GOGL CEO: Green transition and making money is NOT mutually exclusive

Investment in decarbonization for a shipping company may appear counterintuitive to its profitability due to several factors.

Firstly, the upfront costs of transitioning to low-carbon technologies, such as investing in eco-friendly vessels or retrofitting existing ones, can be substantial. These expenses can strain the company’s financial resources, potentially leading to reduced profits in the short term. Additionally, the transition to decarbonization may involve significant operational changes, such as altering routes or reducing cargo capacity to accommodate cleaner energy sources.

Furthermore, the global shipping industry operates in a highly competitive environment, where profit margins are often slim. In such a context, prioritizing decarbonization measures may be seen as diverting financial resources away from more immediate profit-generating activities.

However, Ulrik Andersen, CEO of Golden Ocean Group, believes that decarbonization and profitability go hand in hand. With ambitious emission reduction targets set in 2021, GOGL aims to achieve net-zero emissions by 2050, when compared to its 2019 baseline.

In Andersen’s words, decarbonization will reshape the traditional ship-owning model, impacting various aspects such as cost of capital, asset prices, customer preferences, and regulatory compliance.

“A low-carbon business model is much more resilient. It will have superior earning capabilities and be much better suited to service customers and comply with future regulations,” Andersen explained speaking in a webcast on Q1 2023 earnings.

“At Golden Ocean, we have a pragmatic approach to decarbonization and we want to monetize it, As it can be seen, it is entirely possible to invest profitably in decarbonization. The green transition and making money is a duality not mutually exclusive.”

By divesting high-emitting vessels and replacing them with fuel-efficient counterparts, GOGL has already begun its efforts to reduce emissions.

In the past year, including the beginning of 2023, Golden Ocean has sold 11 older vessels and acquired six modern Newcastlemax vessels to reduce its emission profile.

“In 2023 and 2024, we anticipate receiving ten ECO-type dual-fuel ready Kamsarmax newbuildings that will be equipped with the latest and most efficient propulsion systems. This will give us the flexibility to evaluate propulsion options as future emissions-related regulations and technology continue to advance,” GOGL said in its ESG report for 2022.

During the first quarter of this year, the first vessel from the dual-fuel ready batch was delivered from the Chinese shipbuilder Dalian Shipbuilding Industry Corp. A total of five newbuilding vessels are expected to join the company’s fleet this year.

GOGL returned to Dalian two times upon its initial order for four units made in 2021, pushing the ordering tally over the past two years to a total of ten.

Overall, the fleet modernization efforts have pushed the company’s average age to 6.5 years.

Moreover, GOGL has implemented a digital transformation initiative, integrating performance management IT infrastructure that enables real-time monitoring of ship performance, digital speed, and route optimization, as well as improved hull cleaning procedures to reduce drag.

With such an approach the company said that it has measured a 9.1. % drop in CO2 emissions since 2019, a big step towards cutting CO2 intensity by 15% by 2026 and 30% by 2030.

The results of these efforts have been substantial, according to GOGL, significantly increasing the fleet’s efficiency and yielding substantial cost savings.

In the previous year alone, GOGL reduced its carbon intensity by 9.2% compared to the baseline, translating into approximately $20 million in savings, Andersen said, adding that building upon this success, ‘GOGL remains committed to advancing its decarbonization initiatives’.

Furthermore, Andersen added that having a low-emissions fleet will give the company a competitive advantage, as customers are becoming increasingly aware of the impact of carbon emissions on costs. A low-emissions fleet provides the company with greater flexibility in vessel speed, given that a speed limit is more likely to be introduced as a carbon limit per ton-mile, he explained.

Based on the company’s 2022 emissions data verified by DNV, GOGL’s owned fleet would achieve an overall weighted average carbon intensity rating of B under the CII. Relative to the 2019 base year, the company has managed to improve the CII values for several segments of its fleet.

The most notable is for its Capesize and Newcastlemax vessels, where CII dropped 6.2% and 12.4% respectively, according to the company’s ESG report,

The company’s Panamax and Kamsarmax vessels saw a drop in CII by 2.7% and 1.7%.

“Going forward, our efforts are purposefully focused on renewing our Ultramax, Panamax, and Kamsarmax vessels, as we identified that our fleet was performing outside the industry CII average within these two segments, according to the IMO Fourth GHG Study,” the report reads.

“We are not taking the foot off the gas when it comes to monetizing the decarbonization,” Andersen added, noting that GOGL remains dedicated to prioritizing dividend payouts as it continues to navigate the green transition.