Cutting Emissions Remains a Struggle for Shipping

Industry competitors are also split on how soon to start the transition. Smaller companies fret about larger peers able to make investments, and a lack of consensus exists over what cleaner-burning fuel should power future ships.

The International Maritime Organization, a United Nations body regulating maritime affairs, set a 2050 deadline for shipping companies to sharply cut the amount of carbon dioxide that vessels pump into the atmosphere.

Companies including Amazon, IKEA and Unilever said last week that they want to move their products on what are known as zero-carbon ships by 2040, a more stringent target than the one agreed upon by the industry. The commitment came days before the 2021 U.N. Climate Change Conference, also called COP26, that begins Sunday in Glasgow, Scotland. It adds to demands by other industry competitors to cut greenhouse-gas emissions.

“It’s premature to order ships that will comply with regulations in 2040 or 2050, because there is no clarity on future fuels and how much will be available,’” said Polys Haji-Ioannou, the chief executive of Cyprus-based Safe Bulkers Inc., which operates 47 ships that run on bunker oil.

Maritime shipping is among segments of the broader global transportation industry that are bracing to make big investments to meet long-range goals on reducing greenhouse-gas emissions.

The airline industry is relying on sustainable fuel to help reach its target of net-zero emissions, but production accounted for less than 0.1% of jet-fuel consumption this year, according to the International Air Transport Association, costing on average three times as much as conventional kerosene. Parcel carriers are bringing more electric vehicles into their delivery operations and truck manufacturers are researching how to make electric power work as an alternative to diesel fuel for heavy-duty trucks.

Clarkson Research Services Ltd., a shipping-services provider, has estimated that it might cost the shipping industry $3 trillion to switch to new modes of power. Ships collectively contribute about 2.5% of the world’s greenhouse-gas emissions, according to the International Maritime Organization, an amount that is comparable to the emissions of some of the largest European Union countries.

A.P. Moller-Maersk AMKBY 0.69% A/S, the world’s biggest boxship operator, recently ordered eight methanol-powered ships—slated for delivery in 2024—that can also run on traditional bunker oil. Morten Bo Christiansen, head of decarbonization at Denmark-based Maersk, said the ships’ annual methanol needs are about 10 times greater than the volumes currently available in the market. “It’s a huge challenge to get ample fueling supply,” he said.

The latest push comes as container ships enjoy their most profitable year to date on the back of record-high freight rates to move cargo from Asia to Europe and across the Pacific. As economies open up from Covid-19 restrictions, record volumes of merchandise are moving on ocean liners.

Senior shipping executives said that apart from ordering new conventional vessels, this year’s profits have mostly gone to pay down debts accumulated after almost a decade of losses after the 2008 financial crisis.

Boxship owners have been earning more at each quarter of this year than all of 2020, and ship orders are at multiyear highs: More than 480 were ordered so far this year through mid-October, compared with 115 for all last year and 107 in 2019, according to maritime data provider VesselsValue.

But apart from the Maersk order, the rest were for ships that burn conventional heavy oil or have a dual fuel capacity.

“What to order is a big dilemma,” said Nils Haupt, a spokesman for German boxship company Hapag-Lloyd AG HLAG -0.82% , who added that the company is opting to use liquefied natural gas. “It’s not the perfect solution, but that’s what we got,” he said.

Banks including Citigroup Inc., Société Générale SA SCGLY -0.07% of France and DNB AS DNB 0.14% A of Norway are part of a group that aims to reduce the industry’s carbon emissions by extending new shipping loans to owners that will verifiably operate cleaner vessels. The banks have a combined shipping portfolio of about $185 billion, or about half of the global ship-finance market.

Michael Parker, Citi’s chairman for shipping and logistics, said the group has asked the COP26 delegates to push the International Maritime Organization toward adopting a net-zero carbon-emissions policy by 2050.

The maritime group’s current mandate calls for vessels to be 40% more fuel-efficient over the next decade and cut overall carbon-dioxide emissions in half by 2050, compared with 2008 levels. The group has said that it could adopt earlier deadlines and more stringent emissions cuts when it reviews its strategy in 2023.

Write to Costas Paris at [email protected]