• 2022 February 14

    From Whom: Vitaliy Chernov


    About: From carbon-free shipping to runaway inflation

    From carbon-free shipping to runaway inflation

    The World Shipping Council has identified six ways to achieve a bright, carbon-free future for global shipping. Each of these paths should be part of an expanded International Maritime Organization (IMO) Strategy on Greenhouse Gas Emissions, which will be considered this June at the 78th session of the IMO MEPC.

    However, all ways lead to a significant increase in the cost of seaborne logistics and, as a result, inflationary pressure throughout the entire supply chain.

    What is proposed to be done?

    To levy a carbon tax on companies that use conventional fuels through the ETS mechanism, which will obviously lead to an increase in their costs, which will be added to the price of freight.

    Further, the introduction of a procedure for analyzing the life cycle of fuel with fixing emissions from it at all stages of use. In fact, this will lead to the emergence of a market for the relevant audit and reporting, and, presumably, including gray market.

    Development of global production of carbon-free fuels: building infrastructure from scratch requires huge capital expenditures, which will ultimately fall on the shoulders of end users, being included in freight rates. In addition, the bunkering infrastructure and fleet that already exist will be unclaimed, it will have to be decommissioned or modernized, which again will not end with anything other than an increase in the cost of bunker low / zero carbon fuel and, consequently, the cost of shipping.

    A ban on the construction of ships powered by fossil fuels will, as a consequence, lead to a sharp increase in the cost of newbuilds, especially in the early years when the technologies are not yet mature.

    A sharp increase in the volume of research and development will require investment, including from the businesses side, which, again, will be included in the freight rates.

    Now is not the best time to fight for the climate - to defeat the pandemic, thanks to which freight rates in dry cargo segments have already skyrocketed and partially redistributed logistics schemes in favor of rail transport. We believe that an overly zealous fight against climate change can only result in a further rally in the freight market, the withdrawal of part of the cargo from deep-sea routes, as well as mergers and acquisitions in the market of container line operators with a corresponding oligopolization of the market.