Shift to a Sustainable Future

No Escaping Ecological Juggernaut

By Simon West

In the shipbreaking yards of Southeast Asia, recycling is a deadly business. Over the last decade, 390 workers, some just children, have lost their lives dismantling obsolete vessels by hand at shore-based sites in India, Bangladesh and Pakistan, according to the international non-governmental organization, Shipbreaking Platform.
Crude recycling techniques to salvage steel, iron, aluminum and plastics from old ships grounded on tidal mudflats – a practice known as “beaching” – release toxic fumes and substances that are putting thousands more workers at risk of chronic disease.

“Vessels are being broken up in absolutely appalling conditions,” said Roger Strevens, vice president for global sustainability at Norwegian shipping company Wallenius Wilhelmsen. “And those conditions have horrific consequences.”

But not all ocean carriers are complicit.

Amid the lack of oversight – the Hong Kong International Convention on ship recycling has yet to be ratified by national governments, while progressive European Union laws only cover European shipyards – a “one-stop shop” online platform set up last year by the Ship Recycling Transparency Initiative, or SRTI, aims to tackle the crisis by giving carriers a space to disclose relevant information on their post-decommissioning policies and practices.

The data can be used by cargo owners, investors and even the general public to assess companies’ different approaches to recycling, allowing them to sort the wheat from the chaff when choosing a business partnership or making investment decisions.

Retiring Gracefully

Wallenius Wilhelmsen, a founding member of the SRTI, has for decades attempted to pursue a more sustainable way of getting rid of retired vessels.

The company has snubbed beaching, opting instead to sell ships through cash buyers to properly equipped dock and landing facilities that meet specific safety standards. Independent surveyors pre-vet candidate yards, while the recycling process is monitored by a qualified partner who has the right to halt work if rules are breached.

“For us, this is what the minimum standard should actually look like for everybody – this should be normal. The reason there is so much bad practice out there is because the regulation is underdeveloped and because there is a lack of transparency. And where there is that combination, you have the enabler of bad things,” Strevens said.

“If carriers have good practices, fine, tell the world, what have you got to lose.”

The effort to clean up the often dirty business of ship recycling is one example of industry players taking a stand when regulation is found wanting; it also illustrates the evolving role of sustainability in the breakbulk sector.
Annual reports of carriers list dozens of ways that sustainability is being incorporated into business and culture, from fuel efficiency and biosecurity to tax compliance and employee welfare.

“Every one of our corporate functions is being heavily affected by sustainability. Every one of them, so no matter which way you turn, there is something really material to be dealing with,” Strevens said.

Case for ESG

Meanwhile, investors and other financial stakeholders, keen to avoid questionable business practices that could pose risks, are increasingly using environmental, social and governance, or ESG, criteria to screen potential investments. More than one in every four dollars under asset management in the U.S. – some US$12 trillion – is now invested in line with ESG strategies, according to the US SIF forum for sustainable and responsible development.

So, what is driving the agenda? For sure, the moral case for sustainability is hard to argue against, but adhering to certain principles can also make good business sense.

Companies that promote the welfare of their workforce are likely to be more productive, while collective efforts to stamp out corruption, such as illegal facilitation payments at ports and border controls, can boost staff morale and public trust.

Eco-friendly initiatives can also benefit the bottom line. The authority responsible for the Port of Vancouver, for example, the busiest gateway for project cargo bound for western Canadian resource projects, has been offering vessels docked at its terminals land-based renewable electrical power for more than a decade.

Apart from reducing greenhouse gas emissions and engine noise, giving shipping companies the option of shutting down diesel powered auxiliary engines and plugging into shore power cuts fuel costs and boosts competitiveness.

More often than not, the sector is responding to demands from its customers, who themselves are under pressure from their own stakeholders to take responsibility for activities that occur throughout the supply chain.

And as communications technology expands, less transparent companies are finding fewer places to hide.
“We have regularly at this stage questions from our customers asking, ‘well, how do you deal with issues like vessel recycling,’ ” Strevens said. “Because the fact for them is that even though they are not responsible for how we recycle our vessels from a legal perspective, if they are found to be using a carrier that disposes of vessels in a way which has a very negative environmental or social impact, they can end up being held accountable or responsible.”

Bunker Price Protection

Of course, sustainability often comes at a price, which can translate into higher freight rates – a red line for many customers already exposed to a highly volatile market.

“As much as some customers and other stakeholders demand sustainability, the irony is that many are not willing to pay for it,” said Frank Mueller, general manager for Australia and Oceania at breakbulk specialist AAL Shipping.

“At present the most effective way (to promote sustainability) seems to be regulation, but as shipping is a worldwide business, agreements are not easily harmonized or in turn are not as demanding as would be necessary,” Mueller said.

Certainly, on the environmental side, where shipping has a significant impact, things do happen mainly because of regulatory drivers. And new global directives are ramping up the pressure.

The International Maritime Organization’s global sulfur cap of 0.5 percent on marine fuels, or IMO 2020, which came into force on Jan. 1, is set to upend the bunker supply industry, with carriers forced to deal for the first time with the commercial effects of environmental legislation.

To offset the shift to more expensive low-sulfur fuel, some companies have begun to add a bunker charge, known as a Bunker Adjustment Factor, or BAF, to contracts, which will ultimately mean higher costs for customers.

“It is important that shippers and customers participate in this exercise with us and do not see the BAF as arbitrarily increased freight levels, but rather the necessary increased cost involved with shipping their cargo to destination. Often customers accept fuel surcharges for road transport, even on short notice, but this is somehow not applicable for ocean transport,” Mueller said.

Fears of fuel shortages and the incompatibility of low-sulfur blends for certain ship engines are also causing disquiet in the sector, while questions remain on fuel availability outside the main bunkering ports.

“We started bunkering low-sulfur fuels [in 2019], way before the IMO 2020 deadline, to ensure we [were] compliant come January,” Mueller said. “But the nature of breakbulk and project heavy-lift cargo means that you often send vessels to remote and smaller ports where it may be difficult to source compliant fuel.”

On the Next Horizon

Hot on the heels of IMO 2020 are tough new measures to decarbonize the shipping industry, which are likely to be even more disruptive to the sector than cleaner fuel rules.

The IMO is aiming to halve greenhouse gas emissions from 2008 levels by 2050, and to achieve this goal, commercially viable vessels powered by zero emission fuels will need to start entering the fleet by 2030.
Among efforts to reduce the industry’s carbon footprint, Wallenius Wilhelmsen and Danish shipping line AP Moller - Maersk have joined forces with retailers and academic groups to develop an alternative low-cost marine fuel known as LEO, a blend of lignin and ethanol.

Testing the new fuel on vessel engines could begin in the second quarter of 2020, according to Maersk.
“The 2050 targets seem stretching, but 30 years is a long period for technology to mature, so there is a chance to meet these targets,” said Costas Constantinou, global maritime leader at accountancy and advisory group Moore Global.

“There is also a sense of collective will to achieve this within the industry, alongside external pressure for change from service users and lenders, which combine to provide the correct incentives for change.”

Through regulation like IMO 2020 or market-driven initiatives like the SRTI, business and sustainability have clearly become inseparable at this point. A commitment to building a greener, more efficient and more humane sector is inextricably linked to ensuring long-term growth and profitability.

And companies that refuse or fail to adapt are likely to get left behind.

“One thing that we do know about the future, what we can be certain of, is that there will be shipping. But very likely it is going to look quite different from what it looks like today,” Strevens said.  

Colombia-based Simon West is a freelance journalist specializing in energy and biofuels news and market movements in the Americas.

Image credit: NGO Shipbreaking Platform.