The costs and benefits for shippers from reducing ships fuel emissions

Nicolette van der Jagt

Secretary General

European Shippers Council

ESC SHIPPER FORUM

28th September Brussels

European Shippers Council

users of freight transport services

more than 100,000 companies throughout Europe

majority of the volume of goods shipped by sea from/to Europe

national transport user organisations/ shippers councils & Corporate Membership

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Trends in Logistics

Globalisation and Regionalisation (key drivers: price of oil, proximity to markets, access to raw materials)

Consolidation of supply chains yielding benefits, efficiencies

Carbon intensity/ sustainability will become a major criterion in the selection of logistics service providers (green tender)

Sustainability is growing in importance

Consumer pressures in food/consumer products

But different tools, standards, measures and minimum standards to define entry requirements of carriers

ongoing Globalisation means that changes in market conditions etc, will go faster and faster. This will drive towards greater need for flexible logistic solutions. Less long term contracts with fixed capacities. More need for cooperation with other industries, less tailor made solutions

Consolidation of supply chains yielding benefits, efficiencies

While price,efficiency and reliability remain the dominant sourcing criteria for shippers, sustainability is rapidly growing in importance as a key entry requirement for doing business with major customers. This will continue as customers consolidate their supplier base with sustainability as one of the key criteria.

Sustainability has had a large role in sourcing, manufacturing but is now also becoming more important in transportantion and logistics.

At the moment there are still a large number of shippers that collect environmental data from carriers and other transportation providers that is only assessed when costs and service have been assessed satisfactorily.

Carbon receives at the moment the greatest attention mainly driven by

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What are shippers looking for?

Reduced costs from operational efficiency, including e.g. slow steaming

Better reputation from improved social and environmental issues

Reduced sustainability foot-print throughout the supply chain

Sustainability innovations and solutions in supply chains and information on this

Increased efficiencies including optimising container supply chains

In general shippers are not willing to pay for better sustainability performance.

On the contrary they expect that superior sustainability should translate into reduced costs for them and not higher prices.

Reduced sustainability foot-print throughout the supply chain

Sustainability innovations and solutions in supply chains and information on this

This can be value added services and solutions isuch as information on

GHG emission data Slow steaming and the impact of ti Fuel and fuel replacement And even sometimes route planning The cargo owners are big enough to say to shipping companies: You can transport our goods, but we dont want our customers to be confronted with black smoke coming out of your smokestack or rubbish being thrown overboard, so you just have to behave, Eelco Leemans

Perception on carriers?

Carriers perceived as passive and defensive on sustainability agenda (shipping already cleanest mode of transport)

Struggling for improved performance in particular in todays economic climate

Shipping offered as a commodity

Carriers pass the costs of sustainability on

Shippers expect carriers to become more pro-active and less responsive

The transportation industry can no longer hide in shadow E Kolding

Carriers have not been very good in communicating the sustainability impact of shipping

Some do, there are some leaders in the market

Tell customers what doing in order to reduce impact Carriers perceived as passive and defensive on sustainability agenda (shipping already cleanest mode of transport)

Struggling for improved performance in particular in todays economic climate

Shipping offered as a commodity

Carriers pass the costs of sustainability on

Shippers expect carriers to become more pro-active and less responsive

ESCs Customers Charter for a sustainable liner shipping industry

Customers expect

Shipping lines to address their own environmental record with ambitious targets to reduce emissions of green house gases and other pollutants through efficient operational practices and application of new technology

In return carriers should expect.

A Customers cooperation to assist in finding practical logistical or supply chain solutions to help improve as appropriate the shipping lines efficiency and minimise costs and environmental impact

Roadmap to a Single European Transport Area
Towards a competitive and resource efficient transport system

Reduce carbon emissions in transport by 60% by 2050.By 2050, key goals will include at least 40% cut in EU shipping emissions 50% if feasible

The European Commission has adopted a proactive role in the development of climate change strategies in order to meet its 20 per cent target GHG emissions reduction from transport by 2020. The Commission is in the process of developing a regulatory proposal to cover emissions from international shipping. If by the end of 2011 the necessary steps are not taken at a global level, the Commission will finalise a legal proposal in early 2012 with the intention it becomes effective in 2013.

Brussels has at this moment in time not yet expressed a preference over which measure to opt for, whether a bunker levy/tax or an EU Emissions trading Scheme (ETS) applied to shipping. It is however quite clear from discussions taking place at the Commission's European Climate Change Programme meetings, in which ESC participates actively, that the Commission is seriously considering measures which can raise substantial revenues.

The big question stemming from the recent agreement reached by the International Maritime Organization (IMO) Marine Environment Protection Committee (MEPC), to make energy efficiency standards mandatory in shipping (through the implementation of the Energy Efficiency Design Index (EEDI)), is whether this will be enough to hold off the Commissions regional initiative for shipping. Probably it will not. Commissioner Hedegaard has insisted that progress on agreeing market-based measures (MBMs) needs to be pursued, and she is encouraging IMO to deliver the necessary further measures to tackle CO2 emissions.

Fuel Tax or Levy; a fund raising scheme

Passing on the carbon costs to their customers via a bunker levy would remove the accountability of the shipping industry without reducing carbon emissions.

Many questions surrounding avoidance

Revenue derived from the schemes may be used for any governmental expenditure, and not hypothecated to shipping to improve environmental performance or mitigate the damage caused by pollution

Shipper his cargo will eventually bear the cost of MBM that will be adopted. This aspect, together with the fact that we are under pressure to identify and reduce our carbon footprint gives us a direct interest in the matter. Further, the subject of "clean shipping" for a number of shippers becomes a parameter of growing importance in their carrier selection practices in addition to transit-time, frequency, freight cost and customer service quality .

-As inevitably "cargo will pay", we want to be sure that the scheme that will be adopted will be producing the expected effects. Considering the difficulty to satisfy all parties with a given scheme and knowing that not all of the proposed ones have been fully assessed, at this stage, I'd like to list

the shipping industry has a long tradition of passing-through cost to the end customer via surcharges in a rather opaque way, by which the customer would not be informed on the action taken to mitigate the problem giving rise to the surcharge.

because the industry has a long tradition of passing-through cost to the end customer via surcharges in a rather opaque way, in a way that the customer does not know what - if any - action is taken to mitigate the problem giving rise to the surcharge (example congestion surcharges). I added that it is not uncommon that a surcharge continues a life of its own after the end of its justification (example some war risk surcharges)

Passing on the carbon costs to their customers via a bunker levy would remove the accountability of the shipping industry without reducing carbon emissions.

Many questions surrounding avoidance

Revenue derived from the schemes may be used for any governmental expenditure, and not hypothecated to shipping to improve environmental performance or mitigate the damage caused by pollution

Emisssions Trading Scheme

Similar argument of passing on the costs

ETS should be global rather than European

A EU ETS distorts trade; risk of carbon leakage

the shipping industry has a long tradition of passing-through cost to the end customer via surcharges in a rather opaque way, by which the customer would not be informed on the action taken to mitigate the problem giving rise to the surcharge.

Passing on the carbon costs to their customers via a bunker levy would remove the accountability of the shipping industry without reducing carbon emissions.

Mandatory Speed limits for ships

Study

Provides deep emission cuts fast

Applies to all ships (unlike EEDI)

Speed limit cuts are in-sector (unlike ETS)

Top of IMO GHG Study range (25-75%) is only possible with speed reduction

Holds significant other environmental advantages: SOx, Nox, BC etc

some will re-engineer their supply chains, source closer to home or their markets and rely even more on road freight, in the absence of sufficient and reliable rail freight services and capacity. These options would negate any reduction in GHGs achieved by the shipping operators from slow steaming, and lose them important traffic.

have dropped voluntarily without an avalanche of reported problems

Mandatory Slow steaming

Not supported by the ESC as it would

reduce the service performance

require additional ships to maintain the schedule/frequency of delivery

add to the costs of supply chains

Risk of Modal Shift to air freight or air/sea combined journeys; others will off-load sooner and tranship to road for a long-distance journey to speed up the delivery time

Slow steaming is here to stay

fully acknowledging the remarkable cost and pollution reduction derived from slow-steaming - there were some negative effects to the scheme , some of which have been reported in the press.In particular , where a shipper would have been satisfied with pre/post transport by barge or rail in the pre slow-steaming era, because of the lengthened transit-times and the need to keep inventory under control, there is a perverse effect by which some of these pre/post transports have been switched to truck , even airfreight , which seriously increases both costs and pollution. And clearly carriers have obtianed all of the benefits of slo-steaming whereas shippers have had to shoulder all of the extra inventory costs (both "floating" and "buffer")

GHG emissions in shipping

ESC favour a system which is:

Globally implemented (through IMO)

Incentive based system rather than a punitive one; rewarding the reduction of GHG emissions of each vessel, rather than punishing those that do not

Does not distort the market by favouring carriers with newer or larger vessels over others

Simple to understand and involves minimal bureaucracy to manage

Does not allow costs or charges to merely be passed on to the customers

Is transparent

Benefits of an incentive-based scheme over other schemes

Limited administrative costs

Owners and operators financially encouraged to invest in GHG reduction measures

Shippers financially encouraged to choose those vessels/carriers with lower GHG emissions

Slow steaming left as a market-driven option

No additional costs for owners or operators or shippers

Summary

Any scheme chosen should ideally be:

Effective in reducing GHG emissions

Cost effective, transparent and easy to administer

Not leading to competitive distortions or carbon leakage

Based on sustainable development without penalising trade or growth