UK Government pledges support for shipping, says UK's 'economic growth rests on maritime growth' 

Industry weighs in: investment uncertainties, government support and market-based measures

In a headline panel discussion around global shipping’s challenges this decade, MSC group executive vice president, maritime policy and government affairs Bud Darr said fleet investment decisions around fuels and propulsion technology are difficult and highly uncertain.

“We have to renew the fleet ... to make it more energy efficient and lower cost bases from OPEX (operational expenditures). You’ve got to take a lot of risk and ... in my opinion, put in some effort and some cost upfront to hedge [your fuel and technology investments], as the best answer in 2025 may not be the right answer in 2032 or 2045,” he said.

As of 2020, the average age of a cruise ship was 43.8 years, he said, noting “They are major assets with long lifespans and huge uncertainty about the future”.

Mr Darr said some of the risk could be mitigated on the capex side upfront by deploying fuel flexibility.

"I think the shipping sector will decarbonise. I am certain the container sector and cruise sector will for different reasons related largely to their customer bases, but the pace at which that happens and the options available will be driven much more by a proper regulatory framework rather than just by the market. This is the time when we really do need regulation, and we need to be fit for purpose. And if we don’t have it, we really won’t get to 2050 net zero."

Emphasising the need for a clear framework that distorts the market to accelerate uptake and offset the “massive difference” between the cost of conventional fuels versus alternative fuels, Mr Darr noted the current cost differential of alternative fuels ranges between two and five times the cost of conventional fuels.

Mr Darr turned to the challenges of shipbuilding. “Not only do we have a real challenge with shipbuilding and capacity …we have a 60,000 ship-long tail behind us that have to be retrofitted so I think there is really going to a be a really significant capacity limitation that will hold us back if the right investments are not made not only in shipbuilding infrastructure but in ship repair infrastructure.”

Citi Global Insights managing director, head of sustainable finance Jason Channell added: “It has to be a balance with all elements of society. We cannot ignore the regulatory side but my personal perspective is that putting the right framework in place will allow market, economics and businesses to understand what they need to do to then make optimal decisions.”

Mr Channell said that an important point to come out of the panel discussion is that one element of the supply chain cannot do it on its own.

He added: “There are a lot of companies out there which have a Scope 3 net zero [target] on all their supply chains. Upstream has to be net zero and distribution downstream has to be. One of the interesting things we are starting to see emerge is sustainable supply chain finance where businesses are looking at what their targets are and they are looking at their supply chains and suppliers and saying ‘Are you helping me to get to my targets or are you slowing me down?’ So they could switch suppliers to someone else and theoretically might pay more for that or change their terms to supply chain finances.”

Rio Tinto head of commercial operations Laure Bargatin emphasised the need to define a market based measure (MBM). She said: “On the demand side, there is 20M worth of green methanol, relative to a million tonnes available today. The supply is a concern because of unwillingness to pay and so the MBM is very important. The cost of decarbonisation is about US$250 a tonne, which is huge. And who is financing the last US$100 a tonne we need? It shouldn’t be only one player. We are happy to contribute but we don’t expect to pay the full deal.”

This is where the MBM would come in, she said, explaining the mechanism would help split the bill among players in a way which is reasonable and fair.