Global shipping under scrutiny as environmental scrutiny grows

A container ship docks at Pasir Panjang terminal in Singapore November 17, 2020. REUTERS/Edgar Su/File Photo

LONDON, December 22 (Reuters) – Ocean freight prices are likely to remain high as regulators and investors scramble for decarbonisation and companies struggle with green financing. Sources say this is because of the efforts of regulators and investors.

Shipping, which handles nearly 90% of all world trade, accounts for almost 33% of global CO2 emissions. Environmentalists are urging shipping to take concrete action, including a carbon levie.

The UN’s specialist shipping agency, International Maritime Organization (IMO), stated that it has made progress in short-term greenhouse gases (GHG) reduction.

However, this timeline is not considered fast enough by environmentalists as well as a number 175 IMO member nations.

“The MEPC (IMO committee meeting) will be hot and intense next year. It will be a lot pressure on regulators to make sure they are prepared to negotiate a solution, not just kick the can down to the curb because of misalignment. It is unacceptable,” stated Christian Michael Ingerslev (CEO Maersk Tankers, MAERSKb.CO).

Last month, the COP 26 climate summit saw the United States and other countries push for the IMO’s adoption of a zero emission target by 2050.

Its goal is to reduce total GHG emissions from ships by half compared to 2008 levels by 2050.

FaigAbbasov, a member green group Transport & Environment said that the IMO negotiations in 2022 would likely be slow and difficult.

“The problem is in believing that a U.N. organisation can gather 175 members and make tough decisions to decarbonise an entire sector of the economy.”

The IMO stated that concrete progress had been made in 2021 in combating climate change, including new regulations to improve energy efficiency of the global fleet. It also said that it would “work very difficult” next year to develop a revised GHG strategy. This will be finalised by 2023.

RoelHoenders, head of air pollution and energy efficiency for the IMO, stated, “Where there is willingness to act then processes can go faster.”

The IMO has not yet approved a proposal to establish a $5 billion research-and-development fund to find the right technology for meeting the targets. Additional talks are scheduled for next year.

The impact on countries like Pakistan, which are less developed, is a sign of the challenges ahead.

Pakistan’s Federal Minister of Maritime Affairs Ali Haider Zaidi claimed that while the country was a small emitter of carbon, climate change had “directly impacted our hard”.

“Developing countries can’t afford to spend on the infrastructure required and therefore, the process at the IMO must be supported by developed countries,” he stated to Reuters. He was referring to R&D fund.

FINANCING STRAIN

Another obstacle is financing the journey ahead. According to analyst estimates, shipping will need $2.4 trillion in order to achieve net-zero emission by 2050. A further $500 billion will be required by 2030.

Tony Foster, chief executive at Marine Capital, a specialist asset manager, stated that “certainly, the European banks, at least, and not far behind, the American banks, will have to satisfy criteria that satisfy sustainable financing.”

“It will become increasingly difficult to finance assets that do not qualify, and it will be even more difficult to fund existing assets.”

Darren Maupin is the founder of Pilgrim Global Fund Manager. He said that shipping companies were trying to find financing with more ESG pressure.

Maupin stated, “Capital is afraid – How do you invest in a 25 year asset when you don’t know what the IMO will do in five years?”

“The industry is unable to build ships due to limited capital and its lower capacity. Simple supply-demand implies that rates will be higher and that the industry will have to generate more capital in order to finance itself.

David Evans Editing

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