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The Results Are In - our 2nd annual container shipping decarbonisation survey

How have attitudes to decarbonisation changed in the last year? Read on to find out.

We ran this ten-question survey for six weeks from 20 June to 3 August 2022. The idea is to gather respondents’ views on the most likely low-carbon alternatives to liquid hydrocarbons as container ship fuels. Because of the liner shipping business model, container ship operators can estimate fairly accurately in advance their energy requirements. This gives them the chance to sign long-term offtake agreements with fuel suppliers, which can be used to support project finance to build marine fuel production facilities.

This is the second year we have run the survey. Comparing the change in results can offer more insights into changing opinion about liner shipping’s low carbon future.

Q1. To what extent do you agree with the following statement: "Global or regional decarbonisation policies will disrupt global container trade over time."

We first asked, to what extent do you agree with the following statement: "Global or regional decarbonisation policies will disrupt global container trade over time”? 49% of respondents agreed with the proposition, up from 35% last year, while another 14% strongly agreed, down from 35% last year. 14% neither agreed nor disagreed, up from 5% last year. 18% disagreed while only 5% strongly disagreed, compared to 25% disagreeing and 0% strongly disagreeing last year. A few don’t knows made up the tail. On balance then there is a majority belief that the energy transition will affect container trade routes but, opinions seem to be less strongly held this year than last year. This confirms much of our own analysis which shows that the energy transition could support reshoring nearshoring and friendshoring, all trends which have political support in the OECD nations due to their dislike of rising nationalism and autocracy particularly in in China and Russia.

Q2. Do you support the introduction of container shipping into the EU’s emissions trading scheme?

This year an overall if slim majority, 51% of respondents, strongly supported shipping’s entry to the EU ETS, up from 43% last year, while another 27% somewhat support it this year, up from 24% last year. 12% are undecided, while 5% are somewhat opposed and 4% very opposed to the proposition. Last year, 5% each were against or strongly against the proposition. We can then conclude that that support has grown in the last 12 months for container shipping to enter into the EU’s ETS, even though this will increase costs for shippers and consumers as well increasing reporting responsibilities for ship owners and operators.

The European Commission and Parliament have been batting the process back and forth for several years now. In the latest proposals, the accession date has been postponed by a year to 2024, with potentially a faster phase in compared to the four-year process previously mooted. There is still time for more amendments to the scheme, to the frustration of ship owners who want regulatory certainty so that they can plan fleet renewal in good time for the 2030 emission reduction ambitions.

Q3. Would you support the introduction of an IMO emissions levy to pay for research into low carbon fuels?

Having established support for an EU emissions scheme, we next asked if respondents would support the introduction of an IMO emissions levy to pay for research into low-carbon alternative fuels. Last year, 43% strongly supported and another 33% supported this concept. This year, 47% strongly support and another 30% support the idea. Overall then, support is stable. Last year, 5% were neutral, 5% opposed the idea and 14% strongly opposed the idea. This year, neutrals increased to 10%, while another 9% opposed the idea and 4% strongly opposed the idea. So while support is stable, opposition is weakening.

Q4. What level of emissions levy would you consider to be acceptable for the IMO to impose on liner companies (on a USD / tonne of CO2 emitted basis)?

A majority of our respondents support the idea of an IMO levy, but how much should it be? We offered six bands: zero, up to $49, between $50 and $99. Between $100 and $149, between $150 and $199 and $200 or more per tonne of CO2 emitted. 8% came out in support of a zero rated levy – presumably most of those who opposed the idea in the first place. 19% think it should be less than $50 and 26% would tolerate a levy between $50 and $100. 11% went for $100 to $149, just 9% for a levy between $150 and $199 and a whopping 27% went for a levy of $200 or more. So, roughly speaking, people think the levy should be set below $100 or over $200 but a majority prefer a levy below $100 for each tonne of CO2 in a ship’s emissions. That’s in line with the average price of an EU emission allowance this year of €65. Last year, 19% of respondents thought the levy should be zero, so opposition is waning, while 29% of respondents though it should be less than $50, so support for lower rated levy is falling, with more support this year for higher costs.

Q5. If liner companies have to pay a carbon levy, will they pass it on to customers?

It looks like liner companies could be on the hook for ETS carbon allowances in Europe and an IMO carbon levy for research into alternative fuels. This could add well over $300 to a tonne of fuel oil which emits over 3 tonnes of CO2 on combustion. We asked our respondents, will the liner companies be able to pass on these costs to customers? An overwhelming 96% thought so – 39% said ‘at least in part’ and 57% said ‘entirely.’ Last year, 43% said ‘ at least in part’ and 52% said ‘entirely.’ Moreover, 5% of respondents last year thought that the liners would not be able to pass on the costs at all whereas this year only 1% think that’s likely. There seems to be some hardening of attitudes about this challenge. The liners already have the option of introducing bunker adjustment factors and surcharges at times of high bunker prices.

Q6. Do you think liner companies will retrofit existing ships to use LNG as a marine fuel?

We asked our respondents if they thought that retrofitting their current fleet to use LNG was a possibility. So far, only Hapag-Lloyd has tried this and found the experience to be prohibitively expensive. But as fuel oil and emission prices rise, maybe the economics will rebalance. However, our respondents don’t seem to think this is likely. This year, 54% of respondents think that some container ships will be retrofitted to burn LNG while another 5% think most ships will be retrofitted. Last year, 67% of respondents thought that some LNG retrofits would happen while 5% thought that most ships would receive retrofits. The pro-retrofit share of responses has fallen from 72% to 59%. Meanwhile, those who think retrofits will not happen has increased from 19% last year to 39% this year. The ‘don’t-knows’ have fallen from 10% to 1% of respondents. Still a majority then of respondents who think some retrofitting will happen, but a shrinking majority.

Q7. Around 28% of container ship newbuildings contracted in 2022 specify LNG fuel capability. Do you think this number will rise before 2030?

Around 28% of the container ship orderbook by number and nearly 40% by capacity has some form of low-carbon fuel capability. This is usually LNG but APM-Maersk has its methanol-capable ships on order while class approval has been given for ammonia-ready ship designs. Still, to meet future emission targets, ship owners surely ought to be considering low-emission powertrains for newbuildings today. An LNG capable ship could in future cut emissions further by burning bio-gas or carbon-neutral synthetic gas, if that ever becomes economically viable.

For now, 23% of respondents think that more than half of newbuildings by 2030 will be specified with LNG power, down 10% from 33% of respondents last year. Another 36% think that less than half of newbuildings will specified with LNG power, down from 57% last year. Meanwhile, 38% of this year’s respondents think that LNG will be leapfrogged and that the number of ships specified with LNG fuel capability will go down own as methanol, ammonia, and other fuels become available. Last year, zero respondents chose this option. A small 3% of respondents ticked ‘don’t know /not allowed to say’ down from 9% last year. There is then less certainty about the outlook for LNG as a marine fuel as hydrogen-based alternatives become more viable. There seems also to be much greater awareness of and confidence in the lower-emission alternatives to LNG.

Q8. Maersk has ordered a series of methanol-fuelled container ships. Do you think other liner companies and tonnage providers will specify methanol fuel for newbuildings?

Nine in ten respondents this year think that methanol is a serious option as a container ship fuel, but while 14% think that more than half of newbuildings will be built with methanol fuel, 76% think that less than half will be. 5% think that other container ship owners will not order container ships designed to burn methanol fuel – they presumably think that Maersk is barking up the wrong tree here. Another 5% of respondents don’t know or aren’t allowed to say what they think.

When we asked this question last year, 14% of respondents thought that more than half of containership newbuildings would be specified to burn methanol fuel and 62% thought that less than half would. 19% thought that other container ship owners would not follow Maersk’s lead. So a greater total number are confident of methanol’s practicability this year compared to last year.

Q9. Do you think any container ship owners will replace any of their current fleet with newbuildings burning hydrogen or ammonia?

The academic literature on ammonia as a replacement for hydrocarbon liquid fuels is extensive and there are now several designs with class approval for marine engines which can burn ammonia and vessels with ammonia fuel tanks and engines. 52% of our respondents last year thought that container ship owners would begin to order ammonia-capable vessels before 2030 while another 29% were more cautiously expecting this to begin after 2030. 9.5% thought that this would happen and another 9.5% weren’t sure ore aren’t allowed to say.

This year, a smaller 30% of respondents think that ammonia-powered newbuildings will be ordered before 2030 while a larger 47% think we will have to wait until after 2030 to witness the first ammonia-powered liner vessel orders. 14% don’t think ammonia is coming to liner shipping’s eco-rescue, while 10% don’t know.

Overall there is significantly less conviction around ammonia’s utility as a marine fuel this year than there was 12 months ago. While our survey doesn’t ask respondents’ reasons for their answers, anecdotal evidence suggests that concerns about toxicity have affected enthusiasm for ammonia.

Q10. Fuel cells and batteries are being fitted to short-sea and coastal vessels already. Do you think that container ship owners will order containerships with this technology?

On land, the decarbonisation mantra is to electrify everything and to produce the electricity using renewables. At sea, electricity is harder to use because of lower power output from batteries and fuel cells. Nonetheless, where ships spend lots of time in port to recharge their batteries and fuel cells, the technology could make sense. 21% of our respondents this year think that fuel cells and batteries could be in use on container ships by 2030 while 27% think that they could be but only for smaller vessels. Another 4% think that we will have to wait until after 2030 for batteries and fuel cells to be feasible across container ships while 24% - the largest response – think that after 2030 and only on smaller vessels is more likely. A significant 18% or respondents don’t think that fuel cells and batteries will be in use on container ships while 7% don’t know or are not allowed to say. There is then a majority of opinion in support of the concept, but little agreement on the timing or on which ships will be able to feasibly use fuel cells and batteries.

Overall, there is less confidence than there was 12 months ago when 33% of respondents though that fuel cells and batteries would be in use on container ships by 2030 and 24% thought so but only on smaller ships. Another 10% and 19% respectively thought it would happen after 2030 or after 2030 but only on smaller ships. Last year 14% thought this idea would not come to fruition and nobody chose the don’t know / not allowed to say option. Overall then there is less confidence in fuel cells and batteries than there was. Electrification is not, it would seem, a popular choice for container shipping decarbonisation.

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