Shipping: Global trade’s dirty secret
Shipping plays a key role in global trade, but it is environmentally unregulated and a major contributor of carbon emissions
Approximately 90 percent of world trade is carried by sea [1], yet shipping remains an industry poorly understood and away from the public conscious. This outsized role in the economy comes with a massive economic impact. Because ships burn high sulfur content “bunker fuel” – some of the cheapest fuel available – they are responsible for 18-30 percent of nitrogen oxide emissions and 9 percent of sulfur oxide emissions. Nitrogen and sulfur oxides cause acid rain and respiratory problems, resulting in 60,000 deaths per year and annual health costs of $330bn according to US academic research [2]. Further, illegal dumping of hydrocarbons is rampant among ships. Conservative estimates put the amount of hydrocarbons ejected from ships at 660,000 tons, more than the amount of oil released in the Deepwater Horizon spill, every year [3].
Emissions of greenhouse gases that contribute to climate change are similarly impactful – 0.8 billion tons of CO2 in 2012, equating to 2.2% of worldwide emissions, and on par with the entire carbon output of Germany [4].
Shipping is a highly concentrated industry, with the ten largest operators accounting for over 65 percent of market share [5]. APM Maersk, a Danish conglomerate, is the industry leader with 15.3% market share and revenues in 2015 of $23.7bn for its Maersk Line operating unit [6].
Because shipping emissions take place on international waters, environmental regulation of shipping has been excluded from UN climate agreements. Currently, shipping is regulated under the UN International Maritime Organization, which has agreed to a roadmap to reducing the greenhouse gas emissions of ships. However, the roadmap does not set specific targets for emissions, nor does it commit the sector to setting such targets before 2023 [7].
Maersk has garnered respect in the industry for its own commitment to emissions reductions, and expressed disappointment with the result of COP 21, stating that, “Maersk acknowledges the need to regulate the environmental impact of shipping and emphasizes that any future regulation… We are ready to compete in a level playing field, carbon constrained economy.” As a company, Maersk has committed to a 30% relative CO2 reduction by 2020 (2010 baseline), and had achieved a 23% reduction by 2015 [8].
There are two main ways that the shipping industry is mitigating climate change – increased efficiency and the search of alternative fuels. Maersk has been a pioneer in increasing the efficiency of its fleet using a method called “slow steaming”. Slow steaming is an operating method of running ships at less than their highest engine load in order to reduce the amount of fuel used. Slow steaming also results in a net cost reduction for ships. In 2007, Maersk won an award from Sustainable Shipping for its slow steaming initiative, which showed that fleets can safely operate at low engine loads without damaging the ship [9].
Alternative fuels are an interesting area of exploration that seek to get ships off of the dirty bunker fuel. Ideas include onboard power generation with wind turbines, the use of cleaner fuels such as LPG (liquefied petroleum gas), and in the long-term the use of nuclear propulsion. Maersk is currently exploring the use of biofuels – targeting lignin, an organic polymer found in plants, as a fuel of interest. In 2013 Maersk announced a partnership with Progression Industries to buy 50,000 tons of lignin for use as fuel in its fleet [10].
On the adaption side, shipping will benefit from new trade routes opening up in the thawing Arctic sea. The Arctic is experiencing warming at a rate faster than anywhere else on earth, and scientists forecast ice-free summers in the Arctic within decades. The result is the Northern Sea Route (NSR), which connects the Atlantic to the Pacific across the rim of Siberia. The main beneficiary will be Europe, with the NSR reducing the distance between China and Germany by 30 percent, compared to a trip via the Suez Canal. The use of the NSR is increasing rapidly, growing from four trips in 2010 to 71 in 2013 [11]. For Maersk, the NSR is a long-term prospect. In 2013 Nils Anderson, company head, said “the reality is, for commercial shipping… this is not something that will happen within the next 10 to 20 years” [12].
Shipping is an ancient industry, and in many ways feels ancient in its response to climate change. This is partially due to the unique cross-border nature of the industry, but also to its success in staying out of the public spotlight. Maersk is changing the conversation – slowly. For all of their talk I think they are comfortable being the fastest in a pack of slow horses. Advances are being made, but only real disruption in the space of alternative fuels will change the climate profile of the industry.
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References:
- “International shipping – facts and figures”. International Maritime Organization. March 6, 2012. http://www.imo.org/en/KnowledgeCentre/ShipsAndShippingFactsAndFigures/TheRoleandImportanceofInternationalShipping/Documents/International%20Shipping%20-%20Facts%20and%20Figures.pdf.
- Vidal, John. “Health risks of shipping pollution have been ‘underestimated’”. The Guardian. April 9, 2009. https://www.theguardian.com/environment/2009/apr/09/shipping-pollution.
- “The dumping of hydrocarbons from ships into the seas and oceans of Europe.” Oceana. http://eu.oceana.org/sites/default/files/reports/oil-report-english.pdf.
- “Shipping and Climate Change: Where are we and which way forward?”. International Transport Forum. October 2015. http://ppmc-cop21.org/wp-content/uploads/sites/4/2015/10/Shipping-and-Climate-Change-Where-are-we-and-which-way-forward.pdf.
- “Leader ship operator’s share of the world liner fleer as of October 10, 2016”. Statista. https://www.statista.com/statistics/198206/share-of-leading-container-ship-operators-on-the-world-liner-fleet/.
- “Annual Report 2015”. Maersk. 2016. http://files.shareholder.com/downloads/ABEA-3GG91Y/3130730410x0x874219/9643DB80-2142-4D2F-8FCE-F5DB67E26B70/Maersk_Group_Annual_Report_2015.pdf.
- Upton, John. “Shipping industry: Climate change? What’s the big rush!”. Grist. October 29, 2016. http://grist.org/climate-energy/shipping-industry-climate-change-whats-the-big-rush/.
- Hui, Tan Yi. “Positive outcome of COP21 conference”. Maersk. December 14, 2015. http://www.maersk.com/en/industries/2015/12/positive-outcome-of-cop21-conference.
- “Maersk Line wins award for super slow steaming initiative.” Finch & Beak. September 4, 2009. http://www.finchandbeak.com/388/maersk-line-wins-award-for-super.htm.
- “The Group’s search for alternative fuels.” Maersk. March 27, 2013. http://maerskstories.maersk.com/post/46421870120/the-groups-search-for-alternative-fuels.
- Masters, Jonathan. “The Thawing Arctic: Risks and Opportunities”. Council on Foreign Relations. December 16, 2013. http://www.cfr.org/arctic/thawing-arctic-risks-opportunities/p32082.
- Milne, Richard. “Arctic shipping routes still a long-term proposition, says Maersk”. Financial Times. October 6, 2013. https://www.ft.com/content/f44bd53a-2e74-11e3-be22-00144feab7de.
Thanks for the article, I really like how you clearly laid out the carbon emission issues regarding shipping.
While I do think that the current initiatives, such as biofuels, the arctic shipping route and low steaming, will reduce emissions by some extent I believe that we need more accountability of the industry. One way to do that would be by focusing on the environmental foot print of products that are shipped using cargo vessels. If governments would tax products based on associated carbon emissions there would be higher pressure to reduce cost along the value chain and pursue more environmentally friendly transportation methods.
Another possible option for addressing the lack of accountability of cargo ships would be to charge carbon fees in their port of departure and port of entry. This tax could scale with the distance covered by the ship and ultimately feed into carbon offsetting projects.
Again, great article, these are just some further ideas …
The environmental impact of the shipping industry is startling, although I agree that it is a difficult industry to regulate due to its global scale. Shipping companies and the environment will both undoubtedly benefit from fuel innovation and expanded use of biofuels. I do not think that nuclear propulsion will be an option in the near future, so it is good to see that companies like Maersk are seeking alternatives. However, the illegal dumping of hydrocarbons is unacceptable. I agree with Stefan in that there needs to be more accountability in the industry. It is surprising that he UN International Maritime Organization has not set clear emissions reductions goals and does not even address the illegal dumping of hydrocarbons. Although it is important for the companies to have their own emission reduction goals, I do not think that it is enough to solve their enormous contribution to climate change; there needs to be oversight on the industry as a whole, but where that oversight comes from is the question.
Wow! I was very surprised to hear that every year the equivalent of a BP spill is dumped into the oceans by these ships. But I suppose it makes perfect sense.
As we looked at a shipping investment several years ago, it was made clear to us by the hedge funds we talked to that the emerging technologies from South Korea – more eco-friendly ships – are the preferred ships for companies going forward. Since the fuel costs are typically passed through to the customer, many prefer the more stable ships, and appreciate the cleaner operations.
Some ports such as Tokyo have even started rewarding eco-friendlier ships who enter. Hopefully going forward this industry can clean up its act.
While I’m not surprised that shipping is a large contributor to emissions, I’m amazed to hear that it’s estimated they contribute to $330 billion in health costs each year. It sounds like Maersk is making significant efforts to use less fuel and explore alternative sources, I’m skeptical that the rest of the industry will follow suit prior to it being economically viable. It seems that without regulation as to the emissions and hydrocarbon dumping, smaller fleets will continue those practices until they become less profitable than the alternative. I feel for Maersk, as they are essentially the market leader in these sustainable trends and therefore putting themselves at a competitive disadvantage. I’d like to think they are gaining brand value as a sustainable shipper that can help them maintain their current clients and continue to try out these new technologies.
Really interesting post – it never occurred to me that the shipping industry, by virtue of taking place in international waters, would be in a gray area with respect to the UN climate agreements. I can see how industries like this would greatly exacerbate the already complex task of setting environmental standards and determining which countries and organizations are responsible for bearing the responsibility of those standards, and to what extent. In some ways it makes me very cynical about the prospect of countries ever being able to cooperate on a large enough scale to truly make a notable impact in reversing the effects of climate change (but I hope I’m wrong!)