Market Solutions Trump Regulations, Say Respondents.
This is the second year that we’ve asked readers to complete a short survey on decarbonisation in the bulk carrier markets in collaboration with Ship.Energy, where this article was first published The results are in. Overall they are consistent with last year in displaying more faith in markets than in in regulators.
We first asked, ‘Do you agree with the following statement? “Global decarbonisation policies will disrupt global dry bulk trade over time.”’ The main implication here is, of course, the demise of coal but also potentially the loss of some iron ore trade if the ‘circular economy’ leads to more steel recycling. The flip side is that there may well be an increase in scrap steel and steel products shipments in future. Increased electrification of the global economy might also mean increased trade in certain minerals and metals ores and ingots including nickel and copper. 40% of respondents strongly agree with the statement, while another 40% agree. 13% disagree and 7% disagree strongly. Eight out of ten agree this year, whereas last year only six out of ten did, with only 15% in strong agreement. Clearly the message is getting through more than it was a year ago.
Do you agree with the following statement? “Global decarbonisation policies will disrupt global dry bulk trade over time.”
The IMO has introduced the Energy Efficiency Existing Ship Index (EEXI), to be enforced from 1 January 2023 on all existing ships over 400 Gross Tonnes. Question 2 this year asked, ‘Do you think that the EEXI is workable?’ 33% think it is workable in its current form, compared to only 15% last year. Another 47% this year think it is workable with amendments, nearly the same as last year (46%). 20% of respondents this year think it is unworkable, while last year 15% thought that. Last year, 23% said they didn’t know or were not allowed to say. This year that figure fell to zero, which suggests that all our respondents this year understand what the EEXI is and how it might affect markets. People are educating themselves and getting informed.
Do you think that the EEXI is workable?
Some analysts think that more than half of the current bulk carrier fleet will be rendered obsolete by the EEXI by the end of this decade. If that’s the case and owners stay shy of the newbuilding market, mistrusting regulatory stability and new technology, there is going to be a vast shortage of tonnage, and potentially a multi-year boom for anyone who can keep their ships operating. Time will tell if EEXI ends up being a game of chicken between owners and the IMO: who will blink first?
Question 3 followed this up by asking, ‘Do you think that the EEXI will force older vessels into earlier retirement than would be expected if the EEXI were not enforced?’ 47% of respondents agreed compared to 46% last year. This year 40% disagreed, more than 23% last year. Six per cent don’t know and 7% think it will make no difference, compared to 15% for each last year. Last year’s don’t knows have switched to disagreeing with the statement this year, with respondents fairly evenly split. Final result: we will have to wait and see, but there is less confidence that the IMO’s rules will work as intended.
Do you think that the EEXI will force older vessels into earlier retirement than would be expected if the EEXI were not enforced?
Next, respondents were asked, to what extent do you agree with the following statement: "Eventually, charterers will force bulk carrier operators to switch to low carbon fuels." We didn’t ask this question last year. This time, 13% strongly agree. 47% agree. 13% neither agree nor disagree and 27% disagree That’s a 60% majority in favour of the motion, as it were. Cargo is still king and charterers will have the whip hand when it comes to choosing ships with better emissions performance.
To what extent do you agree with the following statement: "Eventually, charterers will force bulk carrier operators to switch to low carbon fuels"?
Next we asked respondents, ‘Do you support the introduction of an IMO emissions levy to pay for research and development of low-carbon alternative fuels?’ Bodies such as the International Chamber of Shipping have supported such a levy. However, it is clear that R&D into alternative fuels is well under way around the world. So how would the IMO distribute the money? What would the scheme cost to administer? Would it make any difference unless the levy were significant? I thought there would not be much support for this levy. I was wrong: 27% strongly support it, up from 23% last year, while 33% support it this year compared to 38% last year. Overall support is unchanged, bar decimal places, but has hardened somewhat. This year, 20% are neutral, 7% oppose the idea and 13% strongly oppose it compared to 8% neutral last year and 31% opposed it. Opposition has fallen. The wisdom of the crowd says, go for it, IMO!
Do you support the introduction of an IMO emissions levy to pay for research and development of low-carbon alternative fuels?
If the bulk carrier operator has to pay a carbon levy for every tonne of fuel oil or diesel they lift, will they pass it on to their charterer? Liners already impose bunker adjustment factors. Tanker Worldscale freight calculations include an element of bunker price. Presumably bulk carrier operators could pass on the cost through some freight rate adjustment. This year, 67% of respondents think that the cost can be passed on entirely, up from 46% last year. 27% think it can b e passed on at least in part, down from 54% last year. Only 7% of respondents think none of the cost can be passed on - but that is up from 0% last year. Opinion then is becoming more extreme on this one.
If dry bulk carrier operators have to pay a carbon levy, will they pass it on to customers?
At what level should the IMO impose the levy? Respondents were asked to recommend an amount in USD per tonne of fuel oil, in bands of less than USD 50, USD 50-99, USD 100-149, USD 150-199, USD 200 or more, or demur to offer a view. 20% think that the levy should be less than USD 50, up from 15% last year. 33% think that it should be between USD 50 and USD 99 per tonne, up from 23% last year. This year, there was zero support for a levy between USD 100 and USD 199, while last year nobody thought that USD 100-149 was the sweet spot, while only 8% went for USD 150-199. This year, 20% went for USD 200 or more compared to 15% last year. This year 27% went for ‘don’t know / can’t say’ on this one, down from 38% last year. It seems that support for an IMO levy is weakening overall and that those who do support it are tending to support it at a lower level.
In any event, it looks like our respondents think bulk carriers will have to decarbonise in future, even if there is less agreement on what happens to today’s fleet, or whether the IMO can boost research by imposing a levy on fuel oil.
At what level (USD / Tonne fuel oil) should the IMO impose a carbon levy?
What then of alternative fuels? Will bulker owners invest in ships burning low-carbon or zero carbon fuels? Skipping over LNG, which is a current reality in marine fuels, we asked if respondents think it likely that bulker owners would specify methanol fuel for newbuildings. 13% of respondents think that most ships will be built with methanol fuel capability while another 53% think that a minority of ships will be built with it. 20% think this won’t happen and 13% don’t know or aren’t allowed to say. Last year, nobody thought most ships would be built to burn methanol, but 69% thought a minority of new ships would be built to burn methanol. 15% thought not it would not happen and 15% didn’t know or were not allowed to say. Some methanol supporters then appear to have become stronger supporters of methanol but overall support for it has dropped slightly from 69% to 66%.
Do you think bulk carrier ship owners will specify methanol fuel for newbuildings?
Hydrogen and its carrier fuel ammonia were suggested next. Last year, these proved more popular than methanol. 38% of respondents thought that bulkers would be ordered before 2030 with liquid hydrogen or ammonia fuel engines. 46% thought it would happen but not until after 2030. 15% don’t know but nobody thought it would not happen. This year, 7% think it will start before 2030, 60% think it will start after 2030, 20% think it won’t happen and 13% don’t know or aren’t allowed to say. Overall then 67% think it will happen at some point, down from 84% last year.
Do you think any dry bulk carrier owners will replace any of their current fleet with newbuildings burning hydrogen or ammonia ?
Finally we asked if respondents think that bulk carrier owners will fit vessels with wind power technology such as rotor sails and kite sails. 60% agree with this proposition, up from 46% last year. , and think that this will start before 2030. Another 13% think this will begin before 2030 but only for smaller ships, down from 23% last year, so the market seems more convinced that more larger ships will use this technology before 2030. Last year, 8% thought this would begin after 2030 but only for smaller ships whereas 13% chose this option this year. This year, 7% don’t believe this technology will be applied for bulk carriers, down from 15% last year, while 7% this year don’t know, down from 8% last year. Overall, this year, 86% of respondents think that wind assistance will be used in some form at some point, compared to 74% last year.
Do you think that bulk carrier owners will fit vessels with wind assisted power such as rotor sails or kite sails?
Twelve months on from our first survey of attitudes around decarbonisation of the bulk carrier market, attitudes appear to have moved more in acceptance that charterers will drive the market, that an IMO carbon levy will be introduced, and that alternative fuels will become a reality by the 2030s.
Our survey shows that there is less agreement around decarbonising bulk carriers than there was around decarbonising container ships in a survey we ran earlier in 2021. A larger proportion of respondents to the bulk carrier survey appear sceptical about the IMO’s ability to enforce regulations on the current fleet. In both our container and our bulk carrier surveys there is no overall agreement about what fuel might be used to achieve decarbonisation. The biggest agreement between this year and last year is that most respondents think charterers, not the IMO, will set the agenda, and that charterers will in the end pay for the energy transition.
The final score then is the same as in last year’s fixture: invisible hand of the market 1, dead hand of the regulator: nil.
Comments