Reduction of zero-carbon emissions made little progress since January 1, 2020. Progress in 2021 will likely also lag. That’s because many issues surrounding implementation remain unresolved.
The International Maritime Organization (IMO) mandated the reduction of emissions by 50% by 2050. The baseline for emissions reduction is emissions from 2008.
For the foreseeable future, implementation is a slow-go process. First, it’s an enormous undertaking – by any standards. The bar is set high and the scope is global. Second, achieving these mandated standards impacts the entire supply chain.
The IMO mandate impacts and is impacted by fuel prices, research and development. It also affects and is affected by technology investments and vessel procurement.
Let’s drill down into each of these to better understand why progress will continue to plod along.
Fuel Prices. Everyone expected bunker fuel prices to skyrocket after implementation. Moreover, predictions were that fuel costs would remain high. Regulators thought higher bunker fuel prices would speed the transition to cleaner fuels. But that didn’t happen.
Instead, prices declined due to reduced demand. That restrained the move to Very Low Sulphur Fuel Oil (VLSO). Now, however, VLSFO has hit a 10-month high due to tight supplies.
Although demand for VLSFO isn’t high, neither are supplies. That’s now putting upward pressure on fuel prices. Erratic fuel prices has made it difficult to incentivize the transition to cleaner fuels. To incentivize movement to use of VLSFOs, prices must continue to rise.
Research and Development (R&D). R&D of zero-emissions is still in its infancy. This is a new and open field of study that lacks unified guidance. It also lacks a sense of urgency, at least compared to the R&D efforts for a Covid-19 vaccine. On the plus side of the equation, shippers have agreed to a self-imposed carbon tax to fund a $5 billion R&D fund.
That’s a move in the right direction. Of course, this requires a new governance body to manage the fund. With bureaucracy moving at a lumbering pace, this body won’t be stood up until 2023. Meanwhile, some question the emphasis placed on R&D.
The Director of International Climate for the Environmental Defense Fund stated the industry should focus on carbon pricing tools rather than R&D. The director, Aoife O’Leary, thinks the R&D fund isn’t an effective transitional measure. Rather, he believes the industry needs a carbon pricing mechanism now.
To speed movement to IMO’s mandate, R&D needs an integrated approach and an energetic bureaucracy.
Technology Development. Technologies for achieving IMO’s strict standards, requires direction as well as funding. Technologies that stakeholders are pursuing include how to make existing vessels more fuel efficient. The use of scrubbers is a popular technology because it’s quick and easy to install. Yet the use of scrubbers is only a temporary solution.
Other technologies focus on development of new fuel-efficient engines. The same applies to developing alternative fuels that burn cleaner, such as biofuels. A leader in biofuels research and development is Maersk. Another leader is DHL, which intends to use biofuels on all less-than-container load (LCL) shipments in 2021.
Other independent initiatives including CMA CGM, BMW Group are also exploring fuel alternatives. While admirable, most business are pursuing these efforts independently.
They seem to be taking a fragmented approach in developing technologies. That is, the industry lacks a common, unifying goal for technology development. That could extend the time to achieve standardized technologies.
Vessel Procurement. Like R&D, this also seems to be taking a scattered approach. Vessel procurement, too, lacks a common, strategic goal. Moreover, in 2020, we saw vessel procurement take a back seat to other measures. That wasn’t surprising, since vessel procurement requires a significant upfront investment. There’s also another factor hindering new procurement.
Without knowing what the preferred fuel of the future will be, it’s difficult to build ships. Thus, carriers have reduced their orders significantly. This uncertainty has acted as a huge brake on vessel procurement.
In 2007 global orders of newly-placed as a percentage of the existing fleet was 61%. That dropped to 16% between 2015 – 2019. Now, new ship orders have dropped like a rock, falling to 8%.
Also, you would think current capacity constraints would incentivize new ship buying. As the data show, however, global ship procurement has bottomed-out. So, new vessel procurement is not expediting the transition as planned. Rather, it’s having the opposite effect, further retarding progress.
Governments and industry agree sustainability is a major, long-term trend affecting the logistics industry. Today, a major long-term issue confronting the logistics industry is zero-carbon emissions. And it presents many challenges to smooth and timely implementation.
Implementing zero-carbon emissions has both near-term and long-term impacts. Impacts concern fuel prices, research and development, technology development, and vessel procurement. And that’s only a partial list.
With so many issues surrounding the IMO mandate, competing in the logistics industry may seem formidable. Add to that the uncertainty surrounding U.S. trade relations, and 2021 will challenge the best companies.
One way to combat these challenges is by seeking a long-term partnership with a solid 3PL. At American Global Logistics , we believe success in the future depends on long-term partnerships.
Building partnerships is also an evolving industry trend. And we’re intent on leading that trend for competitive advantage – yours and ours.
When you partner with Ameican Global Logistics, we’ll tackle your challenges head-on. You’ll be hard-pressed to find another 3PL that tackles your challenges all-out with the same energy and passion.
Contact us today to learn how partnering with us will help you compete today and in the future.