In this interview, Rakin Rahman, Staff Reporter at Port Technology International (PTI), sits down with Shik Sundar, Vice President of Sales at Sofar Ocean, to discuss the EU ETS and its aim to address climate change. Join us as we explore the broader implications and impacts of the newly imposed regulation on the shipping industry.
This interview is just a glimpse into what we have in store! Stay tuned and download our July e-journal to dive deeper into the conversation.
Can you give us a summary of the EU ETS and its goals in addressing climate change?
SS: The EU has been proactive in regulating various industries to reduce emissions within its economic region. Carbon trading schemes have long been in place for other sectors, and this year marks the implementation of similar measures for the shipping industry. This entails financial penalties for emissions associated with cargo traffic entering or leaving the EU.
READ: EU ETS: What we know so far
There are two main impacts to consider. In the short term, this translates to a mild fuel tax for shippers, prompting them to adjust by slowing down vessels when fuel prices rise. Despite this adjustment, overall capacity in the shipping network is unlikely to change significantly. While there may be minor effects felt by freight forwarders and those involved in moving goods in and out of the EU, the impact on end customers is expected to be minimal. Container lines may experience slight delays, and ports might see a reduction in port calls in the short term.
Looking ahead, the aim of such regulations is to incentivise the adoption of technologies that improve vessel efficiency, whether through reducing operating expenses or capital expenditures. This suggests a long-term push towards more sustainable shipping practices.
Could you elaborate on the potential consequences of EU ETS non-compliance?
SS: In this inaugural year, it’s likely that the focus will primarily be on imposing financial penalties as part of a learning process. It’s noteworthy that major customers of container lines are facing mounting pressure from both market demands and stakeholders to reduce emissions throughout their supply chains, particularly concerning Scope 3 emissions. This pressure may lead them to scrutinise container lines’ compliance with the EU ETS and potentially prompt them to switch carriers or tonnage accordingly.
I speculate that this year will see minor financial penalties for non-compliance, given the learning curve involved and as we move forward, we’ll gain a clearer understanding of the broader business ramifications. However, there seems to be a recognition of the need for some leniency to allow member states and carriers to adapt to such a significant transformation within the shipping industry.
READ: Brexit sparks 24 per cent ETS North Atlantic savings
Given these challenges, what is your perspective on the significance of adopting new and innovative adaptive strategies within the maritime sector?
SS: The shipping industry is under significant scrutiny due to its high contribution to emissions, comprising about 3 per cent of anthropogenic emissions. This proportion is often likened to the emissions of entire economies like Japan or Germany, despite the shipping sector’s smaller scale compared to these countries’ GDPs. Consequently, there’s a pressing need to reduce emissions intensity. The EU ETS serves as another catalyst for change. In the short term, many of our customers are factoring EU ETS costs into their freight rates for port calls within or connected to the EU economic zone.
These new costs have prompted Sofar’s customers to make internal adjustments using our Wayfinder voyage optimisation platform. Specifically, they’ve applied a slightly higher cost for port calls in the EU. So, if fuel prices rise and freight rates increase proportionally, vessel speed will remain constant during port calls, maintaining the same volume. However, if they don’t pass these costs onto customers, speeds might decrease, resulting in a slight drop in global volume to the EU zone. This could lead to fewer port calls and reduced cargo traffic overall.
It’s a learning phase, and they’re experimenting with different approaches. One strategy is optimising voyage routes based on weather resistance, dynamically adjusting speed and course. Traditionally, containerships aimed to travel as fast as possible for the first two-thirds of the voyage to ensure timely arrival at ports with narrow windows. Now, they’re exploring alternative terminal options after the initial call.
The traditional strategy of maintaining high speeds for the initial part of the voyage to ensure timely arrival within the safety window isn’t the most efficient approach. Operating at such speeds incurs high fuel consumption due to increased friction. This just-in-time arrival concept has long been recognised, but advancements in technology now enable container shippers to better gauge weather conditions, the primary factor affecting vessel resistance during ocean travel. By dynamically adjusting speed based on anticipated resistance levels, ships can optimise fuel consumption, particularly during periods of lower resistance.
This approach ensures a more cost-effective and fuel-efficient voyage, mitigating potential additional expenses associated with EU emissions taxes on fuel. Embracing voyage optimisation represents a philosophical shift and requires trust in its accuracy, especially given the historical uncertainty surrounding weather forecasts.
Weather prediction, however, is improving. Satellites are more advanced and the number of sensors in the ocean has increased. At Sofar, we’ve deployed hundreds of our Spotter buoys across the global ocean; each day, these buoys collectively make more than 1.5 million real-time ocean observations, data points that we use to produce the superior weather forecasts that power Wayfinder. Better weather forecasts have been embraced to reduce uncertainty, making it easier for container shippers and the wider shipping industry to adopt a variable RPM and waypoint strategy.
Shik Sundar is the Vice President of Sales at Sofar Ocean. He leads all commercial activity, overseeing sales of Sofar’s Wayfinder voyage optimisation platform, Spotter Platform, and planetary-scale ocean data.
