Not surprisingly since most of world trade is performed by sea, shipping activity is usually seen as a reflection of how the world is performing economically. Certainly 2023 represented a continuation of the return to normality after the COVID pandemic but the outlook for 2024 and beyond is still not the easiest to foresee with plenty of challenges to be overcome.

Looking at one of the positive factors, in its Review of Maritime Transport 2023 published in September 2023, UNCTAD (United Nations Conference on Trade and Development) said it expected maritime trade to grow 2.4% in 2023 and more than 2% between 2024 and 2028. That will be strong growth after a 0.4% contraction in 2022. On a ton/mile basis growth was even stronger coming in at almost 4%. Since that report, events in the Middle East have pushed up the growth in ton/miles considerably as ships choose longer routes to avoid attacks.

Current events increase ton/miles

However, it should not be forgotten that some of the ton/mile growth was due to the effects of conflict in Ukraine, sanctions on Russian commodities and shipping, and a necessary shift towards new markets to overcome these issues. Certainly, if we look at current events with shipping companies avoiding Suez Canal transits in favour of the longer route around South Africa because of the political turmoil, we can expect that the ton/mile growth will continue at least early in 2024. Another factor adding to ton/miles has been the impact of the drought on the Panama Canal with number of daily transits halved in the latter part of 2023 and into 2024. This is causing ships to make much longer voyages from the East coasts of North and South America and Europe to the Far East by way of the Atlantic and Indian Oceans.

Unfortunately, an increase in ton/miles also means an increase in emissions. As mentioned in the UNCTAD report, comparing CO₂ emissions from vessels’ main and auxiliary engines in Q1 2013 and Q1 2023 shows an increase of over 20%. A figure which can only grow given the reasons in the preceding paragraph. The increase comes despite the figures per ton/mile showing ships have become more efficient over the period.

Commenting on the increase in emissions, Daniel Barcarolo, head of regulatory affairs, Maersk Mc-Kinney Møller Center for zero carbon shipping highlighted that a 15,000TEU vessel making the longer journey around South Africa instead of using Suez would add 2,600 tonnes of extra CO₂ emissions.

Shipping sectors show mixed fortunes

No shipping sectors are immune from current events. Containers have been particularly hard hit by the economic squeeze which excabated by shipowners opting to commit to newbuilding orders during the boom years of the pandemic. Many of those ships are only now beginning to hit the water and will continue to do so for the next few years adding to pressure on rates. According to BIMCO in its Q4 2023 Shipping Market Overview & Outlook, “Supply is forecasted to grow at an average annual rate of 8.4% between 2023 and 2025. Even at the best of times, ship demand would not see similar growth”.

Ironically the longer voyages now being made by avoiding Suez will actually help owners as more ships are needed to absorb the additional ton/miles.

Despite the world planning to transition to alternative fuels, the reality is that the world will remain dependent on fossil fuels for many years to come. That is a positive factor for tankers, gas carriers and bulkers engaged in the coal trade which stubbornly refuses to diminish.

Interestingly, the number of new vessels able to operate on alternative fuels is growing daily and around half of all new large ships on the order book will be capable of running on alternative fuel. That does not mean they will as their engines can also use traditional oil fuels. It is anticipated that a very high percentage figure of all fuel used in shipping will continue to run on fossil fuels for many years ahead.

EU ETS adding to woes

New in 2024 for ships above 5,000gt trading to and from Europe is the requirement to contribute to the EU ETS. This has been introduced on a rolling basis with ships having to buy credits for some 40% of their emissions from 2024 at a cost estimated to be around $90 per tonne of CO₂. The percentage will increase to 100% in a few years. Initially the cost will be borne by ship operators be they owners or time charterers but eventually this will be passed on to consumers because of higher freights charged to shippers and receivers.

The likely cost would have been significant enough without the problems of the additional ton/miles, which will of course see the same charges being spread over less cargo. Ships which might have made ten voyages under normal circumstances will now only be able to make, say, eight. But while the amount of fuel burned over the year is about the same, less cargo would have been carried.

It remains to be seen if the hit on the pockets of electors, may make the EU authorities offer some relief to shipping lines especially as 2024 is a bumper election year in Europe and globally. Europe, in particular, has seen a marked shift away from established political parties to those with more populist policies.

Challenges pose risk to shipping’s energy transition

At Lloyd’s List’s annual Outlook Forum in December 2023, involving industry leaders from across numerous disciplines, the key takeaways were geopolitical risk and the cost of the green transition are the key concerns for shipping in 2024.

Geopolitical risks top the list of concerns followed by slowing growth in China. Rising inflation and climate issues tied for third place. With particular regard to the latter, early relief and clarity from the IMO on emissions targets has given way to worries about how those targets will be met, and where the fuel will come from. A lack of suitable technology or infrastructure is seen as a big risk to shipping’s energy transition.

The UNCTAD report mentioned above recognises that full decarbonization by 2050 will require massive investments and could lead to higher maritime logistics costs, raising concerns for vulnerable shipping-reliant nations like small island developing states. The report emphasizes the need to balance environmental goals with economic needs but underscores that the cost of inaction far outweighs the required investments.

Energy efficiency more important than ever

“The good news is the forces that are determining the course of shipping’s decarbonisation transition are pushing for change and the conversation is shifting from ambitions to action. As we see it, there will not be one single solution, but rather multiple solutions, different fuel types and energy-saving devices as we move into a new era,” says Johansen.

Johansen believes throughout the coming year and beyond, shipping companies will continue to face challenges and uncertainty and it is clear the need for energy efficiency is more important than ever.

“For sure more and more ship operators are looking for ways to improve the efficiency of their vessels and arguably the lowest hanging fruit still left to them is the use of premier antifouling and proactive cleaning methods available today,” says Johansen and concludes, “Such measures help to ensure the hull is clean most if not all of the time and reduce fuel consumption and emissions simultaneously with the added bonus of reducing the risk of transfer of invasive species. In short, a clean hull makes even more sense when ship operators are seeking proven energy-efficiency solutions to meet their sustainability goals.”