Risk sharing key component to viable emissions reduction

Shipping must be open to sharing the risks associated with emissions reduction to enable the uptake of energy savings devices and technologies (ESDs/ESTs) and digital applications. The responsibility of investing in and driving the uptake of new solutions must be borne by all relevant stakeholders and not sit solely with the shipowner.

This extends not only to financial exposure, but also new vessel design and data sharing, delegates from the Greek shipping community learned at a Lloyd’s Register (LR) event on 5 December. When major change is introduced on a ship, there are numerous aspects to consider by all stakeholders involved which all add risk. Energy producers, the energy consumers, the associated supply chains, and the investors, insurers, regulators, class societies and governments – all have critical, but different and highly inter-related roles to play within the transition.

The Athens event, Powering Progress: Innovation and Energy in Maritime, was an opportunity for shipping companies to consider how the industry must evolve, and how relationships between stakeholders should be re-evaluated, to develop a compliant and commercially attractive fleet that is ready for 2030 and beyond

Anthi Miliou, LR’s Global Maritime Commercial Director, was joined on stage by Konstantinos Petropoulos, General Manager, Head of Shipping & Structured Finance at Piraeus Bank, Fotis Belexis, Technical Director of Starbulk Carriers, and Zafiris Rokidis, Rear Admiral, Director General Directorate for Ships’ Control, Hellenic Coast Guard who discussed risk sharing across stakeholders for complex capital investments.

Belexis pointed out that as existing vessels age, they cannot be replaced by newbuilds as there is insufficient global shipbuilding capacity to replenish the fleet with newer tonnage. Older vessels may therefore remain in the market for longer than expected and not depreciate in value as has been the case in the past. Banks and other lenders must realise this and adjust their depreciation and lending models to suit when ship owners want to finance retrofits of ESDs on their older ships, he said.

Highlighting the significant challenge of the human element in relation to training and skills for new fuels and ESDs,  Belexis emphasised the important role of green corridors and clusters to foster synergies between stakeholders. Rokidis supported this statement, commenting that open communication with all involved stakeholders is critical if the industry is to achieve low or zero emissions. 

From a finance perspective, companies’ sustainability plans will come under increasing scrutiny when seeking finance said Petropoulos, and the risks associated with green transition and how such risks are managed and shared among various stakeholders, will impact credit decisions.

Delegates also considered the additional dynamic of carbon pricing and what it is going to cost them. These additional costs shift decision-making and influence how Return on Investment (ROI), CAPEX (Capital) and OPEX (Operational) Expenditure are calculated. Performance and voyage management software, driven by high quality data, will become fundamental to understanding this, bringing clarity to how ships are operated, from their exposure to financial risk with EUAs under EU ETS to ship and fleet pooling arrangements in FuelEU, delegates learned. 

Data-driven scenario planning will also verify savings gained through ESDs, to inform charter party agreements and capital investment of expensive technologies. Sharing data within key stakeholder groups will be fundamental to determine and assess ROI and attract financing. 

 “Smart vessel operation and well-informed, data-led investment decisions can significantly support vessel compliance. What’s more, investments don’t have to be extensive to achieve results. Whilst uncertainties around bigger challenges such as alternative fuels and future requirements are resolved, ESDs and digital solutions can support the commercial viability of vessels as we approach 2030 with often surprisingly low levels of investment. But these investments should be shared across all stakeholders and not be limited to owners and financiers.”  

“We are in a new era of shipping that comes with a different set of rules,  including shipping companies’ approach risk and risk sharing. Longer-term investment decisions should also be informed by the decisions of shipping’s clients’, clients – the cargo owners – and align with their emissions reduction ambitions.”   

The room agreed that energy saving devices (ESDs), such as WAPS, digital solutions and smart operations should all be considered as the in-service fleet using traditional fuels seeks to shave its fuel consumption to comply with IMO’s Carbon Intensity Indicator,  EU ETS (Emissions Trading Scheme) and FuelEU regulations – the latter will which be in effect as of 1 January 2025.

As emissions reduction targets increase, with steeper increments than currently planned potentially being announced at the Marine Environment Protection Committee meeting in May next year, data-led insight and scenario planning will become more important to understand where efficiencies can be gained.