [the pandemic’s impact] reinforces the point of view – one that has increasingly been resonating in policy corridors – that air pollution is something that needs to be reduced because it has a wider impact on society. And, frankly, there’s less tolerance for it,” he said.
There will inevitably be more regulation. Decarbonisation, black carbon in polar regions and nitrogen oxide emissions (NOx) are all on the environmental legislation hit list, Dr Hughes said. And looking beyond that narrow focus on emissions, he laid out a picture of a world transitioning away from fossil fuels, wherein shipping is being subsumed – and would be more “controlled” as a result of the increased uptake of digitalisation and technology shipping – as a “piece” of the broader logistics supply chain.
Both Dr Hughes and The Strategy Works managing director and analyst Michael Herson agreed the industry is finding itself positioned at the confluence of multiple roiling rivers of change.
In a post-Covid world where efficiencies are found by governments and companies retrenching, Mr Herson said a revision of the globalised manufacturing model could see reshoring and near-shoring operations driving a shift to smaller vessels and shorter routes and that ports and offshore renewables would likely feed off and benefit from the lower- or no-carbon energy infrastructure driven by societal pressure.
“It’s all connected,” he said. “The ports, the infrastructure they’re putting in place, is connected to offshore, the new supply chains that will develop. One will support the other. So they will benefit from the near-shoring as well.”
“It’s all a perfect storm, is what I’m saying.”
Mr Herson said an ongoing increase in offshore renewables investment could work to build momentum for cleaner fuels in shipping as vessel owners see ship fuelling infrastructure materialise, hastening the shift away from fossil fuels.
“The infrastructure required to put hydrogen into ships is already underway with ferries. Once that connection is made with offshore renewables, that infrastructure will be built quicker,” he said.
“That will provide one of the solutions for the shipping industry that they’re seeking to decarbonise.”
Offering an example of UK policy thinking, Dr Hughes said offshore renewables in the UK were readily available and any excess capacity had potential for utilisation to generate and produce electro fuels, one of which, among many, could be hydrogen.
“You could see a refocusing on different hubs where there is available renewable energy, essentially free energy… things like producing carbon-free fuels. That, again, will feed into other policy agendas which are very important to governments addressing climate change,” Dr Hughes said.
“And the people who are managing and building these offshore renewable sites, they want the ships that support them to be carbon-free. There’s no point in generating carbon-free energy if you then have ships pottering around pumping out emissions from diesel engines… so we’re seeing from the contractual, procurement side pressure to curb these emissions to comply with corporate social responsibility goals.”
The transition, Mr Herson said, looks to be inevitable. A case of one door closing and another opening, he said.
“Oil and gas may be closing and may never reopen to the extent it was before, but renewables are going to go at a much faster pace. There’s also the issue of energy security, which is a geopolitical issue. It’s unstoppable, and I can only see shipping benefiting from this,” he said.
Among these harbingers of change, and perhaps to no one’s surprise, shipping orderbooks are dwindling. Mr Herson cited a figure of a 49% cross-sector decline in newbuilding orders resulting exclusively from the impact of the pandemic.
“There was an indication it was slowing last year, but the fast acceleration that has happened this year is entirely due to Covid,” he said.
Dr Hughes contextualised the issue, noting the economic shock and consequent drop in demand owing to a huge degree of uncertainty globally, but pointing out that decarbonisation had been making investors shy before the pandemic, as well.
“I think people are considering what the state of the shipping fleet’s going to look like in the next 10 years or so. And if you’re going to start laying keels and building ships now, how long will those ships be competitive in the market?” he asked.
“And I think there are some question marks around that, to be frank. I think people aren’t sure what the state of the regulations are going to be in terms of emissions reduction and particularly in terms of carbon emissions, and we may see a situation in which ships do become, from a market point of view, less attractive because of their carbon emissions,” he said.
With the pandemic acting to magnify economic inefficiencies, Dr Hughes said the uncertainty has focused the market on risk but would also bring about opportunities for companies who were resilient.
“This whole Covid pandemic … it’s a question of resilience – and about how as an industry, how as individual companies, people can be more resilient. It’s really eye opening, the pandemic, how it has challenged our society to its roots. How we operate. Things that we took for granted just a few months ago have changed, fundamentally, and I think it’s something that we all have to really review. Once we get through to the other side, there will be a consideration of resilience and how – both as individuals and as companies, organisations – we can try to improve that resilience.”