How Does the Decarbonisation Trend Impact Shipping Risks?

As part of the decarbonisation push, the International Maritime Organization (IMO) introduced a global regulation in 2020 to limit sulphur in ships’ fuel oil to just 0.5%. By 1 May next year, it must drop to just 0.1% in the Mediterranean region. These changes are leading to:

• Cleaner air
• Positive impacts on human health
• Higher quality fuels
• Changes for enforcement authorities, which will ensure ships are compliant.

Ship owners, operators and refineries have been adapting to the change.

Shipping’s contribution to climate change

Why is sulphur the issue? When it burns, it creates sulphur oxides, a type of pollutant. It leads to water and soil acidification as well as harms human health, including asthma and premature deaths, says the European Union.

Ships move 90% of global trade, so they have an enormous impact on climate change. In the six years to 2018, the sector’s emissions rose 10%. There are more changes afoot with the IMO revising its greenhouse gas emissions strategy again this year. Currently, the shipping sector accounts for about 3% of the world’s carbon emissions.

The decarbonisation trend & how it impacts shipping

Switching to the use of low-sulphur fuel is just the beginning. According to the Global Maritime Forum, it will cost the sector more than AU$2 trillion to decarbonise international shipping. Those funds are needed between now and 2050 to invest in:

• Decarbonising new fuel production (making hydrogen and ammonia can boost emissions)
• Decarbonising supply chains, which alone will cost the sector about AUD$1.5 trillion
• New ways of operating and designing vessels
• A retrofitted or new fleet.

The aim is to halve carbon emissions compared to 2008 levels by 2050. Many shipowners have set even stricter targets – to be net zero by then.

The full extent of the short-term, let alone the long-term, risks of these flow-on effects are difficult to gauge right now. For example, Lloyds List Intelligence talks about much uncertainty about ships’ fuel, propulsion, and design to meet business demands and future environmental targets.

Industry initiatives and goals

The shipping sector has been investing in alternative fuels and greener technology to transition to a low-carbon future. The focus is on cleaner fuels and how ships can be retrofitted or built from scratch to use them more efficiently.

More ships are using liquified natural gas (LNG) (predominately methane). Development is also underway in using methanol, hydrogen, ammonia, solar, wind, and electric-powered ships. There’s also work on making propellers more efficient and redesigning the bow of ships.

However, experts say it can’t afford to wait until these alternatives become commercially viable at scale. The approach could be multi-fuel, as LNG may not be an easy fix. Transport Environment, an EU-based non-government organisation, has discovered methane leaking from LNG-powered ships. Some vessels don’t work well with low-sulphur fuel and it’s not clear what the toll on engines will be over the years.

Safety risks of alternative fuel technologies

Therefore, ships using alternative fuel technologies could have a higher risk of machinery breakdowns. As well, such fuel must be stored at low temperatures and ships must adapt their procedures and crew training. They’ll be tighter regulations around these because of the higher risk of explosion and fire.

Another issue is that decarbonisation means we’ll see bigger ships. Within the next few years, two-thirds of new ships will each carry over 15,000 twenty-foot containers. Here’s a glimpse of some of the largest ships now out on the seas.

Bigger vessels mean there will be a larger stock of containers at particular points on route. Nefarious actors, such as pirates, may see this as a lure, as might cyberhackers due to the increasing digitisation of this sector.

Also, if a large ship is involved in an incident, there are possibly multiple interests and stakeholders involved. That may escalate losses. As well, only limited ports and shipyards can service or repair such vessels.

Protecting your bounty

With these diverse risks in mind, how can your business protect its shipments, be it for materials, products, or your sales? We can help ensure you have coverage tailored to your needs. Policy options include:

• Marine cargo
• Logistics
• Marine hull and speciality
• Project cargo
• Marine services liability.

And, just to put it into perspective, the shipping sector was risky even before the decarbonisation trend arrived on the horizon. The sector operates on short-term market cycles, and navigates threats as well as opportunities for technology.

Article Supplied by OneAffiniti

Photo by Halbergman on Unsplash