Our resilience, innovation and forward planning ensures we can navigate change successfully and sustainably.
Change in our business is constant. From the impact of unprecedented global events such as the financial crisis, the global pandemic and major conflicts to long-term changes in trade, fleet, shipbuilding and finance. With an accelerating green transition, change is increasingly being driven by new and complex emissions regulation and policies. The introduction of new IMO regulations in 2023 is a hugely significant milestone in shipping’s decarbonisation pathway and in the way our industry will operate.
Accelerating the move to cleaner shipping
Introduction of ECAs
The Baltic Sea becomes the first Emission Control Area (‘ECA’).
By 2008, global seaborne trade had surged to 8 billion tonnes following rapid growth in commodity flows as global population increased and the Chinese economy expanded. Following the financial crisis, trade contracted sharply before a gradual recovery in volumes. Post the financial crisis, the shipping industry focused on managing the structural surplus capacity that had developed.
The Energy Efficiency Design Index becomes mandatory for new ships. This technical measure promotes more energy efficient equipment and engines.
The Ship Energy Efficiency Management Plan becomes compulsory for all ships. This operational measure provides an approach for management of ship and fleet efficiency performance over time using indicators as monitoring tools.
International treaty to limit the global average temperature increase in this century to below 2 degrees above pre-industrial levels through the reduction of global GHG emissions. The role of the IMO is recognised as crucial in mitigating the impact of GHG emissions from shipping. In October 2016, the IMO’s roadmap for developing a strategy on emissions reduction is approved, with the strategy fully adopted in 2018.
Global Sulphur Limit
Known as IMO 2020, the global limit on the sulphur content in ships’ fuel was reduced from 3.5% to 0.5%. This resulted in an estimated 77% drop in sulphur oxide emissions from ships. To meet this regulation, some ships switched to compliant fuels, including very low sulphur fuel oil, and some vessels were fitted with ‘scrubbers’ to clean exhaust gas.
As the global pandemic took hold, there was an immediate disruption to global trade. Divergent trends saw a sharp recovery in some sectors but a prolonged recovery in others as the world opened up at varying speeds. Despite managing widespread disruption and congestion, the green transition became central to shipping’s post-COVID-19 planning.
The geo-political response to the conflict has driven a fundamental redistribution of trade flows, with Europe and Russia sourcing alternative import and export markets. This has driven demand for shipping by increasing the distance and complexity of trading patterns. And with increased geo-political uncertainty, shipping must now manage the world’s focus on both energy security and energy transition.
EEXI and CII
Entry into force of short-term GHG measures from the IMO involving segment-specific minimum ship-by-ship technical energy efficiency standards (‘EEXI’) and an annual carbon intensity reduction ship rating programme (‘CII’) based on operational performance. These measures align with the IMO target for the industry to reduce CO2 emissions intensity by 40% by 2030 (compared to 2008).
Fuel EU Maritime
Fuel EU Maritime proposal, part of the EU’s ‘Fit for 55’ package of key climate policies, comes into effect. The proposed regulation introduces increasingly strict limits on the GHG intensity of the energy used by commercial vessels at EU ports and on voyages between EU ports, driving the increased use of alternative fuels. This follows the extension of the EU Emissions Trading System to shipping from the start of 2024.
A new ECA to come into force in the Mediterranean Sea. This is the fifth ECA to come into effect alongside the Baltic Sea (2006), the North Sea (2008), North America (2017) and US Caribbean (2014).
IMO target drives fleet renewal
As part of vital efforts to meet the IMO’s GHG emissions targets, a significant fleet renewal programme will be required. The projected value of newbuild ship orders between 2023 and 2030 could be in the region of US$1.2 trillion.
US Clean Shipping Act
The proposed new bill would be the first piece of legislation requiring zero GHG emissions standards from the shipping industry, with tightening targets for the GHG intensity of ships’ fuel, including a 45% reduction by 2030 and 100% by 2040.
Pressure continues to mount for the industry to move beyond the current IMO target of a 50% reduction in GHG emissions by 2050, and towards net zero. Discussions across industry stakeholders are ongoing, including the IMO’s current review of its initial GHG strategy, and potential targets are becoming increasingly ambitious.
The necessity for change
The scale of the challenge to decarbonise shipping is unprecedented. And the shipping industry must meet this challenge while continuing to facilitate essential global trade that is increasing in complexity and volume. Accelerating regulation, policy, technology and innovation will all be vital in driving the green transition for shipping.
Decarbonisation by numbers
We estimate that in 2023 the shipping industry will produce 855 million tonnes of CO2, some 2.3% of global output. While progress has been made since peak emissions in 2008, there are new and complex regulations and policies that will now accelerate change. The IMO is already targeting a 40% reduction in carbon intensity by 2030 and a 50% reduction in all GHG emissions by 2050. And there are pressures to go even faster.
We provide a constant flow of intelligence, data and analysis monitoring shipping’s green transition, from the uptake of alternative fuels to the speed of vessels and the impact of regulation on market supply and demand. This ensures our clients are informed on the huge regulatory technological, economic and investment challenges facing them.
A growing impact
In 2023, both the CII and EEXI will provide some of the clarity that ship owners have needed to help lower their emissions. CII will have a growing impact in terms of dictating vessel speeds to improve energy efficiency whilst other emission-reduction solutions are deployed.
Short-term pain, long-term gain
To comply with CII regulations, we will continue to see the speed of the global fleet slow down. This may create short-term disruption with a tighter market and increased freight rates. But for vessel owners it will provide a clearer pathway to effectively lower emissions and inform their fleet renewal strategies to help reach 2030 goals.
We’re working closely with clients to help them understand the impact of CII, not only from a risk mitigation perspective but also the opportunity it brings from chartering attractiveness, ship value and fleet renewal strategies.
Newbuild trends have started to shift
At the heart of reducing shipping's 2.3% contribution to global CO2 emissions will be a fuelling transition. We're already seeing this materialise through the profile of newbuilding orders.
Investing in alternatives
Although shipping’s huge fleet renewal programme is in its infancy, we are already seeing tiered markets develop. By the end of 2023, we project that 30% of the fleet tonnage will be modern eco, 24% will be scrubber fitted, 6% will be alternative fuelled and 25% will have an Energy Saving Technology.
We’ve always worked closely with our clients to understand more about their fleet renewal strategies to ensure they can maximise their investments. LNG dual fuel has dominated ordering but we have also seen focus on methanol and a trend towards optionality.
Understanding shipping decarbonisation
What is EEXI and CII?
One of the goals set out in the IMO’s ‘Initial GHG Strategy’ is to reduce the average carbon intensity of the international shipping industry by at least 40% by 2030, relative to 2008. 2023 Regulation will help to drive those targetsRead more
How has shipping improved its environmental impact?
Decarbonisation is increasingly being driven by new and complex emissions regulation and policies. But environmental initiatives are not new to the shipping industry. In this article, we look back to recognise the industry’s pathway to cleaner shipping.Read more
Our role in shipping's green transition
The world is uniting to tackle climate change and accelerate action towards more sustainable ways of living. We are playing a key role in guiding the maritime industry through this green transition - to minimise impact, whilst continuing to meet the needs of global trade.Read more