POSSIBLE SOLUTIONS
As stated before (reference) the shipping industry is currently stuck in a status quo. So at this moment the question is how to move the shipping industry to a more sustainable direction. In the current business model it seems to be impossible for the market to solve this status quo. The amount of stakeholders and the different interests of this stakeholders make the problem to complicated. We think that it is not possible to move out this status without external input. So now that the different causes and outcomes of the shipping industry have been analyzed we will provide an overview of solutions of which we think they are able to break the status quo:
Solutions
What Needs to be Implemented?
HOW TO BREAK STATUS QUO?
There is currently an overcapacity of ships due to the economic crisis in 2008. This means that the chartering parties are in a favourable position compared to the ship owners. As a result the market is uncertain and few long term commitments have been made in which both charterer and owner are willing to reduce costs together.
One could argue that even though there is a split incentive, parties can still work together and split the saved costs. As was explained by one of Marin’s Expers Gaby Steentjes:
BP (as a charterer) intended to break the status quo with the ‘virtual arrival’ by returning a part of the saved fuel to the ship (owners). Owners however have agreed upon charter parties protecting their vessel for a poor performance by offering speeds and consumptions which are realistic when the vessels are new with favourable demurrage when the charterer has no port-capacity and vessel is waiting. So the owners prefer the ‘old’ situation rather than a virtual arrival situation.
In essence it means that Ship owners will take care of fuel savings when it pays off in a more favourable charter hire, but normally this is agreed upfront and charterers are reluctant to commit to pay a larger fee based on potential fuel savings. Virtual arrival is a way to maintain the existing charter parties and save on fuel costs.
Regulations
SECA
The concept of SECA regions is in principle a good concept. Making laws that obligate shippers to sail with less polluting fuel is a good way to improve GHG reduction. The problem with the current SECA regulations is that they are all regional and unilateral. As soon as a ships comes in a region were the SECA rules doesn’t apply ships change to cheaper more polluting fuel. So the usage of more polluting fuel leads to less cost because of the cheaper fuel. This leads also to a better competitive position of ports that are not in a SECA zone. This is why the most countries don’t want to implement these zones.
So if the international politics is able to create a global SECA policy which make sure that all ships sail on cleaner fuel the concept will be working well. The problem is that this scenario is unrealistic. In practice the international politics is so divided that some governments will probably never cooperate in this kind of multilateral agreements. So SECA policies are potential solutions but in practice they will only solve a small part of the problem because not all countries will cooperate in such agreements.
MRV
Another regulation were we believe in as potential solution for moving to GHG reduction in shipping are MRV regulations. By monitoring the performance of ships regarding GHG emissions the performance of shippers regarding GHG emissions becomes visible. After this goverments but also the market can act on these performances. At this moment the EU is implementing this regulations and it looks promising. If after the European union the regulations can be implemented globally this will result in a big benefit.
we think that in contrast to the SECA policies the MRV has more potential to be globally implemented than the SECA concept. Our idea is that when the MRV policy is implemented the market will ask for additional MRV policies. We think that a big amount of companies want ship there products sustainable. We think that if companies can use the results of the MRV policy for marketing purposes to prove that they are shipping their products sustainable they will ask for more MRV results. We think that this market based impulse will lead to a larger adaption of the MRV policy. Good preforming ships will start measuring there performance everywhere and GHG emissions will become a KPI for ships
Economy
Fuel Prices
At this moment fuel prices are really low. This leads to a change in focus regarding fuel consumption. When fuel prices are low companies are less motivated to reduce fuel consumption. If the prices go up the benefits from reducing fuel consumption are higher. For this reason all kind of investments are profitable again. So there is a positive relation between higher oil prices and less co2 emissions. Higher fuel prices are not really a solution. Besides the political perspective, which makes global regulations regarding fuel prices impossible, higher fuel prices will also harm the economy. But if a higher fuel price is created by the market it can be a way to leave the status quo and move to less GHG emissions
Market Development
Besides the fuel prices also the position of the world economy has a big issue regarding GHG emissions. In 2008, at the start of the crisis, slow steaming was becoming very popular. The reason for this was not the GHG emission reduction but the collapsed world economy. Currently there was a lot of overcapacity in ships because the big reduction in cargo that needed to be shipped. In many cases the costs of not using a ship were higher than the costs of using extra ships at lower speeds. A reduction of speed leads to a decreasing capacity, so the shipping companies used slow steaming to reduce their capacity with low costs. This is why if the demand of shipments goes up shipping companies will probably creating more capacity by stopping slow steaming and let their ships sail at a higher speed. Also more polluting (small) ships will service for a longer period because higher shipping prices make this ships profitable for a longer time. So in this case the solution is to maintain the overcapacity in ships by adapting the amount of ships to the situation where all ships use slow steaming.
Market Development
Besides the shipping industry the petrochemical industry has also a task in reducing GHG emissions. At this moment the price gap between clean and dirty fuel is big. If the petrochemical industry can finds a way to create cheap clean fuel the benefits for shipping company to use dirty fuel will be less.
FUTURE RESEARCH
This project is a created in a relatively small amount of time. For this reason it was not possible to cover all the subjects we wanted. In future research the policies ports use to accept ships should be investigated. A possible solution can be that by applying a good port policy ships will sail with a lot less GHG emissions. We surmise that a lot of ports use a first come first serve policy. So ports give priority to the first ship that arrives. We surmise that ships are sailing at high speeds to be the first in a port. This leads to long queues before ports. By making a policy that a ships can enter a port at a given time, ships can sail at a lower even speed and be at a port at the time a spot is available. This leads to less GHG emissions.