Written by International trade will continue to increase in the future. Currently, the international shipping industry produced just over one billion tons of greenhouse gases (GHG) in 2018, almost 10% more than in 2012.
The EU is on course to realising a fully sustainable maritime transport sector.
The maritime transport sector emits around 940 Mt CO2eq annually and is responsible for about 2.5% of global GHG emissions. Within the EU (i.e. for ships calling at EEA ports), CO2 emissions from maritime transport increased by 48% between 1990 and 2008. They are expected to reach up to 86% above 1990 levels by 2050.
Current situation
Since 1 January 2018, large ships (over 5,000 gross tonnage) arriving to or departing from ports in the European Economic Area already have to monitor and report their CO2 emissions, fuel consumption and other parameters, such as distance travelled, time at sea, etc., according to Regulation (EU) 2015/757 on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport (thereafter the “MRV Regulation”). The first available data show that the 10,800 ships covered by the MRV Regulation emitted more than 130 million tonnes of CO2 in 2018, which is more than the annual CO2 emissions of Belgium.
Reflecting the need for steeper emission reductions, the EU Commission has proposed that by 2030 sectors covered by the revised EU Emmission Trading System (ETS) will need to reduce their greenhouse gas emissions by 61%, compared to 2005 levels.
To strengthen the role of carbon pricing in the transport sector, the EU Commission has proposed to gradually extend the current ETS to the maritime sector over the period 2023 to 2025 as shipping has been the only transport sector within the European Union without any emissions regulation.
Furthermore, the EU has adopted Regulation (EU) 2020/852 – The EU Taxonomy for Sustainable Invest- ments, i.e. “Taxonomy Regulation” (TSC) – which came into force on 12 July 2020. Starting 1 January 2022 at the earliest, the TSC will be applicable to all maritime transport, stipulating zero direct (tailpipe) carbon dioxide emissions for vessels. Notwithstanding this, certain exemptions apply.
Future
The EU Commission has also proposed to promote the uptake of sustainable fuels in the maritime sector, complementing the ETS and making polluting fuels more expensive for suppliers. The Fuel EU Maritime proposal to promote sustainable maritime fuels will create new requirements for ships, regardless of their flag, arriving
to or departing from EU ports, by imposing a maximum limit on the greenhouse gas content of the energy they use and making these limits more stringent over time.
The EU also aims to take other greenhouse gases besides CO2, like methane, into account. The
drilling and extraction of natural gas (the source of liquefied natural gas – LNG) from wells and its transportation in pipelines results in methane leakages, a primary component of natural gas that has a far more severe impact on the environment than CO2. This needs to be considered when analysing the environmental impact of various fuels and their sustainability.
Additionally, shipping companies would be required to reduce their carbon intensity (CO2 emissions per transport work) by an average of at least 40% by 2030 for all ships. The EU’s efficiency target of 40% less CO2 per ton of freight transported and nautical mile travelled will have a significant effect: It will provide a real incentive to build more efficient ships, whether they operate within or outside the EU.
Sustainable shipping is not limited to the seas alone. The EU has set up initiatives to motivate ports and ship owners to invest in shore-side electricity and reduce ship emissions in the port by adopting zero-emission berth standards.
International trade will continue to increase in the future. Currently, the international shipping industry produced just over one billion tons of greenhouse gases (GHG) in 2018, almost 10% more than in 2012.
Today’s existing fleet and technology will not get the shipping industry to meet the IMO’s GHG target of
a 50% cut in emissions by 2050 or even stricter EU targets. This will require substantial investments in research and development as well as big changes in ship design and propulsion. In turn, this will have implications in terms of both risks and supply chains. One fact remains though: The ships of the future will look a lot different in 20 years’ time.
The world’s largest shipping company Maersk has reported that half of their top-200 customers have defined net-zero or science-based carbon reduction targets. These customers expect service providers like Maersk as well others to provide solutions that help them solve the supply chain emission problem. To meet these customer needs and fight global warming, Maersk has conducted several analyses of the available technology and fuel options for net-zero carbon operations. Some of the technologies already available are mature enough for pure net-zero vessel technology without needing any transitional
technologies.
Other major shipping companies are looking for similar solutions, such as biomethane, a second-generation biofuel. However today, the only commercially available options to significantly reduce emissions from the shipping industry at scale include improving energy efficiency, LNG, or biofuels. None of these are going to provide a long-term or fully-fledged solution alone. We therefore need to ask ourselves: How will these EU climate initiatives affect the availability of the fleet? Will they increase hire rates? What are the additional costs due to the introduction of new-zero emission technologies?
The new regulations, although necessary in the present context, will most likely entail changes in the supply chain.
Market Overview and Expectations
According to an Allianz study, some 49 total losses of vessels were reported globally in 2020, the second lowest total this century and a 50% decline over 10 years. The number of shipping incidents declined from 2,818 in 2019 to 2,703 in 2020, machinery damage being the main cause. Eighteen cargo ships were lost in 2020, these being 37% of all vessels lost.
However, the number of fires or explosions resulting in total losses hit a four-year high of 10 in 2020. Container losses also spiked, with more than 3,000 containers lost at sea in 2020, and over 1,000 falling overboard during the first months of 2021 according to Allianz. Southeast Asia, the global loss hotspot, accounts for one third of all losses, the Eastern Mediterranean and the Black Sea being the second major loss locations.
Marine insurers are still expecting a 10%-20% rise in shipping firms’ hull and machinery insurance premiums and a 5%-10% increase in protection and indemnity insurance premiums during the next 12 months for accounts with favourable loss records. Furthermore, a successful renewal depends on size/type, renewal rating history and relationship with the insurer. There will be extensive adjustments due to loss records, with owners whose records are deemed adverse likely to face changes in deductibles and/or changes in terms and conditions.
Kristo Ristikivi
Group Practice Leader Cargo
T+372 506 9809
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