Maersk: green fuel for the great freight rate debate
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Maersk’s $1.4bn investment in carbon-neutral ships is the biggest step yet towards a green shipping industry. The move is better for the environment than it is for businesses irked by steep import costs. Decarbonisation is one reason why inflation in shipping overheads will take a long time to unwind.
Rates on the China-US west coast route are up 10-fold on pre-pandemic levels. That leap has been largely caused by bottlenecks, which will ease. But a shortage of spare capacity, exacerbated by the need to curb emissions, could keep rates higher for longer.
Ship owners, notorious for over-ordering tonnage, have been parsimonious lately. Consolidation is one factor. A system of vessel-sharing alliances increasingly dominates shipping. This reduces the frequency of sailings when demand is slack. Demand is currently sky high, so virtually all ships are on the water.
The alliances make it easier for carriers to capture benefits of scale without adding capacity. Competition authorities approved the tie-ups believing efficiency benefited consumers. Regulators are now scrutinising rising rates intensely. The Biden administration is pushing for greater competition.
Decarbonisation is slowing orders too. Shipowners cannot agree what the fuel of the future is. Maersk has opted to run new ships on “green” methanol, produced by anaerobic digestion and other means. Production is a challenge. Ammonia or hydrogen could be better options.
Shifting to greener fuels will also have a direct impact on costs. Carbon-neutral methanol is about two times more expensive than bunker fuel. That would normally translate into a 15 per cent rate increase in freight rates.
There has been some resurgence in new ship orders recently. They are equivalent to 20 per cent of capacity — up from about a tenth in 2019, says Clarksons Research. Many orders are for vessels running on liquefied natural gas. That might cut carbon emissions by about a fifth.
Transitional fuels have their own perils. Ships have a lifespan of at least 25 years. There is a risk of being left with stranded assets as regulations tighten. The safest bet is to aim for carbon neutrality by leapfrogging fossil fuels, as Maersk is doing.
The Lex team is interested in hearing more from readers. Please tell us what you think of freight rates and the push for green shipping in the comments section below.