The economic sustainability of shipping

The economic sustainability of shipping

Director External Relations | International Chamber of Shipping

In June 2012, alongside the International Maritime Organization (IMO), the International Chamber of Shipping (ICS) represented the world’s shipowners at the United Nations ‘Rio+20’ Summit on Sustainable Development in Rio de Janeiro.

ICS explained that without the low cost of transport provided by modern shipping, the movement of raw materials and energy in bulk to wherever they are needed would simply not be possible.  In view of the industry’s impressive environmental performance, ICS also made the case that the shipping industry is undoubtedly a driver of ‘green growth’.

As a follow up to the UN Summit, the IMO Secretary-General is now committed to producing sustainable development goals for the international shipping industry.  This is an objective which ICS fully supports.

Sustainable development, as defined by the UN, is made up of three components or ‘pillars’: environmental, social and economic which are all inextricably linked.  As well as being, by far, the most environmentally efficient means of commercial transport, the shipping industry also offers high employment standards compared to many shore based industries.  This is reflected by the recent entry into force of the ILO Maritime Labour Convention governing seafarer’s employment standards.

However, ICS is also keen to emphasise the importance of maintaining the economic sustainability of shipping, especially given its vital role in transporting around 90% of world trade, upon which the functioning of the world economy depends.

Sustainable development, and the spread of prosperity, in a world in which over a billion people still do not have access to electricity, is dependent on the continuing low cost of maritime transport, which should not be taken for granted.

ICS is the leading international trade association representing shipowners at the IMO.  It is therefore our job to engage with governments about the principles and philosophies supporting shipping regulations, in addition to the practical details of how shipowners will eventually achieve their ultimate goal of zero accidents and zero pollution.

Compliance with new rules presents a challenge for shipowners trying to finance the retrofitting of expensive new ballast water treatment systems that will be required in the next few years, and the investment required for other green technologies to meet demands from regulators and charterers to reduce CO2 emissions.

If a shipowner orders a ship, in good faith, with an expected life span of 25 years or more, only to find that the goal posts have changed a few years later, the business of owning and operating ships, in fair competition with others, becomes a lottery.  If, as a result of new rules on retrofitting, perfectly sound ships have to be scrapped early and replaced with excessive newbuilds costing many millions of dollars each, this is not a rational use of resources, either economic or environmental.  Whatever the marginal environmental advantages that the latest ships may have, the environmental impacts and CO2 emissions involved in building and scrapping them is rarely taken into account.

While the IMO agreement on sulphur is fully supported by ICS – since the alternative of piecemeal regional legislation would have been far worse – we think it is important for governments to understand that the cost of this change to the industry after 2020 is estimated to be over US $50 billion dollars a year.  Distillate fuels currently cost around 50% more than residual fuel, and the difference between the two fuels is expected to increase as the use of distillate in effect becomes mandatory for the majority of ships.  Even if it were possible for ships to improve their fuel efficiency dramatically, this significant cost will need to be absorbed by shipping’s customers, including those in developing countries.

On IMO World Maritime Day, at the end of September 2013, the IMO Secretary-General rightly gave emphasis to the sustainable development of the shipping industry.  But sustainable development must include the economic dimension too.

At its last Annual Meeting, ICS members agreed that government regulators should give equal priority to each of the three pillars of sustainable development, including the economic.  This is especially important in view of shipping’s role in the continuing spread of global prosperity and the movement of about 90% of trade in goods, energy and raw materials.  Unless the industry is commercially viable it will not be able to deliver the investments in environmental and social improvements that are sought by regulators on behalf of society at large.

The vital need to protect the environment and for ships to comply fully with all new environmental regulations is fully recognised by ICS.  It is hoped nevertheless that one of the outcomes of IMO’s new focus on sustainable development is that all proposals for any future IMO environmental regulation will be shown to meet existing IMO criteria for compelling need and be subjected to a full and proper cost benefit analysis, in a similar manner to proposals relating to the improvement of maritime safety.  Such cost benefit analyses should include comprehensive impact studies and assessments of whether effective technology is available in order to implement the proposed regulations, especially if they are to be applied to existing ships, as is the case with the new ballast water rules.

ICS believes that the conduct by IMO of full and proper cost benefit analysis of all new regulatory proposals will ensure the delivery of sustainable development, consistent with the goals agreed by the United Nations Summit in Rio, including the best means of ensuring optimal environmental protection.

While shipping’s regulators have a responsibility to protect the environment and the interests of wider society, they also need to be practical and have an understanding of the impact that their actions can have on the industry’s own long term sustainability, especially if the ‘compelling need’ for potentially very expensive proposals has not been properly demonstrated.