At the end of 2019, shipping analysts were looking forward to seeing which of the predictions for 2020 came closest to reality. Would scrubber sales soar, would there be major incidents due to compatibility problems with new very-low sulphur fuels, what technology breakthroughs might there be and what impact would the intergovernmental climate talks (COP 26) in Glasgow in November 2020 have on shipping?
In the event, the arrival of COVID-19 threw all those predictions out and the world of shipping was left confused and bewildered by a very changed world.
We are now seeing the rolling out of several vaccines for the disease and the hope that by early Spring 2021, some semblance of normality might be returning even if that is a New Normal and not the one we were used to previously.
Return to growth in 2021 expected
For 2021 there are signs that trade patterns have been disrupted and for many trades there will inevitably be changes. In early November, the United Nations trade body UNCTAD produced a report saying global maritime trade will have plunged by 4.1% in 2020 due to the unprecedented disruption caused by COVID-19 but a return to growth in 2021 is expected.
The report came before the news of what look to be a number of successful vaccines and warned that new waves of the pandemic that further disrupt supply chains and economies might cause another decline, and a rethink in some areas.
“The global shipping industry will be at the forefront of efforts towards a sustainable recovery, as a vital enabler of the smooth functioning of international supply chains,” UNCTAD Secretary-General Mukhisa Kituyi said. “The industry must be a key stakeholder helping adapt ‘just-in-time efficiency’ logistics to ‘just-in-case’ preparedness,” he added.
There has certainly been a kickback against globalisation around the world, and the problems of congested container ports in all corners of the globe in the run up to the end of year holiday season may suggest the adaptation Kituyi was predicting is coming to reality. Although there are many more factors at play including slow steaming and reduced sailing strategies by operators, and stockpiling at ports due to lockdowns and a shortage of containers.
BIMCO suggests line operators have had a very good year overall and by reducing capacity have been able to boost rates to levels not seen for some time. In addition, the depressed price of crude through 2020 has meant lower bunker prices thus cutting costs.
Positive carrier earnings
Analyst Drewry agrees with most of BIMCO’s sentiment and says of 2021 that despite the news surrounding the second wave of the pandemic hitting some countries, it remains positive on carrier earnings in 2021. Drewry believes that the industry should be able to make decent money (about $6 billion of operating profit) based on some of the positive data indicators related to contract rates.
That prediction was based on a low oil rate of $40 per barrel which was the case at the end of November but with news of the vaccine, crude prices have risen to $50 in mid-December. Pinning down what will happen to crude prices in 2021 has been frustrating as the pandemic and political events – not least the result of the US Presidential election – have caused some significant developments. Within a week in December, different events caused analysts to first signal a weakening oil price and then the beginning of a bull market which could send prices in 2021 near to those at the end of 2019.
The rising price of crude and subsequent increase in bunker prices has seen a revival in interest in scrubbers to the point where, bunker suppliers in Fujairah who had stopped supplying high sulphur fuel oil, have now reintroduced it.
Decarbonisation driving developments
On the regulation front, it is decarbonisation which is still driving most developments. The EEXI (Energy Efficiency Existing Ship Index) and CII (Carbon Intensity Indicator), agreed by the Marine Environment Protection Committee (MEPC 75) for further development and possible adoption at MEPC 76 in mid 2021, is causing a lot of debate as shipowners come to terms with what they mean for shipping.
Improved efficiency is not feared by shipowners, they have been pursuing it for most of the time in any case, but mandatory regulation could mean that ships currently in service will need modifications that may well prove expensive. The IMO’s (International Maritime Organization) Intersessional Working Group that produced the plans have indicated that almost half of the existing fleet will need efficiency improvements.
Some have predicted that if the EEXI is not adopted, the result will be a growth of regional regulation with the EU most likely to be ready to adopt measures of its own. This is something the EU has previously threatened and indeed has several times put in place rules in advance of the IMO.
If the idea of regional rather than international regulation takes off, some analysts feel that it would undermine technology advances and adversely impact shipbuilding as some regions would continue a business as usual strategy that would allow older vessels to continue trading indefinitely. On the other hand, those that pursued a more stringent regime could promote new ship construction and also set in train a retrofit bonanza for efficiency improvement modifications.
In December, the European Commission launched its Sustainable and Smart Mobility Strategy which could see shipping being given priority in the area of new fuels, but which could also see shipping included in the EU’s Emission Trading Scheme (EU ETS).
In response, shipowners through ECSA (European Community Shipowners’ Association) have said the European shipping industry is fully committed to the eradication of GHG emissions from the sector and it welcomes the references in the strategy to the importance of working closely with the IMO on concrete measures aimed at reaching global goals consistent with the Paris Agreement. ECSA reiterated that the industry firmly believes that a global approach is preferable to regional measures such as the proposed extension of the EU ETS to shipping or the revision of the Energy Taxation Directive.
Technology needed to keep pace with regulations
Regardless of whether there is a regional or a global approach, decarbonisation will not happen just because regulation is in place, it needs technology to keep pace and that cannot be guaranteed. Hybrid ships are increasingly appearing and there are promising developments in the field of fuel cells. However, expert opinion suggests the diesel engine will be dominant for at least another 20 years.
Current research is mainly centred on the development of ammonia-fuelled engines that will be virtually carbon free. The only emissions coming from the tiny amount of pilot fuel and consumption of upper cylinder lubricants in two-stroke versions. Both MAN Energy Solutions and Wartsila have announced plans to have commercially available engines within five years and a Japanese consortium has plans to build an ammonia fuelled tug even earlier. Elsewhere, Belgium’s ABC engine maker is developing a hydrogen fuelled diesel engine under the BeHydro name.
For technology to make a real impact, many believe that a change is needed in the EEDI and EEXI rules to take account of measures such as new coatings, performance monitoring and optimisation, use of alternative fuels and hybrid ship operation along with other innovative measures.
For its part, Jotun is supporting owners and operators challenged by the changing industry, tightening environmental regulations and unpredictable trade and fuel prices. “For sure the nature of the industry is changing, and the regulatory pressure will lead to a more demanding operational framework and higher stakeholder expectations,” predicts Erik Risberg, global marketing director at Jotun Marine Coatings. “Also, the drive for energy efficiency and low-carbon solutions will most likely result in a new range of technologies that will gradually transform the industry.”
“The leading companies are seeing innovation as an important means for improving economic and environmental performance,” adds Risberg and concludes, “and at Jotun we are developing new products and services with the aim to help our customers meet the new demands and make them fit for the future.”