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.