Wednesday, 25 June 2014

SHIPPING IN CHANGING CLIMATES




At a maritime conference, Shipping in Changing Climates, in Liverpool, Peter Hinchcliffe OBE, Secretary General of the International Chamber of Shipping(ICS), spoke of the sector’s response to climate change. Pointing to EEDI, SEEMP and slow steaming as key actions he noted that shipping was a function of consumer demand, if the sector was called to invest heavily to reduce emissions (save fuel) then consumers would have to pay.

Professor Kevin Anderson, Tyndall Centre, showed that our global society is currently on an emissions trajectory which will warm the planet by 4-6degrees whilst the political rhetoric would have us believe we are firmly committed to go no higher than 2degrees. To have any chance of achieving 2degrees - and both IMO and ICS have stated this is the target for shipping - the sector’s emissions must reduce by 30% by 2030. Something doesn’t add up. EEDI, SEEMP and slow steaming see emissions at 2000% above the 2degrees target.

But then maybe 2degrees doesn’t sound so alarming? Until we heard from delegates from the University of South Pacific who told of whole islands being forced to migrate due to sea level rises and the social and cultural breakdown that causes. The island nation is wholly dependent on imported scarce and expensive fossil fuels and without it kids don’t get to school, crops can’t be exported, life deteriorates. This is what climate change looks like.

Other sectors are responding proactively to climate change and as a consequence trade patterns are altering and will continue to do so. Climate induced changes in food production, new low carbon biofuels, changing consumer habits in response to increasing awareness - all these things will impact shipping.

The conference highlighted an array of lower and low carbon technology solutions that the sector is actively developing. LNG was recognised as a ‘transition’ fuel to create a lower carbon option, although issues around methane slip make it as polluting as current fuel oils. Shell’s speaker suggested waste-derived bio-methane could be available within 5 years. Waste heat recovery offered opportunities to save 10-20% emissions. Dr Michael Traut re-established wind as a viable option for modern shipping offering up to 50% fuel savings.

Desirable commercial outcomes were highlighted by Maersk underlining the positive impact on the bottom line from their carbon saving Triple E’s and wider strategies and from Richard Branson’s Carbon War Room which presented a financial solution to enable fuel/cost/carbon saving solutions to be retrofitted to existing ships without incurring additional capital cost.

Professor Anderson urged the conference to “think differently”. In doing so we create a more resilient shipping service.

Tuesday, 17 June 2014

THE OSTRICH, THE FIGHTER AND THE PIONEER


Another week, another global scientific report underlining our position at Climate Code Red. The Antarctic is showing alarming signs of meltdown with unknowable consequences to the global climate. This was first highlighted as far back as 1968. Meanwhile Lord Nicholas Stern and economics colleagues in London have released a new study showing the economic models developed in 1991 have grossly underestimated the costs of responding to climate change.

In the UK this week the British Chamber of Shipping has called a debate in the Houses of Parliament to challenge and delay the application of EU sulphur regulations on shipping due to be implemented in Jan 2015. The start date and implications of the introduction of Emission Control Areas has been on the table for several years, discussed and argued about at a thousand conferences in the last decade and yet no positive response has been developed for accommodating the new regulations.

I’ve heard shipping industry leaders publically advocate non-compliance as there is insufficient resource to police ECAs whilst the Trident Alliance of major operators call for tighter controls in ECAs to ensure a level playing field. It’s all very messy.

Our collective reaction to climate change is first to behave like the ostrich - to stick our heads firmly in the sand and hum loudly so we can’t hear the warnings. When that doesn’t work we start to fight.

But there is another, more exciting, more fulfilling way - and that’s to choose the pioneer’s journey. The shipping industry has a wealth of innovation being developed to radically reduce emissions which will improve operating incomes - because emission reduction means less fuel.

Pioneers set sail centuries ago to explore new worlds and create new economies. We have that opportunity again, to develop a sustainable world.

It’s a much over-used word, sustainability, and often misunderstood. It’s about transitioning a fragile and vulnerable business to a robust and resilient one. A sustainable business isn’t about making less profit; it’s about making profit for ever. 


This blog was inspired by @rachelbotsman 

Embedded image permalink

Tuesday, 10 June 2014

HISTORY LESSONS



With the implementation, and enforcement, of the Emission Control Area getting closer we see increasingly worrying predictions of increases in fuel costs for low sulphur options. One estimate predicts MGO consumption will increase by 50m mt, equivalent to 3% of total global middle-distillate consumption. In 2004 and 2010 when there were similar spikes in demand we saw a 20% increase in US highway diesel prices. If the past is any indicator of the future, shipping could face 20% increase in MGO price in response to the hike in demand. Adding this 20% to today’s (May 2014) price averages would see an 83% premium on LS MGO over HSFO in Rotterdam compared to today’s 52% premium. 

Big changes create big impacts. We have yet to see how trade flows may alter.

In 1846 the US owned 640 whaling ships. Whales contributed oil for lighting, perfumes and raw materials. In 1880 it was the fifth largest sector of the US economy contributing $10m to the US economy. Innovations like the faster, larger whaling barques and better harpoon and winch technologies gave US whalers competitive advantage. Then petroleum arrived. Fifty years later whaling in US was all but gone. In 1859 the US produced 2000 barrels; forty years later that was 2000 barrels every 17 mins. The whaling fleet was decimated by the arrival of ‘new’ oil and over hunting causing falling supply. 


 20th Century 3 masted barque.


The parallels to the current status of shipping are plain. The industry faces the twin challenges of rising bunker prices and increasing environmental legislation driven by science-backed societal concerns. 

At the end of this month politicians, industry leaders and NGOs meet in France to address the vulnerability of the world’s estuaries. 90% of EU trade passes through estuaries and their associated ports. 

Recommendations emerging from the summit will look at the impacts of shipping on emissions, wildlife, new structures and climate change which ultimately will lead to further restrictions on the sector. Simultaneously multi-national global brands like Electrolux, Heineken, IKEA, Nike, Marks and Spencer have signed up to the Clean Cargo Index - to improve the environmental performance of their supply chains. 

Innovation is key. What we learn from history is that nothing remains static. Everything has to respond one way or another to external stimuli. Shipping needs to respond positively if it is to profit in our fast changing world.  

Refs:
Whaling story via @james_bg

Tuesday, 3 June 2014

SYSTEMS THINKING




Last week we discussed the EU’s growing appetite to import biomass to support low carbon power generation capability to meet carbon reduction targets. This week President Obama announced carbon reduction targets for the USA. So whilst the politics mean it’ll take some time for any meaningful legislation to come into force the line has been drawn. It’s a fair bet that much of the biomass arising in the US will soon be utilised closer to home. Which leaves the EU with a challenge.

The energy industry is a highly complex, interconnected system that responds to the demands of society. It is facilitated by a heterogeneous global shipping fleet where each ship is a complex system in itself. All of these systems function within the confines of a finite planet, which throws further systemic challenges at us - how can we sustain a growing global population aspiring to what we in the west consider to be rights - cars, white goods, air travel. This is our meta-problem.

And we have to think about all of this in the context of the long term, where the only certainty is uncertainty.

Aviation, retail, construction, manufacturing - these sectors and more - are addressing the risks presented by economic volatility. How energy and resources are used, or not used, is core to that systems approach. Where new markets will emerge and what they may want to consume in 30+ years and where the raw materials for those products will arise needs to be considered. Thinking about the extent to which particular systems interlock with others and how to create competitive advantage is all part of systems thinking.

Here’s the opportunity. If ships nail down operating costs over the long term by switching to renewable energy sources and offer markets predictable priced logistics solutions, whilst the shipping business may become less thrilling, energy and supply systems can be somewhat stabilised and there will be a premium value in that proposition.