Climate change: shipping industry ‘must adopt new technologies, collaborate’ to reduce carbon footprint

The shipping industry needs ‘radical transformation’ to improve its environmental footprint, says chairman of Wah Kwong Maritime Transport Holdings
Ocean carriers are under pressure to decarbonise after the International Maritime Organisation set targets to halve emissions by 2050

Business of climate change

Mia Castagnone

Published: 7:30am, 1 Sep 2022

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The shipping industry is outdated and in desperate need of a “radical transformation” if it is to improve its environmental footprint, according to a senior maritime executive based in Hong Kong.

The industry currently accounts for 2 to 3 per cent of global carbon dioxide emissions, according to S&P Global Platts Analytics.

Shipping companies are increasingly adopting new technologies that reduce the carbon footprint of their fleets, in response to concerns about climate change and pressure from regulators, said Hing Chao, chairman of Hong Kong-based Wah Kwong Maritime Transport Holdings.

But they have a long way to go and need to cooperate more with other sectors, such as energy companies.

“Shipping is a key enabler for the global transport of goods. We must work hand in hand with partners across the supply chain to make sure we take the right steps towards decarbonising the entire production system,” said Chao.

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Wah Kwong, a private shipping company, has taken steps to add four eco-friendly hulls called 63K DWT bulkers to its fleet. It has also signed an agreement with BV, a testing and certification company, and Shanghai Marine Diesel Engine Research Institute (SMDERI) on a study looking into the feasibility of carbon capture on existing ships.

The company is optimising the efficiency of the fleet by monitoring the vessels’ operational performance and implementing corrective measures as required. Speed performance, general navigational efficiency and maintenance such as cleaning the hull are general ways Wah Kwong is ensuring its ships are minimising their environmental impact.

Maritime shipping carries up to 90 per cent of global trade by volume, according to Morningstar Sustainalytics.

The cooperation of governments and key industry sectors such as financial institutions, energy companies and marine fuel manufacturers is an essential aspect of decarbonising the production system, said Chao.

The biggest shift will be to move away from using fossil fuels. However, widespread adoption of alternative fuels such as hydrogen and ammonia are still some years off and not available on an industrial scale.

“Given the current energy crisis we are going through, I think a coordinated effort among industrial sectors is required,” said Chao. “Rather than having industries blindly compete with one another, which will generate enormous waste and lead to higher energy cost.”

Ocean carriers in Asia are under pressure to decarbonise after the International Maritime Organisation set targets to halve shipping emissions by 2050 compared to 2008 levels.

Currently the European Union is the only jurisdiction that imposes a CO2 restriction on ships. Vessels entering the EU are expected to offset their emissions by buying credits through an Emissions Traded Scheme (ETS), which will be rolled out in 2024.

China launched its emissions trading scheme in 2021 to incentivise decarbonisation investment, but it only covers the power generation sector so far. There are plans to include another seven sectors by 2025.

While the application of the scheme to the shipping industry is still under discussion, owners and charterers will need to reassess their regulatory risks if ETS comes into force.

The new environmental protection regulations will lead to an increase in the investment cost of new ships, something that is likely to hit weaker carriers hardest.

“We must not forget that shipping, logistics and transport is one of Hong Kong’s economic pillars, and whatever measure we introduce must be on the basis of keeping the Hong Kong economy on the right track, particularly given the significant economic losses [the city] has already suffered during the global pandemic,” said Chao.

The maritime industry has faced upheaval on several fronts during the pandemic, including crew shortages, supply chain disruptions and fuel price increases, according to a report by Morningstar Sustainalytics.

Shipping giants have seen their earnings rebound this year. Cosco Shipping posted a US$11 million profit for the first half of 2022, representing a 75 per cent increase year on year.

Hong Kong-based Orient Overseas International posted a half-year net profit of US$5.7 billion, more than twice what it earned in the same period of 2021.

Cosco has pledged to reduce its carbon emissions by 10 per cent by 2030 as compared to 2020 levels. It has introduced green products and sustainable solutions for customers, including the latest “antifouling” coating technology which can reduce the drag on a vessel’s hull. It has also optimised big data applications to capture and track energy consumption.

“I’d say the default position [of industry players] is compliance which, if we take into account the emission reduction targets set by [IMO] and other international regulatory bodies, requires everyone in the industry to take proactive steps towards improving energy efficiency,” said Chao.

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