29 November 2023 (Lloyd's List) - THE PHASE-IN of emissions regulations will impel container shipping carriers to further slow sailing speeds, while carbon costs will likely be passed through to shippers, according to HSBC Global Research.
Moreover, the capacity to furnish carbon-neutral shipping solutions at scale will become a new source of competitiveness for shipping lines, the investment bank’s transport research team headed by analyst Parash Jain said.
The report noted the industry is undergoing a “tectonic shift” in emissions regulations from the International Maritime Organization (IMO) and regional authorities.
These encompass the IMO’s Energy Efficiency Existing Ship Index and Carbon Intensity Indicators, already in effect since 2023, and the EU’s Emissions Trading System set to include shipping starting in 2024.
“We believe shipping lines might become more active in slow steaming and retrofitting energy saving technologies on ships,” said the report.
Citing Clarksons data, it pointed out that average vessel speeds in the year-to-date have declined 3% this year from 2022, while ships with inferior CII ratings have been sailing at 0.7 knots more slowly than those with A-C ratings.
The shipbroker has expected nearly half of the existing containerships to slow steam if no modifications are made by 2026.
While the EU ETS will soon levy carbon taxes on ships entering its waters by mandating owner’s purchase emissions allowances, container lines will likely pass on these relatively affordable costs to customers fairly easily, the HSBC report said.
Carriers including HMM, Evergreen, CMA CGM and Maersk have provided indications of the surcharges, but huge discrepancies between their offerings have raised concerns over pricing transparency.
Nevertheless, the announced surcharges averaging $30 per teu would be under 1% of realized freight rates during the third quarter of 2023, or 1-5% of spot rates, based on HSBC’s calculations.
“However, the key challenge will be to reasonably estimate emissions and price the EU Allowances” it said.
Having greener ships will clearly confer a competitive edge for carriers on EU-related trades.
The report mentioned LNG and methanol as now the main alternative fuels for containerships, with 55% of the orderbook, amounting to 4.1m teu of combined capacity, capable of using either fuel. And 3.7% of the existing fleet, or 1m teu, has adopted the lower-emission fuels.
“We think the ability to offer carbon-neutral shipping solutions at scale could become a new moat to drive differentiated pricing,” said Jain and his team.
They, however, noted the green transition will likely require massive capex and escalate costs due to loftier newbuild prices and fuel costs. And the recent profitability slump could delay such green investment.
