Collaboration between different stakeholders in the maritime industry will be key to achieving impending stricter decarbonization goals and developing alternative fuels at a time when there are pressures on shipping to explore cleaner fuels, including LNG, while also pursuing digitalization, industry experts said during a webinar.
"This is about saying we think this can happen, we think we can do it but we know we can't do it alone," said Rashpal Bhatti, BHP's vice president for maritime and supply chain excellence, at a webinar organized by the International Chamber of Shipping in the week started March 7.
Last year, BHP announced that it had awarded the world's first LNG-fueled Newcastlemax bulk carrier tender with the aim of reducing greenhouse gas emissions by more than 30% per voyage.
BHP awarded Eastern Pacific Shipping the five-year time charter contract for five LNG-fueled Newcastlemax bulk carriers to carry iron ore between Western Australia and China from 2022.
LNG is not just a transition fuel but will likely form a vital part of the mix even in the years to come, according to Bhatti.
"We will recharge the market at large, bring the best players around the table and share value, and with that we think that the five [LNG fueled] Newcastlemaxes that will be delivered early next year will become 10 and 15 and 20, and many more," he said.
The ships in consideration also have dual fueled engines, so if ammonia or hydrogen or any other fuels do become the fuel of choice, these can be retrofitted later, he said.
"So, people have really thought through the optionality and the risks associated with this, and made these vessels very fungible to take us through the next decade."
Digitalization
At its current pace, digitalization and decarbonization are raising costs while doing little to support revenues, said Christopher Rex, head of innovation and research at Danish Ship Finance.
"I see that many business models are still highly dependent on the asset game," he said.
"The nature of the asset game means that many vessels operate on the solutions that can deliver quick return on invested capital ... I expect that this needs to change when industry is becoming more digital and decarbonized," Rex said, noting that the two coupled together would bring additional profits and a greener future.
A decarbonization agenda considered in isolation quickly becomes a question of mechanics -- how to bridge additional costs either in terms of customers absorbing the more expensive fuel or by introducing a price on carbon in one form or another, he said.
"The new [fuel] alternatives are likely to bring as I will to the asset play ... But I imagine a super-standardized fleet of vessels' supply to the market can create more value," he said.
A major win can also come by monetizing the expected price reduction of a zero-carbon fuel in future by being the first mover, he said.
Clear policies, carbon levy
Experience shows that clear and consistent policies from governments supported by clear and consistent decarbonization targets, and regulations complimented by balanced mix of carrots and sticks incentives and disincentives effect positive transformational change, said Valentina Keys, senior associate, CMS Cameron McKenna Nabarro Olswang LLP.
Shareholder action against those oil companies failing to consider climate change while making investment decisions has forced them to rethink their business models and strategies while also prompting them to focus on ESG, she added.
"Shipping is no different, so the risk of exposure is there unless action is taken, Keys said.
Carbon offsetting will play a big role in terms of deploying investments as well as financing of better infrastructure in developing countries, and developed countries have a responsibility too, she said.
Last year, the IMO member states agreed to consider further an industry-led proposal for the establishment of a $5 billion research and development fund to accelerate the introduction of zero-emissions technologies into the shipping industry.
So, a similar carbon levy fund or one within that fund that entails creating a part for developing countries as well, was desirable, she added.
"Carbon levy would be the right thing to do as long as the governments of funds that were collated would then find themselves back into the right hands -- the organizations that are investing into R&D, the organizations that are taking an innovative approach to what the fuel of choice is going to be," Bhatti said.
"As such, we feel that if the European tax scheme goes first, it could well be a ground for understanding how this could work and learning from that for a global model," he added.
