Decarbonisation: Shippers, importers, exporters to pay additional $14bn freight cost

Decarbonisation: Shippers, importers, exporters to pay additional $14bn freight cost

Shippers, importers and exporters have been warned to start planning for decarbonisation costs, as the new emission regulations in global shipping will add about $14.5 billion to freight costs in the future.

A new report by a shipping consultancy, Drewry, said the pressure to decarbonise and reduce emissions of greenhouse gases (GHG) is growing in all sectors, with the International Maritime Organisation’s (IMO) 50 per cent reduction target in shipping by 2050, which will have shippers bear the costs.

The Managing Director of Drewry, Philip Damas, said the European Union Commission and Parliament had considered introducing new carbon taxes, as early as next year, adding that it is now expected the new taxes will not come into effect until 2024.

He noted that the European carbon taxes and transitioning of all container shipments to a greener fuel type will cost between $3.5 billion and $14.5 billion by 2024, depending on the extent to which the industry switches to LNG and other greener ships instead of keeping to conventional fuel oil.

Damas said besides regulatory changes resulting from decarbonisation policies, emissions limits and related taxes, there will be enormous technological change in the design of ships and their propulsion systems, with a transition to engines powered by low or zero carbon fuels.

He said the overall transition will result in higher costs, adding that the European Union will be the first region to enforce ‘carbon taxes’ in shipping via its Emission Trading System, which will penalise users of high-carbon fuels such as conventional fossil fuels that will apply not only to shipments within Europe, but also to those to and from Europe.

Head of Advisory Drewry Supply Chain Advisors, Chantal McRoberts, urged ocean carriers to be as transparent with shippers as possible about the costs associated with sustainability, while retaining confidentiality over any sensitive, technology-related data.

“Drewry will continue to work with shippers to inform them of the major cost, compliance and contractual implications of new sustainability rules, and will partner with expert organisations to provide specialist support in this complex area.

“We will continue to enhance its range of value-add services for global shippers, including advice, benchmarking, strategy and planning tools covering procurement, costs, carrier contract terms, budgeting, tenders, origin management, sustainability implementation and standard bunker programme,” McRoberts said.

According to McRoberts, the lack of consistency and visibility regarding carbon neutral shipping and associated costs is something which all stakeholders; from shippers, ocean carriers, forwarders, regulatory bodies and consultants, need to find common ground.

McRoberts added that Drewry is committed to discussions on this issue and helping its clients implement sustainable ocean freight practices.