Beware of a good pitch: Separating the hype from substance key to successful decarbonization

The shipping industry is faced with a perfect storm. On the one hand, the pressure to decarbonize its operations and cut greenhouse gas (GHG) emissions by abandoning the use of fossil fuels is rising, promising to change shipping as we know it.

On the other hand, a global pandemic is reshaping the global trade creating a veil of uncertainties for numerous shipping sectors, as demand and supply fundamentals are crushed.

One thing is certain though, the transition is here to stay. However, now is the time to decide what path the industry will choose and learn from its past mistakes.

The implementation of the IMO 2020 Sulphur Cap could serve as a glimpse into what the future holds for the sector as it eyes net zero emissions.

Prior to the entrance into force of the regulation, the industry was at the edge of its seat trying to opt for the best solution to become compliant and reduce risks to its operation while also continuing to earn money.

One of the most tempting solutions to become compliant were exhaust gas cleaning systems, better known as scrubbers, as they offered lucrative premiums on earnings due to the wide fuel price spread between LSFO and HSFO.

At a certain point in 2019, there was such a rush among owners to install scrubbers that the issue was not about whether to do it, but rather how soon.

Nevertheless, experience from several owners has now pointed to a rather complex installation process and ever-challenging maintenance requirements to keep scrubbers operational and avoid malfunctions.

The maintenance of scrubbers has been further exacerbated by the inability of technicians to come onboard ships due to COVID-19 travel restrictions as well as lower availability of spare parts.

Fast forward to the present day, there has been a rising number of cases where scrubber corrosion or leakage problems led to water ingress into areas such as the engine room, ballast tanks and cargo holds.

Furthermore, the question mark about the quality of water discharged from open-loop scrubbers into the ocean remains, with numerous port authorities banning the discharge in their waters.

Moving on, LNG was identified as THE bridging fuel for the industry. Nevertheless, it appears that the need to put zero-emissions ships into the water by 2030 might turn away shipowners from running their ships on LNG as a midterm fuel, because the investment is not likely to suffice for 20-25 years.

Another key concern is the methane slip from dual-fuel engines, which has considerably increased over the past six years (2012-2018), according to a recent IMO study.

Running ships on low sulphur fuel has also been a headache for certain owners, due to poor quality of new fuel blends and/or improper handling of the new fuels which have caused mechanical issues to ships’ engines.

The said issues can be defined as ‘teething problems’ as the implementation of the IMO 2020 is still in its early days, and, as many keep on saying, is going ‘relatively smoothly’.

But before we rush to tap ourselves on the back for a job nicely done, the teething problems of the future might have a much more profound impact on the industry’s wallet and safety.

Decarbonization will be a learning curve for the industry due to the early days of the technologies being fitted on board ships and learning about their operation and maintenance as we go. Proving their potential in operation will be critical.

Namely, the shipping industry now needs to come up with alternative fuels, ship, and engine designs to move the transition a step further.

One of the key lessons to be learned when assessing potential risks moving forward is to ‘beware of the hype’.

Offshore Energy-Green Marine spoke with Andrew Kinsey, Senior Marine Consultant at specialty insurer Allianz Global Corporate & Specialty SE, about how owners can protect themselves from risks the future might hold.

“I feel the future is bright, but we have to separate the hype from substance and avoid just jumping on something that sounds like a good pitch. We really need to make sure that we study the needs of the shippers, vessel owners and cargo owners, and find out what is the most efficient way to perform these rather than saying: it’s an economy of scale of the ship – but it’s not an overall economy of scale for the supply chain as well,” Kinsey said.

Captain Kinsey sailed for Maersk Line for 25 years, out of which 13 years he worked as a master. He has been in the marine insurance business for the past 12 years, consulting clients on how to mitigate risks.

Speaking on the transition to low sulphur fuel, Kinsey said that any time a fuel blend had to be changed on board a ship, there have been growing pains, but that from a marine insurance point of view, the key was to learn from the past.

“We had an agreement with our insurers on giving them guidance on testing, first and foremost. Understanding what the condition of the fuel was and now, with so many vessels laid up, we don’t know how the stability of these new blends is. Therefore, the continued testing and then making sure that the lubrication schedules are properly adjusted and that the fuel is properly treated to ensure usability remain a priority.”

Assessing risk is becoming ever more complex for insurers and owners due to a lot of unknows, as the industry investigates the potential of ammonia and hydrogen as the likely fuels of the future.

Marine engines running on these types of fuels are yet to be fully developed and their safety and efficiency proven.

“There is a lot of fascinating technology in place and being developed right now. One of the key aspects of this critical to realise is that each case is unique and it is going to present its own challenges, because there is no one-size-fits-all solution to the industry.

“Each of these components has to be looked at both on its own and then also as a combined set of technologies and how is it going to be implemented successfully. However, all these components and technology that is being introduced and utilised now should not continue to overburden the crews. So, it truly does have to be more automation to help the crews continue to do their job safely and successfully.”

Captain Kinsey believes the upcoming period will be a time of profound change for the industry, especially for the smaller and mid-tier operators, as they will not be able to keep pace with the significant changes on the market.

“I feel strongly that the maritime industry we see in 18 months is going to be much different than the one we saw six months ago. I think we’re going to see more consolidation given the current challenges which smaller operators won’t be able to absorb, such as the costs that are incurred from repatriation efforts. That is why we need everybody involved to keep the market open and robust.

“Another thing that we will see is the container shipping industry taking a long and hard look at the economies of scale of ultra large container vessels due to the extent of mis-declared and improperly stored cargoes on board ships. Also, potential shifts in the supply chain patterns are likely to result in owners rolling back on the overall vessel sizes as these won’t be sustainable.”

Decarbonization is no longer an issue of can it be done, but rather of how we do it, Kinsey pointed out.

“It is going to take buy-in from all parties and it’s going to take innovation. However, we must move quicker to meet the goals. We have dealt with a real lag with the implementation of the Polar Code for example. We have to use the technology that we have to help speed up the process of change,” he said.

The key to making this happen is to change our mindset of doing things and learning from success stories, while availing of the untapped potential modern technologies have to offer.

“If you look at the maritime training, in the past we have always studied failure rather than success. It’s a dynamic where we’re not teaching to success, we are teaching to avoid tragic loss.

“However, with AIS, differential GPS and the technology we have on the voyage data recorders we can now study successful voyages rather than just the ones that end in catastrophe. Taking those successful voyages and using that as a training aid and saying this is what you do to be successful, that’s a much better training aspect then just studying from loss.

“The bottom line is that there is a lot of opportunity to utilize the data being collected right now. We’re collecting a tremendous amount of data on vessels, but these pieces of data are not being properly utilised to help ensure success going forward.”

Kinsey pointed out that the decarbonization goal of shipping can be achieved only if we look at the overall supply chain.

“An ultra large container ship dropping a weeks-worth of cargo in one stop and then having trucks idling it backed up for three days – that’s not an overall successful view of the supply chain logistics and the supply chain decarbonization.

“So, rather than everyone just getting in their silos and focusing on their piece of it, we must take a more holistic view overall and say how do we address the decarbonization of the overall supply chains,” Kinsey concluded.